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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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NEWPORT NEWS SHIPBUILDING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1541566
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR REORGANIZATION)
4101 WASHINGTON AVENUE 23607
NEWPORT NEWS, VIRGINIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(757) 380-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF CLASS TO NAMES OF EACH EXCHANGE
BE SO REGISTERED ON WHICH CLASS IS TO BEREGISTERED
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Common Stock ($.01 Par Value)
(and associated Preferred Stock Purchase Rights) New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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NEWPORT NEWS SHIPBUILDING INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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1. Business.................... Summary of Certain Information; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Defense Industry Overview;
and Business.
2. Financial Information....... Summary of Certain Information; Unaudited
Pro Forma Combined Financial Statements;
Combined Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; and Exhibits.
3. Properties.................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and Business.
4. Security Ownership of
Certain Beneficial Owners
and Management............. Management--Stock Ownership of Management;
and Management--Change-in-Control
Arrangements.
5. Directors and Executive
Officers................... Management.
6. Executive Compensation...... Management.
7. Certain Relationships and
Related Transactions....... Summary of Certain Information; The
Shipbuilding Distribution; and Management.
8. Legal Proceedings........... Business--Investigations and Legal
Proceedings.
9. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Stockholder
Matters.................... Summary of Certain Information; The
Shipbuilding Distribution; Financing; and
Description of Capital Stock.
10. Recent Sales of Unregistered
Securities................. Not Applicable.
11. Description of Registrant's
Securities to be
Registered................. Summary of Certain Information; and
Description of Capital Stock.
12. Indemnification of Directors
and Officers............... Liability and Indemnification of Directors
and Officers.
13. Financial Statements and
Supplementary Data......... Summary of Certain Information; Unaudited
Pro Forma Combined Financial Statements;
Combined Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and Combined Financial
Statements and Schedule.
14. Changes in and Disagreements
with Accountants and
Accounting and Financial
Disclosure................. Not Applicable.
15. Financial Statements and
Exhibits................... Combined Financial Statements and Schedule;
and Exhibits.
</TABLE>
<PAGE>
INFORMATION STATEMENT
NEWPORT NEWS SHIPBUILDING INC.
COMMON STOCK
LOGO (PAR VALUE $.01 PER SHARE)
[LOGO OF NEWPORT NEWS SHIPBUILDING APPEARS HERE]
This Information Statement is being furnished to stockholders of Tenneco
Inc., a Delaware corporation ("Tenneco"), in connection with the distribution
(the "Shipbuilding Distribution") by Tenneco to holders of its Common Stock,
par value $5.00 per share ("Tenneco Common Stock"), of all the outstanding
shares of Common Stock, $.01 par value per share ("NNS Common Stock"), of its
wholly owned subsidiary, Newport News Shipbuilding Inc., a Delaware
corporation. Concurrently with the Shipbuilding Distribution, Tenneco will
also distribute to holders of Tenneco Common Stock (individually, the
"Industrial Distribution" and together with the Shipbuilding Distribution, the
"Distributions") all of the outstanding shares of Common Stock, $.01 par value
per share ("New Tenneco Common Stock"), of New Tenneco Inc., a Delaware
corporation ("New Tenneco"). The Distributions will occur immediately prior to
the effective time (the "Merger Effective Time") of the proposed merger (the
"Merger"), pursuant to an Agreement and Plan of Merger dated as of June 19,
1996, as amended (the "Merger Agreement"), of a wholly-owned subsidiary of El
Paso Natural Gas Company, a Delaware corporation ("El Paso"), with and into
Tenneco (which will be renamed El Paso Tennessee Pipeline Co.). Pursuant to
the Merger, holders of Tenneco Common Stock will receive Common Stock, $3.00
par value per share, of El Paso ("El Paso Common Stock") and, under certain
circumstances, depositary shares each representing a 1/25th fractional
interest in a share of Preferred Stock of El Paso (the "El Paso Preferred
Depositary Shares"). The Distributions, the Merger and the other transactions
contemplated thereby are collectively referred to herein as the "Transaction."
Unless the context otherwise requires, as used herein the term "Company"
refers: (i) for periods prior to the Shipbuilding Distribution, to Newport
News Shipbuilding and Dry Dock Company ("Newport News") and the other
consolidated subsidiaries through which Tenneco conducted its shipbuilding
business (the "Shipbuilding Business") during such periods, and (ii) for
periods after the Shipbuilding Distribution, to Newport News Shipbuilding Inc.
("NNS," formerly known as Tenneco InterAmerica Inc.) and its consolidated
subsidiaries, including Newport News.
The consummation of the Transaction is conditioned upon, among other things,
approval thereof by Tenneco stockholders. The consummation of the
Distributions is subject to the satisfaction or waiver of a number of other
conditions as described under "The Shipbuilding Distribution--Conditions to
Consummation of the Shipbuilding Distribution" in this Information Statement.
It is expected that the Shipbuilding Distribution will be made on or about
December 11, 1996, to holders of record of Tenneco Common Stock on such date
on the basis of one share of NNS Common Stock, for every five shares of
Tenneco Common Stock held of record. In addition, the Board of Directors of
NNS (the "NNS Board") will adopt a stockholder rights plan and cause to be
issued, with each share of NNS Common Stock to be distributed in the
Shipbuilding Distribution, one Right (as defined herein), entitling the holder
thereof to, among other things, purchase under certain circumstances, and as
described more fully herein, one one-hundredth of a share of NNS Junior
Preferred Stock (as defined herein). No consideration will be required to be
paid by holders of Tenneco Common Stock for the shares of NNS Common Stock to
be distributed in the Shipbuilding Distribution or the Rights associated
therewith, nor will holders of Tenneco Common Stock be required to surrender
or exchange their shares of Tenneco Common Stock in order to receive such
shares of NNS Common Stock and the Rights associated therewith.
There is no current public market for NNS Common Stock, although a "when
issued" market is expected to develop prior to the effective date of the
Shipbuilding Distribution (the "Distribution Date"). NNS has applied to the
New York Stock Exchange (the "NYSE") for the listing of the NNS Common Stock
upon notice of issuance and expects to receive approval of such listing prior
to the Distributions.
RECIPIENTS OF NNS COMMON STOCK SHOULD NOTE THE FACTORS DISCUSSED IN "RISK
FACTORS" BEGINNING ON PAGE 28.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT IS , 1996.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION..................................................... 1
SUMMARY OF CERTAIN INFORMATION............................................ 3
INTRODUCTION.............................................................. 15
THE SHIPBUILDING DISTRIBUTION............................................. 16
Manner of Distribution.................................................. 16
Corporate Restructuring Transactions.................................... 16
Debt and Cash Realignment............................................... 18
Relationships Among the Company, Tenneco and New Tenneco after the
Distributions.......................................................... 18
Reasons for the Distributions........................................... 23
Conditions to Consummation of the Shipbuilding Distribution............. 23
Amendment or Termination of the Distributions........................... 24
Trading of NNS Common Stock............................................. 24
Certain Federal Income Tax Aspects of the Shipbuilding Distribution..... 24
Reasons for Furnishing the Information Statement........................ 27
RISK FACTORS.............................................................. 28
Reliance on Major Customer and Uncertainty of Future Work............... 28
Profit Recognition; Government Contracting.............................. 29
Competition and Regulation.............................................. 31
Substantial Leverage.................................................... 32
Potential Liabilities Due to Fraudulent Transfer Considerations and
Legal Dividend Requirements............................................ 33
Government Claims and Investigations.................................... 34
Potential Federal Income Tax Liabilities................................ 34
No Current Public Market for NNS Common Stock........................... 35
Uncertainty Regarding Trading Prices of Stock Following the Transaction. 35
Uncertainty Regarding Future Dividends.................................. 35
Collective Bargaining Agreements........................................ 35
Environmental Matters................................................... 36
Certain Antitakeover Features........................................... 36
FINANCING................................................................. 37
CAPITALIZATION............................................................ 38
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 39
COMBINED SELECTED FINANCIAL DATA.......................................... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 45
Business Overview....................................................... 45
Results of Operations--Overview......................................... 46
Results of Operations for the Six Months Ended June 30, 1996 and 1995... 46
Results of Operations for the Years Ended December 31, 1995, 1994, and
1993................................................................... 47
Liquidity and Capital Resources......................................... 49
Debt and Interest Allocation............................................ 51
Income Taxes............................................................ 51
Changes in Accounting Principles........................................ 52
Backlog................................................................. 52
Business Outlook........................................................ 53
Other................................................................... 55
</TABLE>
i
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PAGE
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DEFENSE INDUSTRY OVERVIEW................................................. 57
BUSINESS.................................................................. 60
Company Overview........................................................ 60
Business Strategy....................................................... 61
General................................................................. 62
Construction............................................................ 62
Repair and Overhauls.................................................... 65
Engineering and Design.................................................. 66
Other................................................................... 66
Materials and Supplies.................................................. 66
Health, Safety and Environmental........................................ 67
Properties.............................................................. 67
Investigations and Legal Proceedings.................................... 68
MANAGEMENT................................................................ 70
Board of Directors...................................................... 70
Executive Officers...................................................... 71
Stock Ownership of Management........................................... 72
Committees of the Board of Directors.................................... 73
Executive Compensation.................................................. 74
Change-in-Control Arrangements.......................................... 78
Compensation of Directors............................................... 78
Benefit Plans Following the Shipbuilding Distribution................... 79
DESCRIPTION OF CAPITAL STOCK.............................................. 80
Authorized Capital Stock................................................ 80
NNS Common Stock........................................................ 80
NNS Preferred Stock..................................................... 81
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS................................ 81
Classified Board of Directors........................................... 81
Number of Directors; Removal; Filling Vacancies......................... 82
Special Meetings........................................................ 82
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 82
Record Date Procedure for Stockholder Action by Written Consent......... 83
Stockholder Meetings.................................................... 84
NNS Preferred Stock..................................................... 84
Rights.................................................................. 84
Antitakeover Legislation................................................ 87
Comparison with Rights of Holders of Tenneco Common Stock............... 87
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 92
Elimination of Liability of Directors................................... 92
Indemnification of Directors and Officers............................... 92
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
INDEX TO EXHIBITS......................................................... E-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Tenneco is (and, following the Shipbuilding Distribution, the Company will
be) subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
(and the Company will file) reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by Tenneco (and to be filed by
the Company) with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission"s Regional
Offices, including the following: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such information may be obtained by
mail at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W. Street, N.W., Washington, D.C. 20549 or accessed
electronically on the Commission's Web Site at (http:/www.sec.gov).
The Company intends to furnish holders of NNS Common Stock with annual
reports containing consolidated financial statements prepared in accordance
with United States generally accepted accounting principles and audited and
reported on, with an opinion expressed, by an independent public accounting
firm, as well as quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information.
The Company has filed with the Commission a Registration Statement on Form
10 (as amended, the "Registration Statement") under the Exchange Act covering
NNS Common Stock and the associated Rights.
This Information Statement does not contain all of the information in the
Registration Statement and the related exhibits and schedules. Statements in
this Information Statement as to the contents of any contract, agreement or
other document are summaries only and are not necessarily complete. For
complete information as to these matters, refer to the applicable exhibit or
schedule to the Registration Statement. The Registration Statement and the
related exhibits filed by the Company with the Commission may be inspected at
the public reference facilities of the Commission listed above.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR TENNECO.
NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR CONSUMMATION OF THE
SHIPBUILDING DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR TENNECO SINCE THE DATE HEREOF, OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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The Company's principal executive offices are located at 4101 Washington
Avenue, Newport News, Virginia 23607; telephone: (757) 380-2000.
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CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Information Statement contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, the Company's prospects, developments and business
strategies for its operations, all of which are subject to risks and
uncertainties. These forward-looking statements are identified by their use of
such terms and phrases as "intends," "intend," "intended," "goal," "estimate,"
"estimates," "expects," "expect," "expected," "project," "projects,"
"projected," "projections," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe," "believes" and "scheduled" and
in many cases are followed by a cross reference to "Risk Factors."
<PAGE>
When a forward-looking statement includes a statement of the assumptions or
basis underlying the forward-looking statement, the Company cautions that,
while it believes such assumptions or basis to be reasonable and makes them in
good faith, assumed facts or basis almost always vary from actual results, and
the differences between assumed facts or basis and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include (i) the factors discussed under "Risk Factors" and
particularly, in cases where the forward-looking statement is followed by a
cross reference to "Risk Factors," the factors discussed in the section or
sections under "Risk Factors" that are referred to in the cross reference,
(ii) the factors discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Business Outlook" and
"Business" and (iii) the following factors: (a) the general political,
economic and competitive conditions in the United States and other markets
where the Company operates; (b) initiatives to reduce the federal budget
deficit and reductions in defense spending; (c) reductions in the volume of
U.S. Navy contracts awarded to the Company; (d) unanticipated events affecting
designs and manufacturing processes thus impairing the Company's efforts to
reduce production costs and cycle time; (e) changes in capital availability or
costs, such as changes in interest rates, market perceptions of the industry
in which the Company operates, or security ratings; (f) employee workforce
factors, including issues relating to collective bargaining agreements or work
stoppages; and (g) authoritative generally accepted accounting principles or
policy changes from such standard-setting bodies as the Financial Accounting
Standards Board and the Commission.
2
<PAGE>
SUMMARY OF CERTAIN INFORMATION
This Summary is qualified by the more detailed and other information and
financial statements set forth elsewhere in this Information Statement, which
should be read in its entirety. Capitalized terms used but not defined in this
Summary are defined elsewhere in this Information Statement. Unless the context
otherwise requires, the term "Company" refers (i) for periods prior to the
Shipbuilding Distribution, to Newport News Shipbuilding and Dry Dock Company
("Newport News") and the other consolidated subsidiaries through which Tenneco
conducted its Shipbuilding Business during such periods, and (ii) for periods
after the Shipbuilding Distribution, to Newport News Shipbuilding Inc. ("NNS")
and its consolidated subsidiaries, including Newport News.
THE COMPANY
The Company is the largest non-government-owned shipyard in the United
States. Its primary business is the design, construction, repair, overhaul and
refueling of nuclear-powered aircraft carriers and submarines for the United
States Navy. The Company believes it currently is: (i) the only shipyard
capable of building the Navy's nuclear-powered aircraft carriers, (ii) the only
non-government-owned shipyard capable of refueling and overhauling the Navy's
nuclear-powered aircraft carriers, and (iii) one of only two shipyards capable
of building nuclear-powered submarines. Since its inception in 1886, the
Company has developed a preeminent reputation through the construction of 264
naval ships and 542 commercial vessels. For the year ended December 31, 1995
and the six months ended June 30, 1996, the Company had net sales of $1,756
million and $915 million, respectively, and EBITDA (as defined) of $227 million
and $113 million, respectively. In addition, at June 30, 1996 the Company had
$4.1 billion of estimated backlog.
Aircraft carrier and submarine construction contracts with the U.S. Navy have
generated the majority of the Company's net sales. Newport News has built nine
of the 12 active aircraft carriers in the U.S. fleet, including all eight
nuclear-powered aircraft carriers. For the last 35 years, Newport News has been
the sole designer and builder of the U.S. Navy's aircraft carriers. Newport
News currently holds contracts to build two Nimitz-class nuclear-powered
carriers, each representing approximately $2-3 billion in initial contract
revenue: the Harry S Truman, scheduled for delivery in 1998, and the Ronald
Reagan, scheduled for delivery in 2002. Based on current U.S. Navy projections,
the Company anticipates the award in or before 2002 of a contract for the
construction of the last Nimitz-class aircraft carrier for delivery in 2009.
Under contract to the Navy, Newport News is currently performing design concept
studies for the next generation of aircraft carriers. In addition, Newport
News, as one of only two manufacturers of nuclear-powered submarines, has
constructed 53 nuclear-powered submarines comprised of seven different classes.
Newport News has recently been designated by legislation to build two of the
first four of the next generation of the Navy's new nuclear attack submarines
("NSSNs") commencing in late 1998.
As Newport News has built all the active Nimitz-class aircraft carriers and
believes it currently is the only non-government-owned shipyard capable of
refueling and overhauling nuclear-powered aircraft carriers, the Company has
had the leading share of the refueling and overhaul market for aircraft
carriers. A Nimitz-class aircraft carrier must be refueled at approximately the
midpoint of its estimated 50-year life. The Navy often commissions a major
overhaul of each carrier to coincide with a refueling. It normally takes two
years to complete a refueling and overhauling. Currently the Company is
overhauling the USS Dwight D. Eisenhower (an approximate $400 million
contract), and it holds planning contracts to overhaul the USS Theodore
Roosevelt in 1997 and to refuel and overhaul the USS Nimitz beginning in 1998.
The Company believes that, if awarded, the contracts for the Roosevelt and the
Nimitz will be for approximately $230 million and approximately $1 billion,
respectively. In addition, the Navy has announced its schedule to begin the
refueling of the Eisenhower in 2001, the USS Carl Vinson in 2006 and the
Roosevelt in 2009 at an estimated cost of approximately $1 billion each.
Supported by its new Carrier Refueling Complex, the Company believes it is
well-positioned to be awarded future refueling contracts.
3
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Newport News' management is highly regarded in the defense and shipbuilding
industry and has been successful in creating a motivated and experienced
management team and enhancing its position as the premier U.S. shipyard. Led by
William P. Fricks, the Chief Executive Officer of Newport News, who has 30
years of experience, the Company's senior executives average 10 years of
shipbuilding experience. Newport News is a separate operating entity with its
own corporate headquarters, management team and separate financial reporting
systems. Management, therefore, expects an orderly transition to an
independent, publicly-traded company.
BUSINESS STRATEGY
To broaden and strengthen its competitive position, the Company has developed
strategies with the following key elements: (i) maintain a leadership position
in its core business, (ii) further reduce its cost structure, (iii) continue to
reduce cycle time; and (iv) broaden and expand products and markets.
MAINTAIN A LEADERSHIP POSITION IN ITS CORE BUSINESS. Aircraft carriers and
submarines remain vital components of the Navy's strategy for protecting U.S.
global interests. The Navy has stated that it needs to maintain a minimum of 12
aircraft carriers to respond quickly to overseas crises and command a credible
presence around the world. As the aircraft carrier and submarine fleets
continue to age, the Company believes there will be a steady long-term demand
for new construction and for refueling and overhauling services, which it
intends to aggressively pursue.
FURTHER REDUCE ITS COST STRUCTURE. In 1991, the Company embarked on a program
to reduce its cost structure and increase productivity in order to remain a
market leader in its core business as well as to facilitate entry into related
commercial markets. Management initiatives to reduce the overall cost structure
of the Company have included workforce reductions of 38% (from approximately
29,000 employees in 1991 to approximately 18,000 employees in 1996), overhead
and other cost reductions, the successful negotiation of a long-term labor
agreement that stabilizes wages through April 1999, and the closing of certain
facilities. As a second step in its cost reduction program, Newport News has
begun outsourcing low value-added production activities and has been investing
in programs to upgrade and automate its operations. Since 1993, the Company has
spent $177 million on a variety of discretionary capital programs designed to
lower costs and improve efficiency. Recent and ongoing expenditures include new
computing technology ($85 million), an automated steel factory ($71 million),
the extension of a dry dock to accommodate multi-ship construction ($30
million), and the construction of the Carrier Refueling Complex ($19 million).
CONTINUE TO REDUCE CYCLE TIME. The Company plans to continue to reduce the
cycle times for product development and ship delivery by re-engineering key
production processes including design, production planning, materials
management, steel fabrication and outfitting. Process innovation teams have
been assigned to each key production process to implement this strategy. In
connection with these initiatives, the Company delivered the USS John C.
Stennis in November 1995, 7.5 months ahead of schedule and at a savings of over
1,000,000 man-hours compared to the previously delivered aircraft carrier.
BROADEN AND EXPAND PRODUCTS AND MARKETS. The Company has begun to seek to
leverage its existing expertise by expanding its commercial and other
shipbuilding projects. The Company believes that this expansion effort should
create additional growth opportunities. In addition, by allowing for increased
economies of scale, the Company believes its expansion initiatives should help
it reduce per ship costs and thereby make it more competitive in its core U.S.
Navy business, which currently accounts for over 90% of the Company's net
sales. As part of this expansion effort, the Company secured long-term, fixed
price contracts with two purchasers for a total of nine "Double Eagle" product
tankers. The initial ships under contract are being built at a loss, for which
the Company has created a reserve. This new line of double-hulled product
tankers is designed to meet all of the stringent domestic and international
shipping specifications. Additionally, drawing on its nearly four
4
<PAGE>
decades of safe fuel handling and reactor services for the U.S. Navy, the
Company won a contract from the Department of Energy in 1995 to construct a
facility to store damaged fuel from Three Mile Island. The Company is pursuing
bids on additional projects from the Department of Energy.
In order to further strengthen its position as a leading U.S. Navy
contractor, the Company is attempting to broaden its naval portfolio to include
non-nuclear ships by bidding with others in an alliance on the design and
construction of the LPD-17 non-nuclear amphibious assault ship. The Company has
also joined an alliance to develop design concepts for the Navy's new "Arsenal
Ship," a floating missile platform that utilizes a commercially available
double-hulled design, and pursue awards in the construction of such ships.
International military sales are also a key growth opportunity. The Company is
pursuing orders for several versions of its international frigate, the FF-21,
from foreign navies and is currently focusing on naval modernization programs
presently underway in the United Arab Emirates, the Philippines, Norway and
Kuwait.
5
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA OF THE COMPANY
The summary combined financial data as of December 31, 1995 and 1994 and for
the years ended December 31, 1995, 1994 and 1993 were derived from the audited
Combined Financial Statements of the Company. The summary combined financial
data as of December 31, 1993, 1992 and 1991 and for the years ended December
31, 1992 and 1991 are unaudited and were derived from the accounting records of
Tenneco. The summary combined financial data as of and for each of the six-
month periods ended June 30, 1996 and 1995 were derived from the unaudited
Combined Financial Statements of the Company. In the opinion of the Company's
management, the summary combined financial data of the Company as of December
31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, and
as of and for the six months ended June 30, 1996 and 1995 include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth therein. The results of operations for the six
months ended June 30, 1996 should not be regarded as indicative of the results
that may be expected for the full year.
The summary pro forma combined financial data as of and for the six months
ended June 30, 1996 and for the year ended December 31, 1995, have been
prepared to reflect the Transaction, including: (i) the issuance of
$400 million aggregate principal amount of Notes (as defined herein); (ii)
borrowings of $214 million under the Senior Credit Facility (as defined
herein); (iii) the cash dividend of $600 million to be paid by the Company to
Tenneco or one or more of its subsidiaries pursuant to the Debt Realignment (as
defined herein); (iv) the payment of $14 million of certain fees and expenses
incurred in connection with the Notes and the Senior Credit Facility; and (v)
the issuance of the NNS Common Stock pursuant to the Shipbuilding Distribution.
The unaudited pro forma combined Statements of Earnings Data have been prepared
as if the various components of the Transaction occurred on January 1, 1995;
the unaudited pro forma combined Balance Sheet Data have been prepared as if
the various components of the Transaction occurred on June 30, 1996. The
summary pro forma combined financial data are not necessarily indicative of the
results of operations of the Company had the transactions reflected therein
actually been consummated on the dates assumed and are not necessarily
indicative of the results of operations for any future period.
This information should be read in conjunction with the "Unaudited Pro Forma
Combined Financial Statements," "Combined Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements, and notes thereto, included
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------
PRO FORMA PRO FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
--------- ------- ------- --------- ------- ------- ------- ------ ------
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(MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF EARNINGS DATA:
Net sales.......................... $ 915 $ 915 $ 845 $1,756 $1,756 $1,753 $1,861 $2,265 $2,216
====== ====== ====== ====== ====== ====== ====== ====== ======
Operating earnings................. $ 80 $ 81 $ 90 $ 155 $ 157 $ 201 $ 210 $ 249 $ 224
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings before cumulative effect
of changes in accounting
principles........................ $ 29 $ 37 $ 41 $ 54 $ 73 $ 95 $ 111 (b) $ 143 $ 135
Cumulative effect of changes in
accounting principles, net of
tax............................... -- -- -- -- -- (4)(c) -- (93)(c) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net earnings....................... $ 29 $ 37 $ 41 $ 54 $ 73 $ 91 $ 111 $ 50 $ 135
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per share................. $ .85 $ 1.55
====== ======
BALANCE SHEET DATA:
Working capital.................... $ 185 $ 41 $ 4 N/A $ (19) $ (75) $ (121) $ (89) $ (470)
Total assets....................... 1,461 1,452 1,337 N/A 1,380 1,263 1,235 1,450 1,412
Short-term debt(d)................. 28 95 54 N/A 68 30 34 83 36
Long-term debt(d).................. 586 282 326 N/A 292 287 423 761 364
Combined equity.................... 194 349 236 N/A 272 199 105 (173) (30)
OTHER DATA:
EBITDA (e)......................... $ 113 $ 113 $ 123 $ 227 $ 227 $ 270 $ 297 $ 323 $ 298
</TABLE>
(continued on next page)
6
<PAGE>
(continued from previous page)
- --------
(a) For a discussion of significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the six months ended
June 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Information Statement.
(b) Includes a gain of $15 million related to the sale of Sperry Marine
businesses.
(c) In 1994, the Company adopted Statement of Financial Accounting Standards
("FAS") No. 112, "Employers' Accounting for Postemployment Benefits." In
1992, the Company adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting
for Income Taxes."
(d) Historical amounts represent debt allocated to the Company from Tenneco
based on the portion of Tenneco's investment in the Company which is deemed
to be debt, generally based upon the ratio of the Company's net assets to
Tenneco's consolidated net assets plus debt. Tenneco's historical practice
has been to incur indebtedness for its consolidated group at the parent
company level or at a limited number of subsidiaries, rather than at the
operating company level, and to centrally manage various cash functions.
Management believes that the historical allocation of corporate debt and
interest expense is reasonable; however, it is not necessarily indicative
of the Company's debt upon completion of the Debt Realignment, nor debt and
interest that may be incurred by the Company as a separate public entity.
See the Combined Financial Statements, and notes thereto, included
elsewhere in this Information Statement.
(e) EBITDA represents earnings before cumulative effect of changes in
accounting principles, income taxes, interest expense and depreciation and
amortization. EBITDA is not a calculation based upon generally accepted
accounting principles ("GAAP"); however, the amounts included in the EBITDA
calculation are derived from amounts included in the combined historical or
pro forma Statements of Earnings. In addition, EBITDA shall not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of the Company or as an alternative
to operating cash flows as a measure of liquidity.
7
<PAGE>
THE SHIPBUILDING DISTRIBUTION
Distributing Company........ Tenneco Inc. (which will be renamed El Paso
Tennessee Pipeline Co. upon consummation of the
Merger).
Distributed Company......... Newport News Shipbuilding Inc. ("NNS," a wholly-
owned subsidiary of Tenneco and formerly known as
Tenneco InterAmerica Inc.) which will, upon
consummation of the Shipbuilding Distribution,
directly and indirectly through its consolidated
subsidiaries (including Newport News), own and
operate substantially all of the Shipbuilding
Business. Immediately following consummation of
the Shipbuilding Distribution, Tenneco will not
have an ownership interest in the Company.
Distribution Ratio.......... One share of NNS Common Stock for every five
shares of Tenneco Common Stock held of record on
the Distribution Record Date (as defined herein).
Securities to be Based on 170,644,461 shares of Tenneco Common
Distributed................ Stock outstanding on July 31, 1996, approximately
34,128,892 shares of NNS Common Stock (and Rights
associated therewith) will be distributed. NNS
Common Stock to be distributed in the
Shipbuilding Distribution will constitute all of
the outstanding NNS Common Stock immediately
following the Shipbuilding Distribution. See
"Description of Capital Stock--NNS Common Stock"
and "Antitakeover Effects of Certain Provisions--
Rights."
Fractional Share Interests.. Fractional shares of NNS Common Stock will not be
distributed. Fractional shares of NNS Common
Stock will be aggregated and sold in the public
market by the Distribution Agent (as defined
herein) and the aggregate net cash proceeds will
be distributed ratably to those stockholders
entitled to fractional interests. See "The
Shipbuilding Distribution--Manner of
Distribution."
Distribution Record Date.... December 11, 1996.
Distribution Date........... December 11, 1996.
Distribution Agent and
Transfer Agent for the
Shares.....................
First Chicago Trust Company of New York (the
"Distribution Agent").
Mailing Date................ Certificates representing the shares of NNS
Common Stock to be distributed pursuant to the
Shipbuilding Distribution will be delivered to
the Distribution Agent on the Distribution Date.
The Distribution Agent will mail certificates
representing the shares of NNS Common Stock to
holders of Tenneco Common Stock as soon as
practicable thereafter. Holders of Tenneco Common
Stock should not send stock certificates to
Tenneco, the Company or the Distribution Agent in
connection with the Shipbuilding Distribution
(however, holders of Tenneco Common Stock will
receive instructions from the Distribution Agent
with respect to the disposition of their
certificates in connection with the Merger). See
"The Shipbuilding Distribution--Manner of
Distribution."
Conditions to the
Shipbuilding Distribution..
The Transaction (and accordingly, the
Shipbuilding Distribution) is conditioned upon,
among other things, declaration of the special
8
<PAGE>
distributions by the Board of Directors of
Tenneco (the "Tenneco Board") authorizing the
Distributions, receipt of a private letter ruling
(the "IRS Ruling Letter") from the Internal
Revenue Service (the "IRS") in form and substance
satisfactory to the Tenneco Board (see "The
Shipbuilding Distribution--Certain Federal Income
Tax Aspects of the Shipbuilding Distribution")
and approval by the stockholders of Tenneco of
the Transaction. The Distributions and the Merger
are part of a unified transaction and will not be
effected separately (although Tenneco may elect
subsequently to proceed with one or more of the
transactions included in the Transaction which do
not require stockholder approval if the
Transaction is not approved by Tenneco
stockholders). See "Introduction," "The
Shipbuilding Distribution--Conditions to
Consummation of the Shipbuilding Distribution"
and "The Shipbuilding Distribution--Amendment or
Termination of the Distributions."
Reasons for the The Distributions and the Merger are designed to
Distributions.............. separate three types of businesses, namely the
Shipbuilding Business, the Industrial Business
(as defined below) and the Energy Business (as
defined below), which have distinct financial,
investment and operating characteristics, so that
each can adopt strategies and pursue objectives
appropriate to its specific needs. The
Distributions will (i) enable the management of
each company to concentrate its attention and
financial resources on the core businesses of
such company, (ii) permit investors to make more
focused investment decisions based on the
specific attributes of each of the three
businesses, (iii) facilitate employee
compensation programs custom-tailored to the
operations of each business, including stock-
based and other incentive programs, which will
more directly reward employees of each business
based on the success of that business and (iv)
tailor the assets of Tenneco to facilitate
acquisition of the Energy Business by El Paso.
Upon consummation of the Shipbuilding
Distribution, NNS will, primarily through its
consolidated subsidiaries (including Newport
News), own and operate substantially all of the
Shipbuilding Business. New Tenneco will,
primarily through its consolidated subsidiaries,
own and operate the Tenneco Automotive, Tenneco
Packaging and Tenneco Business Services
businesses of Tenneco (collectively, the
"Industrial Business"). Immediately following
consummation of the Distributions, a subsidiary
of El Paso will be merged with and into Tenneco,
and thereafter the energy and other remaining
businesses and operations of Tenneco, including
liabilities and assets relating to discontinued
Tenneco operations not related to the
Shipbuilding Business and the Industrial Business
(collectively, the "Energy Business"), will be
owned and operated by El Paso. See "The
Shipbuilding Distribution--Reasons for the
Distributions."
Federal Income Tax The Tenneco Board has conditioned the
Consequences............... Shipbuilding Distribution on receipt of the IRS
Ruling Letter substantially to the effect, among
other things, that the Shipbuilding Distribution
and the receipt of
9
<PAGE>
shares of NNS Common Stock by holders of Tenneco
Common Stock will be tax-free to Tenneco and its
stockholders (except with respect to cash
received for fractional shares as discussed
above), respectively, for federal income tax
purposes. Tenneco has requested a ruling from the
IRS as to the foregoing, as well as to the tax-
free treatment of certain transactions to be
effected as part of the Corporate Restructuring
Transactions (as defined herein) and the Merger.
See "The Shipbuilding Distribution--Certain
Federal Income Tax Aspects of the Shipbuilding
Distribution," and "Risk Factors--Potential
Federal Income Tax Liabilities."
Trading Market.............. There is currently no public market for NNS
Common Stock, although a "when issued" market is
expected to develop prior to the Distribution
Date. NNS has applied to the NYSE for the listing
of NNS Common Stock upon notice of issuance and
expects to receive approval of such listing prior
to the Distributions. Holders of Tenneco Common
Stock should be aware that there can be no
assurance that the combined market value/trading
prices of (i) El Paso Common Stock and, under
certain circumstances, El Paso Preferred
Depositary Shares, (ii) New Tenneco Common Stock
and (iii) NNS Common Stock (plus any cash
received in lieu of fractional shares or any
fractional El Paso Preferred Depositary Shares)
received in respect of their shares of Tenneco
Common Stock pursuant to the Transaction will be
equal to or greater than the market value/trading
prices of their shares of Tenneco Common Stock
immediately prior to the Transaction. See "The
Shipbuilding Distribution--Trading of NNS Common
Stock" and "Risk Factors--No Current Public
Market for NNS Common Stock."
Dividends................... NNS' dividend policy will be established by the
NSS Board from time to time based on the results
of operations and financial condition of the
Company and such other business considerations as
the NNS Board considers relevant. In addition,
the Senior Credit Facility and the indentures for
the Notes place restrictions, subject to certain
exceptions, upon the right of NNS to declare and
pay dividends. There can be no assurance that the
combined annual dividends on (i) El Paso Common
Stock and, if issued in connection with the
Merger, El Paso Preferred Depositary Shares, (ii)
New Tenneco Common Stock and (iii) NNS Common
Stock after the Transaction will be equal to the
annual dividends on Tenneco Common Stock prior to
the Transaction (and it is unlikely that the
dividends would be greater than the annual
dividends on Tenneco Common Stock prior to the
Transaction). See "Risk Factors--Uncertainty
Regarding Future Dividends," "Description of
Capital Stock--NNS Common Stock" and "Financing."
Antitakeover Provisions..... The Restated Certificate of Incorporation and the
Amended and Restated By-laws of the Company (both
of which will be adopted prior to the
Distribution Date), as well as the Company's
stockholder rights plan (which will expire on
June 10, 1998 unless extended with stockholder
approval) and Delaware statutory law, contain
provisions that may have the effect of
discouraging an acquisition of control of the
Company in a transaction not approved by the NNS
Board. These provisions should better enable the
10
<PAGE>
Company to develop its business and foster its
long-term growth without the disruptions that can
be caused by the threat of certain types of
takeovers not deemed by the NNS Board to be in
the best interests of the Company and its
stockholders. Such provisions may also have the
effect of discouraging third parties from making
proposals involving an acquisition or change of
control of the Company, although such proposals,
if made, might be considered desirable by a
majority of the Company's stockholders. Such
provisions could further have the effect of
making it more difficult for third parties to
cause the immediate removal and replacement of
the members of the then current NNS Board or the
then current management of the Company without
the concurrence of the NNS Board. See "Risk
Factors--Certain Antitakeover Features,"
"Description of Capital Stock," and "Antitakeover
Effects of Certain Provisions."
Risk Factors................ Stockholders of Tenneco should be aware that the
Shipbuilding Distribution and ownership of NNS
Common Stock involve certain risk factors
including those described under "Risk Factors,"
and elsewhere in this Information Statement. Such
matters include, among others, the Company's
reliance on the U.S. Navy for over 90% of its net
sales; the uncertainty of securing future work;
the Company's competitive environment; the
Company's substantial leverage after the
Shipbuilding Distribution; the lack of a current
public market for the NNS Common Stock; the
absence of assurance that the combined market
value/trading prices of and dividends on El Paso
Common Stock and any El Paso Depositary Shares,
NNS Common Stock and New Tenneco Common Stock
held by stockholders after the Transaction will
be equal to or greater than the market
value/trading price of or dividends on Tenneco
Common Stock prior to the Transaction; the risk
that the Transaction may not qualify as a tax-
free distribution under Section 355 of the Code
(as defined herein); certain antitakeover effects
of certain provisions of the Company's Restated
Certificate of Incorporation, its Amended and
Restated By-laws, its stockholder rights plan and
the Delaware statutory law; the fact that the
Transaction is subject to review under federal
and state fraudulent conveyance laws; and other
matters. See "Risk Factors."
Corporate Restructuring Prior to the consummation of the Shipbuilding
Transactions............... Distribution, Tenneco and its subsidiaries will
undertake various intercompany transfers and
distributions designed to restructure Tenneco's
existing businesses, assets and liabilities so
that substantially all of the assets, liabilities
and operations of (i) the Shipbuilding Business
will be directly and indirectly owned and
operated by the Company, (ii) the Industrial
Business will be directly and indirectly owned
and operated by New Tenneco and (iii) the Energy
Business will be directly and indirectly owned by
Tenneco which will, upon consummation of the
Merger, be a subsidiary of El Paso and be renamed
El Paso Tennessee Pipeline Co. (the "Corporate
Restructuring Transactions"). See "The
Shipbuilding Distribution--Corporate
Restructuring Transactions." In connection with
the Transaction, Newport News Industrial
Corporation, a Virginia corporation and
subsidiary of Newport News, will transfer all of
its assets and trade accounts payable to NNS.
Newport News Shipbuilding Inc. will acquire all
of the assets and liabilities of Newport News
Industrial Corporation as part of the Corporate
Restructuring Transactions.
11
<PAGE>
Debt and Cash Realignment;
Credit/Financing...........
The Merger Agreement, the Distribution Agreement
to be entered into pursuant to the Merger
Agreement (the "Distribution Agreement") and
certain of the other agreements and documents
attached as exhibits to the Merger Agreement or
the Distribution Agreement (the "Ancillary
Agreements") provide for (i) the restructuring
(through debt tender and exchange offers,
defeasances, prepayments, refinancings and the
like), immediately prior to the Distributions, of
the outstanding indebtedness for money borrowed
(the "Tenneco Consolidated Debt") of Tenneco and
certain of its consolidated subsidiaries (the
"Debt Realignment") and (ii) the allocation of
cash and cash equivalents of Tenneco and its
consolidated subsidiaries (the "Cash
Realignment"). See "The Shipbuilding
Distribution--Debt and Cash Realignment."
In connection with the Transaction and to provide
for working capital needs, NNS intends to issue
(the "Offering") $200 million of Senior Notes due
2006 (the "Senior Notes") and $200 million of
Senior Subordinated Notes due 2006 (the "Senior
Subordinated Notes," and together with the Senior
Notes, the "Notes") and enter into a $415 million
senior secured credit facility (the "Senior
Credit Facility") comprised of a $200 million
six-year amortizing term loan (the "Term Loan")
and a $215 million six-year revolving credit
facility (the "Revolving Credit Facility"), of
which $125 million may be used for advances and
letters of credit and $90 million may be used for
standby letters of credit. The Company expects to
utilize the proceeds of the Notes and Term Loan
and borrowings of $14 million under the Revolving
Credit Facility to distribute (i) $600 million as
a dividend to Tenneco or one or more of its
subsidiaries for use in retiring certain Tenneco
Consolidated Debt and (ii) $14 million in payment
of certain fees and expenses incurred in
connection with the Notes and the Senior Credit
Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources",
"Risk Factors--Substantial Leverage" and "The
Shipbuilding Distribution--Debt and Cash
Realignment."
Pursuant to the Cash Realignment, the Company
will be allocated $5 million of cash and cash
equivalents, Tenneco will be allocated $25
million of cash and cash equivalents and New
Tenneco will be allocated all remaining cash and
cash equivalents on hand as of the Merger
Effective Time which would total approximately
$200 million if the Transaction had been
consummated as of June 30, 1996. A post-
Distribution audit will be conducted and
following such audit, New Tenneco will be
required to pay to each of the Company or
Tenneco, as the case may be, the amount by which
such company's total cash and cash equivalents on
hand as of the Merger Effective Time is less than
its above-described allocation to such company.
Likewise, Tenneco and the Company will each be
required to pay to New Tenneco the amount of any
excess as of the Merger Effective Time from the
above-described allocation. See "The Shipbuilding
Distribution--Debt and Cash Realignment."
12
<PAGE>
Relationships with Tenneco
and New Tenneco after the
Shipbuilding Distribution..
Tenneco will have no stock ownership in the
Company upon consummation of the Shipbuilding
Distribution. The Company, New Tenneco and
Tenneco will enter into the Distribution
Agreement prior to the Shipbuilding Distribution,
for the purposes of governing certain ongoing
relationships among the Company, New Tenneco and
Tenneco after the Shipbuilding Distribution and
to provide for an orderly transition in the
disaffiliation of the Shipbuilding Business, the
Energy Business and the Industrial Business. The
Distribution Agreement provides for, among other
things, the Distributions and the allocation
among the Company, Tenneco and New Tenneco of
assets and liabilities. The parties will also
enter into the Ancillary Agreements, including:
(i) the Benefits Agreement (defined herein),
providing for allocations of responsibilities
with respect to employee compensation, benefit
and labor matters; (ii) the Tax Sharing Agreement
(defined herein) pursuant to which the Company,
New Tenneco and Tenneco will allocate liabilities
for taxes arising prior to, as a result of, and
subsequent to the Distribution Date; (iii) the
Debt Realignment plan pursuant to which the
Tenneco Consolidated Debt will be restructured,
paid and/or refinanced by the Company, New
Tenneco and Tenneco; (iv) the Debt and Cash
Allocation Agreement (defined herein) providing
for, among other things, the allocation of cash
among, and the restructuring and refinancing of
certain of the debt of Tenneco existing prior to
the Distributions by (or with funds provided by),
the Company, New Tenneco and Tenneco; (v) the TBS
Services Agreement (defined herein) pursuant to
which Tenneco Business Services Inc. ("TBS"), a
wholly-owned subsidiary of New Tenneco, will
continue to provide certain administrative and
other services to the Company until December 31,
1998; (vi) the Shipbuilding Trademark Transition
License Agreement (defined herein) allowing the
Company to use the trademarks and tradenames of
New Tenneco for certain specified periods of time
for certain purposes; and (vii) the Insurance
Agreement (defined herein), providing for, among
other things, coverage arrangements for Tenneco,
the Company and New Tenneco in respect of various
insurance policies.
In addition, the Company and New Tenneco will
share one common director, Dana G. Mead. The
Company and New Tenneco will adopt policies and
procedures to be followed by the Board of
Directors of each company to limit the
involvement of Mr. Mead in situations that could
give rise to potential conflicts of interest,
including requesting him to abstain from voting
as a director of either the Company or New
Tenneco on certain matters which present a
conflict of interest between the two companies.
The Company believes that such conflict
situations will be minimal.
See "The Shipbuilding Distribution--Debt and Cash
Realignment" and "The Shipbuilding Distribution--
Relationships Among Tenneco, the Company, and New
Tenneco after the Distributions."
13
<PAGE>
RECENT DEVELOPMENTS
On October 22, 1996, Tenneco announced consolidated earnings for the nine
months ended September 30, 1996. The Company's earnings for the nine months
ended September 30, 1996 and 1995 are summarized below (amounts in millions).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net Sales.................................................... $ 1,437 $ 1,290
======== ========
Operating earnings........................................... $ 117 $ 125
Interest expense............................................. 25 26
Provision for income taxes................................... 40 41
-------- --------
Net earnings................................................. $ 52 $ 58
======== ========
</TABLE>
The Company's net sales increase in 1996 was due primarily to higher carrier
construction activity and activity on the Eisenhower overhaul, which offset
revenue declines from the August completion of the Los Angeles-class submarine
construction program and lower activity on conversion work. Operating earnings
for the Company were down due to $57 million of contract losses on product
tankers (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Business Outlook," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Other--Significant
Estimates," "Business--Construction--Commercial" and Note 13 to the Combined
Financial Statements of the Company) and lower margins on conversion work,
offset by productivity improvements and higher activity on the Eisenhower
overhaul.
14
<PAGE>
INTRODUCTION
This Information Statement is being furnished to stockholders of Tenneco in
connection with the Shipbuilding Distribution, pursuant to which Tenneco
intends to distribute to holders of Tenneco Common Stock all the outstanding
shares of Common Stock, $.01 par value per share ("NNS Common Stock"), of the
Company. Concurrently with the Shipbuilding Distribution, Tenneco will also
distribute to holders of Tenneco Common Stock (individually, the "Industrial
Distribution" and together with the Shipbuilding Distribution, the
"Distributions") all of the outstanding shares of Common Stock, $.01 par value
per share ("New Tenneco Common Stock"), of New Tenneco. The Distributions will
occur prior to the effective time of the proposed merger (the "Merger") of a
subsidiary of El Paso Natural Gas Company, a Delaware corporation ("El Paso"),
with and into Tenneco (which will, upon consummation of the Merger, be renamed
El Paso Tennessee Pipeline Co.) whereby Tenneco will become a subsidiary of El
Paso. Pursuant to the Merger, holders of Tenneco Common Stock will receive El
Paso Common Stock and, under certain circumstances, El Paso Preferred
Depositary Shares. The Distributions, the Merger and the other transactions
contemplated thereby are collectively referred to herein as the "Transaction."
It is expected that the Shipbuilding Distribution will be made on or about
December 11, 1996 (the "Distribution Date"), to holders of record of Tenneco
Common Stock on December 11, 1996 (the "Distribution Record Date"), on the
basis of one share of NNS Common Stock for every five shares of Tenneco Common
Stock. In addition, the NNS Board will adopt a stockholder rights plan and
cause to be issued, with each share of NNS Common Stock to be distributed in
the Shipbuilding Distribution, one Right, entitling the holder thereof to,
among other things, purchase under certain circumstances, and as described
more fully herein, one one-hundredth of a share of NNS Junior Preferred Stock.
No consideration will be required to be paid by holders of Tenneco Common
Stock for the shares of NNS Common Stock to be distributed in the Shipbuilding
Distribution or the Rights associated therewith, nor will holders of Tenneco
Common Stock be required to surrender or exchange their shares of Tenneco
Common Stock in order to receive such shares of NNS Common Stock and the
Rights associated therewith.
Upon consummation of the Distributions and the Merger (i) holders of Tenneco
Common Stock as of the Distribution Record Date and Merger Effective Time will
receive the securities of three publicly held companies--the Company, New
Tenneco and El Paso and (ii) holders of Tenneco Preferred Stock (as defined
herein) as of the Merger Effective Time will receive El Paso Common Stock.
Immediately thereafter, the Company will own and operate substantially all of
the Shipbuilding Business, New Tenneco will own and operate the Industrial
Business, and El Paso will own and operate the Energy Business.
The Shipbuilding Distribution, the Industrial Distribution and the Merger
are separate components of the Transaction. The Shipbuilding Distribution, the
Industrial Distribution and the Merger, however, as described herein will not
be consummated unless the Transaction as a whole is approved at a special
meeting of the Tenneco stockholders (although Tenneco may elect subsequently
to proceed with one or more of the transactions included in the Transaction
which do not require stockholder approval if the Transaction is not approved
by Tenneco stockholders). Furthermore, the Shipbuilding Distribution will not
be consummated until all other conditions to the Merger have been satisfied
(or can be contemporaneously satisfied) other than the filing of a Certificate
of Merger with the Secretary of State of Delaware. See "The Shipbuilding
Distribution--Conditions to Consummation at the Shipbuilding Distribution" and
"The Shipbuilding Distribution--Amendment or Termination of the
Distributions."
Stockholders of Tenneco with inquiries relating to the Shipbuilding
Distribution or the other components of the Transaction should contact the
Distribution Agent at (800) 446-2617, or Tenneco Inc., Shareholders Services,
1275 King Street, Greenwich, Connecticut 06831, telephone number (203) 863-
1170. After the Distribution Date, stockholders of the Company with inquiries
relating to their investment in NNS should contact Newport News Shipbuilding
Inc., Shareholder Services, 4101 Washington Avenue, Newport News, Virginia
23607; telephone: (757) 380-2000.
15
<PAGE>
THE SHIPBUILDING DISTRIBUTION
The following descriptions of certain provisions of the Distribution
Agreement and certain of the Ancillary Agreements are only summaries and do
not purport to be complete. These descriptions are qualified in their entirety
by reference to the complete text of the Distribution Agreement and the
Ancillary Agreements. A copy of the Distribution Agreement and each of the
Ancillary Agreements as currently agreed to is included as an exhibit to the
Company's Registration Statement on Form 10 under the Exchange Act, relating
to NNS Common Stock, and the following discussion with respect to such
agreements is qualified in its entirety by reference to the subject agreement
as filed.
MANNER OF DISTRIBUTION
Pursuant to the Distribution Agreement, the Tenneco Board will declare the
special distribution necessary to effect the Shipbuilding Distribution and
will set the Distribution Record Date and the Distribution Date (which will be
prior to the Merger Effective Time). Subject to the conditions summarized
below, on the Distribution Date Tenneco will distribute pro rata to all
holders of record of Tenneco Common Stock as of the Distribution Record Date,
one share of NNS Common Stock (including the Rights associated therewith) for
every five shares of Tenneco Common Stock so held. Pursuant to the
Distribution Agreement, as soon as practicable on or after the Distribution
Date, Tenneco will deliver to the Distribution Agent, as agent for holders of
Tenneco Common Stock as of the Distribution Record Date, certificates
representing such shares of NNS Common Stock as are required for the
Shipbuilding Distribution.
Beneficial holders of Tenneco Common Stock who would be entitled to receive
fractional shares of NNS Common Stock will receive cash in the Shipbuilding
Distribution, in lieu of such fractional shares. To accomplish this, the
Distribution Agreement requires that the Distribution Agent determine the
number of whole and fractional shares of NNS Common Stock to which each
beneficial holder of Tenneco Common Stock as of the Distribution Record Date
is entitled immediately following the Shipbuilding Distribution. Next, the
Distribution Agent will aggregate these fractional share interests and sell
them on the open market at then-prevailing prices. The Distribution Agent will
distribute to each holder of Tenneco Common Stock its ratable share of such
proceeds after deducting appropriate amounts for federal income tax
withholding purposes and any applicable transfer taxes. All brokers' fees and
commissions incurred in connection with such sales shall be paid by Tenneco.
If any shares of NNS Common Stock are returned to the Distribution Agent as
unclaimed or cannot be distributed by the Distribution Agent, any post-
Distribution dividends or distributions thereon will be paid to the
Distribution Agent (or set aside and retained by the Company). On the 180th
day following the Distribution Date, the Distribution Agent will return to
Tenneco all unclaimed shares of NNS Common Stock, cash in lieu of fractional
shares and dividends or other distributions with respect thereto. Thereafter,
holders of Tenneco Common Stock as of the Distribution Date will be entitled
to look only to Tenneco for such amounts to which they are entitled, subject
to applicable escheat or other abandoned property laws.
NO HOLDER OF TENNECO COMMON STOCK WILL BE REQUIRED TO PAY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF NNS COMMON STOCK (OR THE CASH IN LIEU OF
FRACTIONAL SHARES) TO BE RECEIVED IN THE SHIPBUILDING DISTRIBUTION, OR TO
SURRENDER OR EXCHANGE SHARES OF TENNECO COMMON STOCK IN ORDER TO RECEIVE NNS
COMMON STOCK (OR THE CASH IN LIEU OF FRACTIONAL SHARES).
CORPORATE RESTRUCTURING TRANSACTIONS
Prior to consummation of the Distributions (and pursuant to the Distribution
Agreement), Tenneco will effect the Corporate Restructuring Transactions. Upon
completion of the Corporate Restructuring Transactions, Tenneco's existing
businesses and assets will be restructured so that, in general, substantially
all of the assets, liabilities and operations of (i) the Shipbuilding Business
will be owned and operated, directly and indirectly, by the Company and (ii)
the Industrial Business will be owned and operated, directly and indirectly,
by New Tenneco. The remaining assets, liabilities and operations of Tenneco
and its remaining subsidiaries will then consist solely of
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those related to the Energy Business, which includes liabilities and limited
assets relating to discontinued Tenneco operations not related to the
Industrial Business or the Shipbuilding Business. In connection with the
Transaction, NNS will transfer its interest (the "HVO Interest") in certain
entities affiliated with Van Ommeren International BV to New Tenneco. As of
September 30, 1996, NNS had invested $11.8 million in the HVO Interest, which
was funded by Tenneco. A further $7.9 million is scheduled to be invested, of
which $4 million is due in November, 1996 and $3.9 million is due in March,
1997. Entities affiliated with Van Ommeren International BV have agreed to
purchase five of the Company's Double Eagle product tankers (the Company has
contracts for a total of nine Double Eagle product tankers).
The assets which will be owned by the Company upon consummation of the
Corporate Restructuring Transactions (the "Shipbuilding Assets") are generally
those related to the conduct of the past and current Shipbuilding Business, as
reflected on the Unaudited Pro Forma Combined Balance Sheet of the Company as
of June 30, 1996 included herein under "Unaudited Pro Forma Combined Financial
Statements" which is also attached as an exhibit to the Distribution Agreement
(the "Pro Forma Balance Sheet") (plus any subsequently acquired asset which is
of a nature or type that would have resulted in such asset being included on
the Pro Forma Balance Sheet had it been acquired prior to the date thereof),
plus all rights expressly allocated to the Company and its subsidiaries under
the Distribution Agreement or any of the Ancillary Agreements. The assets
which will be owned by New Tenneco upon consummation of the Corporate
Restructuring Transactions (the "Industrial Assets") are generally those
related to the conduct of the past and current Industrial Business, as
reflected on the New Tenneco pro forma balance sheet (plus any subsequently
acquired asset which is of a nature or type that would have resulted in such
asset being included on the New Tenneco pro forma balance sheet had it been
acquired prior to the date thereof), plus all rights expressly allocated to
New Tenneco and its subsidiaries under the Distribution Agreement or any
Ancillary Agreement. As part of the Corporate Restructuring Transactions, New
Tenneco will acquire various corporate assets of Tenneco such as the "Tenneco"
trademark and associated rights. The remaining assets (the "Energy Assets")
will continue to be owned and operated by Tenneco (as a subsidiary of El Paso)
following the Transaction.
The liabilities to be assumed by the Company and for which the Company will
be responsible pursuant to the Distribution Agreement (the "Shipbuilding
Liabilities") generally include (i) those liabilities related to the
Shipbuilding Assets and the current and past conduct of the Shipbuilding
Business, including liabilities reflected on the Pro Forma Balance Sheet which
remain outstanding as of the Distribution Date (plus subsequently incurred or
accrued liabilities determined on a basis consistent with the determination of
liabilities thereon), (ii) certain liabilities for any violations or alleged
violations of securities or other laws arising out of documents relating to,
or filed by or on behalf of, the Company in connection with the Transaction or
the Company's financing arrangements, and (iii) those liabilities expressly
allocated to the Company or its subsidiaries under the Distribution Agreement
or any Ancillary Agreement.
The liabilities to be assumed by New Tenneco and for which New Tenneco will
be responsible pursuant to the Distribution Agreement (the "Industrial
Liabilities") generally include (i) those liabilities related to the
Industrial Assets and the current and past conduct of the Industrial Business,
including liabilities reflected on the New Tenneco pro forma balance sheet
which remain outstanding as of the Distribution Date (plus subsequently
incurred or accrued liabilities determined on a basis consistent with the
determination of liabilities thereon) (ii) certain liabilities for any
violations or alleged violations of securities or other laws arising out of
documents relating to, or filed by or on behalf of, New Tenneco in connection
with the Transaction, and (iii) those liabilities expressly allocated to New
Tenneco or its subsidiaries under the Distribution Agreement or any Ancillary
Agreement.
The liabilities to be retained or assumed by Tenneco and for which Tenneco
will be responsible pursuant to the Distribution Agreement (the "Energy
Liabilities") generally include (i) those liabilities related to the Energy
Assets and the current and past conduct of the Energy Business, including
liabilities reflected on the Tenneco pro forma balance sheet attached as an
exhibit to the Distribution Agreement which remain outstanding as of the
Distribution Date (plus subsequently incurred or accrued liabilities
determined on a basis consistent with the determination of liabilities
thereon), (ii) those liabilities expressly allocated to Tenneco or its
subsidiaries under
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the Distribution Agreement or any Ancillary Agreement, and (iii) all other
liabilities of Tenneco or any other member of the Energy Group which do not
constitute Industrial Liabilities or Shipbuilding Liabilities.
For a description of certain liabilities that will be expressly allocated
among Tenneco, the Company and New Tenneco by the Distribution Agreement and
Ancillary Agreements, including liability for the Tenneco Consolidated Debt,
taxes and certain employee benefits, see "--Debt and Cash Realignment" and "--
Relationships Among Tenneco, the Company and New Tenneco After the
Distributions."
DEBT AND CASH REALIGNMENT
From and after the Distributions, each of the Company, Tenneco and New
Tenneco will, in general, be responsible for the debts, liabilities and
obligations related to the business or businesses that its owns and operates
following consummation of the Corporate Restructuring Transactions. See "--
Corporate Restructuring Transactions." Tenneco's historical practice, however,
has been to incur indebtedness for its consolidated group at the parent
company level or at a limited number of subsidiaries, rather than at the
operating company level, and to centrally manage various cash functions.
Accordingly, the Distribution Agreement, the Merger Agreement and the
Ancillary Agreements provide for (i) the pre-Distribution restructuring of the
Tenneco Consolidated Debt pursuant to the Debt Realignment, (ii) the
allocation among each of Tenneco, the Company and New Tenneco of the total
amount of cash and cash equivalents on hand as of the Merger Effective Time
pursuant to the Cash Realignment and (iii) settlement payments with respect to
certain capital expenditures related to the Energy Business, all as described
below.
The Merger Agreement contemplates that Tenneco, in its discretion, will, or
will cause its relevant subsidiaries to, tender for, defease, mature, redeem,
exchange or prepay the Tenneco Consolidated Debt prior to the Distributions
(the "Tenneco Debt Tender Offers"). As of June 30, 1996, there was outstanding
approximately $4,443 million of Tenneco Consolidated Debt.
In connection with the Transaction and to provide for working capital needs,
NNS intends to issue the Notes, comprised of $200 million of the Senior Notes
due 2006 and $200 million of the Senior Subordinated Notes due 2006, and enter
into a $415 million secured Senior Credit Facility, comprised of the $200
million six-year amortizing Term Loan and the $215 million six-year Revolving
Credit Facility, of which $125 million may be used for advances and letters of
credit and $90 million may be used for standby letters of credit. The Company
expects to utilize the proceeds of the Notes and Term Loan and borrowings of
$14 million under the Revolving Credit Facility to distribute (i) $600 million
as a dividend to Tenneco or one or more of its subsidiaries for use in
retiring certain Tenneco Consolidated Debt and (ii) $14 million in payment of
certain fees and expenses incurred in connection with the Notes and the Senior
Credit Facility. See "Risk Factors--Substantial Leverage" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Pursuant to the Cash Realignment, as of the Merger Effective Time the
Company will be allocated $5 million of cash and cash equivalents. Tenneco
will be allocated $25 million of cash and cash equivalents and New Tenneco
will be allocated all remaining cash and cash equivalents on hand (which would
total approximately $200 million if the Transaction had been consummated as of
June 30, 1996). A post-Distribution audit will be conducted and following the
post-Distribution audit, New Tenneco will be required to pay to each of
Tenneco or the Company, as the case may be, the amount by which such company's
total cash and cash equivalents on hand as of the Merger Effective Time is
less than the above-described allocation. Likewise, Tenneco and the Company
will each be required to pay to New Tenneco any excess cash and cash
equivalents as of the Merger Effective Time from the above-described
allocation determined pursuant to such audit.
RELATIONSHIPS AMONG THE COMPANY, TENNECO AND NEW TENNECO AFTER THE
DISTRIBUTIONS
The Shipbuilding Business to be owned and operated by the Company has
historically been included in Tenneco's consolidated financial results. After
the Transaction, neither Tenneco nor New Tenneco will have an ownership
interest in the Shipbuilding Business owned and operated by the Company and
the Company will not
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have an ownership interest in either the Energy Business or the Industrial
Business. The Company and New Tenneco will be independent, publicly-held
companies, and Tenneco will become a subsidiary of El Paso.
Prior to the Distributions, the Company, Tenneco and New Tenneco will enter
into the Distribution Agreement which governs certain aspects of their
relationships both prior to and following the Distributions. In addition,
prior to the Distributions, the Company, Tenneco and/or New Tenneco (and their
appropriate subsidiaries) will enter into the Ancillary Agreements which are
intended to further effect the disaffiliation of the Shipbuilding Business,
the Energy Business and the Industrial Business and to govern certain
additional aspects of their ongoing relationships.
Terms of the Distribution Agreement
In addition to providing for the terms of the Distributions and the various
actions to be taken prior to the Distributions, the Distribution Agreement
contains other provisions governing the relationship among the Company,
Tenneco and New Tenneco prior to and following the Distributions.
The Distribution Agreement provides that from and after the Distribution
Date: (i) Tenneco will, and will cause its affiliates engaged in the Energy
Business (collectively with Tenneco, the "Energy Group") to, assume, pay,
perform and discharge all Energy Liabilities, (ii) the Company will assume,
pay, perform and discharge all Shipbuilding Liabilities except as described
below, and (iii) New Tenneco will, and will cause its affiliates engaged in
the Industrial Business (collectively with New Tenneco, the "Industrial
Group") to assume, pay, perform and discharge all Industrial Liabilities.
In addition, the Distribution Agreement provides for cross-indemnities under
which (i) Tenneco must indemnify the Company and New Tenneco (and their
respective subsidiaries, their directors, officers, agents and employees, and
certain other related parties) against all losses arising out of or in
connection with the Energy Liabilities or the breach of the Distribution
Agreement or any Ancillary Agreement by Tenneco, (ii) the Company must
indemnify Tenneco and New Tenneco (and their respective subsidiaries, their
directors, officers, agents and employees, and certain other related parties)
against all losses except as described below arising out of or in connection
with the Shipbuilding Liabilities or the breach of the Distribution Agreement
or any Ancillary Agreement by the Company, and (iii) New Tenneco must
indemnify Tenneco and the Company (and their respective subsidiaries, their
directors, officers, agents and employees, and certain other related parties)
against all losses arising out of or in connection with the Industrial
Liabilities or the breach of the Distribution Agreement or any Ancillary
Agreement by New Tenneco. Additionally, Tenneco and the Company 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 the
Company and other Tenneco divisions. The Company and New Tenneco have agreed
to certain indemnities regarding such inquiries. See "Business--Investigations
and Legal Proceedings--Retirement Plan."
Pursuant to the Distribution Agreement, each of the parties has agreed to
use all reasonable efforts to take or cause to be taken all action, and do or
cause to be done all things, reasonably necessary, proper or advisable to
consummate the transactions contemplated by, and carry out the purposes of,
the Distribution Agreement. As such, the Distribution Agreement provides that
if any contemplated pre-Distribution transfers and assignments have not been
effected on or prior to the Distribution Date, the parties will cooperate to
effect such transfers as quickly thereafter as practicable. The entity
retaining any asset or liability which should have been transferred
prior to the Distribution Date will continue to hold that asset for the
benefit of the party entitled thereto or that liability for the account of the
party required to assume it, and must take such other action as may be
reasonably requested by the party to whom such asset was to be transferred or
by whom such liability was to be assumed in order to place such party, insofar
as reasonably possible, in the same position as would have existed had such
asset or liability been transferred or assumed as contemplated by the
Distribution Agreement.
The Distribution Agreement provides for the transfer of books and records
among Tenneco, the Company and New Tenneco and their respective subsidiaries
and grants to each party access to certain information in the possession of
the others (subject to certain confidentiality requirements). In addition, the
Distribution Agreement provides for the allocation of shared privileges with
respect to certain information and requires each party to obtain the consent
of the others prior to waiving any shared privilege.
Terms of the Ancillary Agreements
Below are descriptions of the principal Ancillary Agreements to be entered
into by Tenneco, the Company, New Tenneco and/or El Paso (and, in certain
circumstances, their appropriate subsidiaries) prior to
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consummation of the Distributions, as required under the terms of the
Distribution Agreement. The Ancillary Agreements are intended to further
effectuate the disaffiliation of the Shipbuilding Business and the Industrial
Business from the Energy Business and to facilitate the operation of each of
the Company and New Tenneco as a separate entity.
Benefits Agreement. The Benefits Agreement to be entered into by and among
the Company, Tenneco and New Tenneco (the "Benefits Agreement") will define
certain labor, employment, compensation and benefit matters in connection with
the Distributions and the transactions contemplated thereby. Pursuant to the
Benefits Agreement, from and after the Distribution Date, each of the Company,
Tenneco and New Tenneco will continue employment of each of their respective
retained employees (subject to their rights to terminate said employees) with
the same compensation as prior to the Distribution Date, continue to honor all
related existing collective bargaining agreements, recognize related incumbent
labor organizations and continue sponsorship of hourly employee benefit plans.
New Tenneco will become the sole sponsor of the TRP and of the Tenneco Inc.
Thrift Plan (the "Tenneco Thrift Plan") from and after the Distribution Date,
and the Company and Tenneco will establish defined contribution plans for the
benefit of each of their respective employees to which the account balances of
retained and former employees of the Company and Tenneco in the Tenneco Thrift
Plan will be transferred. The benefits accrued by the Company and Tenneco
employees in the TRP will be frozen as of the last day of the calendar month
including the Distribution Date, and New Tenneco will amend the TRP to provide
that all benefits accrued through that day by Company and Tenneco employees
are fully vested and non-forfeitable. Tenneco will retain and assume
employment contracts with certain individuals. All liabilities under the
Tenneco Inc. Benefit Equalization Plan and the Tenneco Inc. Supplemental
Executive Retirement Plan will be assumed by New Tenneco pursuant to the
Benefits Agreement; however, New Tenneco is entitled to reimbursement for
certain payments thereunder from the Company and Tenneco. Generally, each of
the Company, Tenneco and New Tenneco will retain liabilities with respect to
the welfare benefits of its current and former employees and their dependents,
but Tenneco will assume all liabilities for retiree medical benefits of the
employees of discontinued operations and their dependents. In addition, as of
the Distribution Date, participation by retained and former employees of the
Company and Tenneco in the Tenneco Inc. Deferred Compensation Plan and the
Tenneco Inc. 1993 Deferred Compensation Plan will be discontinued.
Debt and Cash Allocation Agreement. The Debt and Cash Allocation Agreement
will govern the allocation among the parties of the cash and cash equivalents
of Tenneco and its subsidiaries on hand as of the Merger Effective Time, the
Tenneco Consolidated Debt and responsibility for certain capital expenditures
related to the Energy Business pursuant to the Cash Realignment and the Debt
Realignment, as described above (the "Debt and Cash Allocation Agreement").
See "--Debt and Cash Realignment."
Insurance Agreement. Tenneco has historically maintained at the parent-
company level various insurance policies for the benefit or protection of
itself and its subsidiaries. The Insurance Agreement to be entered into among
Tenneco, the Company and New Tenneco (the "Insurance Agreement") will provide
for the respective continuing rights and obligations from and after the
Distributions of the parties with respect to these insurance policies (other
than directors' and officers' liability insurance policies which are addressed
by the Merger Agreement).
In general, following consummation of the Transaction, policies which relate
exclusively to the Shipbuilding Business will be retained by the Company,
policies which relate exclusively to the Energy Business or a member of the
Energy Group will be retained by Tenneco, and policies which relate
exclusively to the Industrial Business or a member of the Industrial Group
will be retained by New Tenneco.
Pursuant to the Insurance Agreement, any non-exclusive Tenneco policies
which are in effect as of the Distribution Date (other than those which are
cost plus, fronting, high deductible or retrospective premium programs, as
described below) will either be transferred into the name of New Tenneco or
cancelled, at New Tenneco's option. In general, "go-forward" coverage under
these policies for the Energy Business and Shipbuilding Business (and certain
related persons) will be terminated as follows: (i) coverage under "claims-
made" policies (i.e., those policies which provide coverage for claims made
during a specified period) will be terminated on the Distribution Date for any
claims not made prior thereto and (ii) coverage under "occurrence-based"
policies (i.e., those policies which provide coverage for acts or omissions
occurring during a specified
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period) will be terminated on the Distribution Date for acts or omissions
occurring thereafter. However, the Energy Business, Shipbuilding Business and
Industrial Business (and certain related persons) will all continue to have
access to these policies ("go-backward" coverage) and for claims made prior to
the Distribution Date, in the case of claims-made policies, and for acts or
omissions which occurred prior to the Distribution Date, in the case of
occurrence-based policies (subject to certain obligations to replace any
policy limits exhausted by it). Each respective group will be liable for
premiums, costs and charges under these policies that relate to its coverage
thereunder (and will likewise get the benefit of any refunded amounts).
Pursuant to the Insurance Agreement, policies which are cost plus, fronting,
high deductible or retrospective premium programs will be retained by the
Energy Business following the Distributions and will provide no go-forward
coverage to the Shipbuilding Business or Industrial Business. However, go-
backward coverage will continue to be available to these groups, subject to an
obligation to reimburse Tenneco for premiums, costs and charges under these
policies related to their respective coverages following the Distributions.
Following the Transaction, Tenneco will be required to maintain in place
certain letters of credit and surety bonds securing obligations under these
policies.
Tax Sharing Agreement. The Tax Sharing Agreement to be entered into among
the Company, Tenneco, New Tenneco and El Paso (the "Tax Sharing Agreement")
will provide for the allocation of tax liabilities among the parties arising
prior to, as a result of, and subsequent to the Distributions. As a general
rule, Tenneco will be liable for all taxes not specifically allocated to the
Company or New Tenneco under the specific terms of the Tax Sharing Agreement.
Generally, the Company will be liable for taxes imposed exclusively on the
Company (including for pre-distribution periods, taxes imposed on the Company)
and New Tenneco will be liable for taxes imposed exclusively on the Industrial
Group. In the case of federal income taxes imposed on the combined activities
of Tenneco, the Industrial Group and the Company, the Company and New Tenneco
will be liable to Tenneco for federal income taxes attributable to their
activities, and each will be allotted an agreed-upon share of estimated tax
payments made by the Tenneco consolidated group, except that (i) tax benefits
attributable to the Debt Realignment ("Debt Discharge Items"), presently
anticipated to total approximately $120 million, will be specifically
allocated to the Industrial Group and Tenneco will make a cash payment to New
Tenneco equal to the amount of such tax benefits when and to the extent
realized by Tenneco, and (ii) tax benefits attributable to certain items
included in the computation of the Base Amount (as defined in the Merger
Agreement) ("Base Amount Adjustment Items") will be specifically allocated to
Tenneco. New Tenneco will also be responsible for tax items attributable to
certain discontinued operations of Tenneco to the extent that such items
exceed forecasted amounts by more than a specified amount. In the case of
state income taxes imposed on the combined activities of the Company and the
other business groups, Tenneco will be responsible for payment of the combined
tax to the state tax authority, and the Company and New Tenneco will pay
Tenneco a deemed tax equal to the tax that would be imposed if the Company and
the Industrial Group had filed combined returns for their respective groups,
except that Debt Discharge Items and Base Amount Adjustment Items will be
specifically allocated to New Tenneco and Tenneco, respectively.
In general and, except as provided below, Tenneco will be responsible for
any taxes imposed on or resulting from the Transaction ("Transaction Taxes").
New Tenneco will be responsible for any Transaction Taxes resulting from any
inaccuracy in factual statements or representations in connection with the IRS
Ruling Letter or the opinion of counsel contemplated by the Merger Agreement
(the "Tax Opinion") to the extent attributable to facts in existence prior to
the Merger, but excluding facts relating to the Company or El Paso. The
Company and El Paso will each be responsible for the accuracy of any factual
statements or representations relating to them or their respective affiliates.
Each of the Company, New Tenneco and El Paso will be responsible for any
Transaction Tax to the extent such tax is attributable to action taken by that
entity which is inconsistent with tax treatment contemplated in the IRS Ruling
Letter received in the Transaction or the Tax Opinion. If between the date of
the Merger Agreement and the Merger Effective Time, there is a change in law
(as defined in the Tax Sharing Agreement) and as a result of such change in
law Tenneco is required to restore certain deferred gains to income, then any
resulting tax will be shared equally between New Tenneco and Tenneco.
TBS Services Agreement. Tenneco Business Services Inc. ("TBS") has entered,
or will enter, into a series of separate services agreements (the "Service
Agreements"), as described below, with the Company, New
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Tenneco (and its subsidiaries other than TBS) and Tenneco (and its
subsidiaries) which, together, constitute the "TBS Services Agreement" which
is to be delivered as an Ancillary Agreement under the Distribution Agreement.
One of the Service Agreements between TBS and the Company is for mainframe
data processing services (the "NNS Processing Services Agreement"). Under the
NNS Processing Services Agreement, TBS will supply, as a vendor, mainframe
data processing services to the Company for a period from the Merger Effective
Time through December 31, 1998, and thereafter only by mutual agreement. The
rate of compensation to TBS for services will be $9.1 million in 1997 and $9.6
million in 1998, payable in monthly installments, subject to adjustment if the
Company requests a change in the scope of services. TBS will lease the space
currently used by it at the Company's headquarters in Newport News, Virginia
for the period from the Merger Effective Time through December 31, 1998, with
an option for TBS to extend for one month periods for up to 12 months per
continued use by TBS as its mainframe data processing facility. The rent under
such lease will be approximately $1.2 million per year, plus pass-throughs of
certain occupancy-related costs.
TBS has also entered into a Supplier Participation Agreement (the "NNS
Supplier Participation Agreement") with the Company to govern the procedures
under which the Company will continue to participate with New Tenneco in
vendor purchase agreements between TBS and various suppliers of goods and
services. The NNS Supplier Participation Agreement provides for continued
participation of the Company in various purchase programs, absent a
termination for cause, for the duration of the agreements with each such
vendor. Under this Agreement, as is the case currently, purchases of goods and
services will be made directly by the Company at prices negotiated by TBS
which are applicable to all participating purchasers. TBS will charge the
Company a fixed fee of $5,000 per month for contract administration services
including data collection, negotiations, progress reporting, benefits
reporting, follow-up and consulting in connection with the vendor agreements.
Trademark Transition License Agreements. Upon consummation of the Corporate
Restructuring Transactions New Tenneco will hold the rights to various
trademarks, servicemarks, tradenames and similar intellectual property,
including rights in the marks "Tenneco", "Ten" and "Tenn" (but not
"Tennessee"), alone and in combination with other terms and/or symbols and
variations thereof (collectively, the "Trademarks"), in the United States and
elsewhere throughout the world. In connection with the Distributions,
Trademark Transition License Agreements will be entered into as of the
Distribution Date between both (i) New Tenneco and the Company (the
"Shipbuilding Trademark Transition License Agreement") and (ii) New Tenneco
and Tenneco (the "Industrial Trademark Transition License Agreement," and
together with the Shipbuilding Trademark Transition License Agreement, the
"Trademark Transition License Agreements"). Pursuant to these agreements, New
Tenneco will grant to each of the Company and Tenneco a limited, non-
exclusive, royalty-free license to use the Trademarks with respect to
specified goods and services as follows: (a) Tenneco and the Company will be
permitted to use the Trademarks in their corporate names for 30 days after the
date of the agreements (and, pursuant to the Distribution Agreement, each have
agreed to remove the Trademarks from such corporate names within 30 days after
the Distribution Date), (b) Tenneco and the Company will be permitted to use
their existing supplies and documents which have the Trademarks imprinted on
them for six months after the date of the agreements and (c) Tenneco and the
Company will be permitted to use the Trademarks on existing signs, displays or
other identifications for a period (after the date of the agreements) of two
years (in the case of Tenneco) and one year (in the case of the Company).
However, so long as Tenneco or the Company continues to use the Trademarks, it
must maintain certain quality standards prescribed by New Tenneco in the
conduct of business operations in which the Trademarks are used. In addition,
under these agreements each of Tenneco and the Company will agree to indemnify
New Tenneco from any claims that arise as a result of its use of the
Trademarks or any breach of its agreement and neither Tenneco nor the Company
may adopt or use at any time a word or mark likely to be similar to or
confused with the Trademarks. Each Trademark Transition License Agreement will
be immediately terminable by New Tenneco upon a material breach of the
agreement by Tenneco or the Company, as the case may be.
Directors
After the Distribution Date, the Company and New Tenneco will share one
common director, Dana G. Mead. The Company and New Tenneco will adopt policies
and procedures to be followed by the Board of
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Directors of each company to limit the involvement of Mr. Mead in situations
that could give rise to potential conflicts of interest, including requesting
him to abstain from voting as a director of either the Company or New Tenneco
on certain matters which present a conflict of interest between the Company
and New Tenneco. The Company believes that such conflict situations will be
minimal. See "Management."
Expenses
In general, and except for certain environmental costs and expenses, Tenneco
is responsible for all fees and expenses incurred by Tenneco in connection
with the Transaction for periods prior to the Distribution Date. Any such fees
and expenses which are unpaid as of the Merger Effective Time will be
allocated to and remain the responsibility of Tenneco pursuant to the Debt
Realignment and El Paso has agreed to pay or cause to be paid all such
amounts. However, because the aggregate amount of debt to be allocated upon
consummation of the Merger to Tenneco is limited to $2.65 billion (subject to
certain adjustments) the amount of unpaid Tenneco transaction fees and
expenses as of the Merger Effective Time may impact the amount of debt
allocated to the Company in connection with the Transaction. See "--Debt and
Cash Realignment." Each party has agreed to bear its own respective fees and
expenses incurred after consummation of the Transaction.
Settlement of Intercompany Accounts
Pursuant to the Merger Agreement and the Distribution Agreement, all
intercompany receivables, payables and loans (unless specifically provided for
in any Ancillary Agreement) among the Energy Business, the Industrial Business
and the Shipbuilding Business will be settled, capitalized or converted into
ordinary trade accounts as of the close of business on the Distribution Date.
Further, all intercompany agreements among such businesses (other than those
contemplated by the Transaction) will be terminated.
REASONS FOR THE DISTRIBUTIONS
The Distributions and the Merger are designed to separate three types of
businesses, namely the Shipbuilding Business, the Industrial Business and the
Energy Business, which have distinct financial, investment and operating
characteristics, so that each can adopt strategies and pursue objectives
appropriate to its specific needs. The Distributions will (i) enable the
management of each company to concentrate its attention and financial
resources on the core business of such company, (ii) permit investors to make
more focused investment decisions based on the specific attributes of each of
the three businesses, (iii) facilitate employee compensation programs custom-
tailored to the operations of each business, including stock-based and other
incentive programs, which will more directly reward employees of each business
based on the success of that business and (iv) tailor the assets of Tenneco to
facilitate acquisition of the Energy Business by El Paso. Upon consummation of
the Shipbuilding Distribution, NNS will, primarily through its consolidated
subsidiaries (including Newport News), own and operate substantially all of
the Shipbuilding Business. New Tenneco will, primarily through its
consolidated subsidiaries, own and operate the Industrial Business.
Immediately following consummation of the Distributions, a subsidiary of El
Paso will be merged with and into Tenneco, and thereafter the Energy Business,
including liabilities and assets relating to discontinued Tenneco operations
not related to the Shipbuilding Business and the Industrial Business, will be
owned and operated by El Paso.
CONDITIONS TO CONSUMMATION OF THE SHIPBUILDING DISTRIBUTION
The Shipbuilding Distribution is conditioned on, among other things,
stockholder approval of the Distributions and formal declaration of the
Distributions by the Tenneco Board. Other conditions to the Shipbuilding
Distribution include (i) execution and delivery of certain of the Ancillary
Agreements and consummation of the various pre-distribution transactions (such
as the Corporate Restructuring Transactions, the Debt Realignment and the Cash
Realignment), (ii) receipt of the IRS Ruling Letter to the effect that for
federal income tax purposes the Distributions qualify as tax-free
distributions to Tenneco and its stockholders under Section 355 of the Code
and that certain internal spin-off transactions included in the Corporate
Restructuring
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Transactions will also be tax-free, (iii) approval for listing on the NYSE of
the NNS Common Stock and the New Tenneco Common Stock, (iv) registration of
NNS Common Stock and New Tenneco Common Stock under the Exchange Act, (v)
receipt of all material consents to the Corporate Restructuring Transactions,
the Distributions and transactions contemplated in the Distribution Agreement,
(vi) performance of the various covenants required to be performed prior to
the Distribution Date (see "--Corporate Restructuring Transactions", "--Debt
and Cash Realignment" and "--Relationships Among Tenneco, the Company and New
Tenneco After the Distributions"), and (vii) lack of prohibition of the
Distributions by any law or governmental authority. Even if all the conditions
to the Distributions are satisfied, Tenneco has reserved the right, under
certain circumstances, to amend or terminate the Distribution Agreement and to
modify or abandon the transactions contemplated thereby. The Tenneco Board has
not attempted to identify or establish objective criteria for evaluating the
particular types of events or conditions that would cause the Tenneco Board to
consider amending or terminating the Distributions. See "--Amendment or
Termination of the Distributions." Although the foregoing conditions (other
than declaration of the Distributions) may be waived by Tenneco (to the extent
permitted by law), the Tenneco Board presently has no intention to proceed
with either of the Distributions unless each of these conditions is satisfied.
See "Introduction."
AMENDMENT OR TERMINATION OF THE DISTRIBUTIONS
Prior to the Distributions, the Distribution Agreement may be amended or
terminated and the Distributions may be amended, modified or abandoned by
Tenneco without the approval of its stockholders, the Company or New Tenneco,
subject to the consent of El Paso as described below. Any amendment or
modification prior to the termination of the Merger Agreement or consummation
of the Merger which adversely affects the Energy Business (other than to a de
minimis extent) or materially delays or prevents the consummation of the
Merger can be effectuated only with the prior consent of El Paso. Termination
of the Distribution Agreement prior to the termination of the Merger Agreement
or consummation of the Merger can be effectuated only with the prior written
consent of El Paso.
After consummation of the Distributions, the Distribution Agreement may be
amended or terminated only by a written agreement signed by Tenneco, the
Company and New Tenneco. Certain amendments or terminations after the
Distributions also require the consent of third party beneficiaries to the
extent that the Distribution Agreement has expressly granted them such rights.
TRADING OF NNS COMMON STOCK
See "Risk Factors--No Current Market for NNS Common Stock" and "Risk
Factors--Uncertainty Regarding Changes in Trading Price of Stock Following the
Transaction" for a discussion of certain considerations relating to the market
for and trading prices of NNS Common Stock following the Distribution.
Shares of NNS Common Stock received by shareholders of Tenneco pursuant to
the Shipbuilding Distribution will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act of 1933, as amended (the "Securities Act"). Persons who are
affiliates of the Company will be permitted to sell their shares of NNS Common
Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act. There would not, however, be any 90-day waiting period before
sales could be made by affiliates under Rule 144 of the Securities Act, as
long as the other provisions of Rule 144 are met.
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE SHIPBUILDING DISTRIBUTION
General
The following is a summary description of the material federal income tax
aspects of the Shipbuilding Distribution. This summary is for general
informational purposes only and is not intended as a complete description of
all the tax consequences of the Shipbuilding Distribution, the Industrial
Distribution, the Merger
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or the other transactions contemplated as part of the Transaction and does not
discuss tax consequences under the laws of state or local governments or any
other jurisdiction. Moreover, the tax treatment of a stockholder may vary
depending upon his, her or its particular situation. In this regard, certain
stockholders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, persons who are not citizens or
residents of the United States or who are foreign corporations, foreign
partnerships or foreign trusts or estates, as defined for United States
federal income tax purposes, stockholders that hold shares as part of a
position in a "straddle" or as part of a "hedging" or "conversion" transaction
for United States federal income tax purposes and stockholders with a
"functional currency" other than the United States dollar) may be subject to
special rules not discussed below. In addition, this summary applies only to
shares which are held as capital assets. The following discussion may not be
applicable to a stockholder who acquired his, her or its shares pursuant to
the exercise of stock options or otherwise as compensation.
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), EXISTING, PROPOSED AND
TEMPORARY TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, WHICH MAY OR
MAY NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE VALIDITY OF THE
FOLLOWING DISCUSSION. SEE "--POSSIBLE FUTURE LEGISLATION" BELOW.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED
HEREIN, INCLUDING, THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
Tax Rulings
Consummation of the Shipbuilding Distribution is conditioned upon the
receipt of the IRS Ruling Letter, reasonably acceptable to Tenneco and El
Paso, to the effect that:
(i) the Shipbuilding Distribution will be tax-free for federal income tax
purposes to Tenneco under Section 355(c)(1) of the Code and the
stockholders of Tenneco under Section 355(a) of the Code;
(ii) the Industrial Distribution will be tax-free for federal income tax
purposes to Tenneco under Section 355(c)(1) of the Code and the
stockholders of Tenneco under Section 355(a) of the Code; and
(iii) the following distributions to be effected as part of the Corporate
Restructuring Transactions will be tax-free for federal income tax purposes
to the respective transferor corporations under Section 355(c)(1) or 361
(a) of the Code and to the respective stockholders of the transferor
corporations under Section 355(a) of the Code: (a) the distribution by the
Company of the capital stock of Tenneco Packaging Inc. to Tenneco
Corporation; (b) the distribution by Tenneco Corporation of the capital
stock of the Company and New Tenneco to Tennessee Gas Pipeline Company
("TGP"); and (c) the distribution by TGP of the capital stock of the
Company and New Tenneco to Tenneco.
A ruling from the IRS, while generally binding on the IRS, may under certain
circumstances be retroactively revoked or modified by the IRS. The rulings
obtained from the IRS will be based on certain facts and representations, some
of which will have been made by El Paso. Generally, the IRS Ruling Letter
would not be revoked or modified retroactively provided that (i) there has
been no misstatement or omission of material facts, (ii) the facts at the time
of the Transaction are not materially different from the facts upon which the
IRS private letter ruling was based and (iii) there has been no change in the
applicable law.
The Distributions
It is expected that the Distributions will qualify as tax-free distributions
under Section 355 of the Code. Assuming that the Distributions so qualify, (i)
the holders of Tenneco Common Stock will not recognize gain or loss upon
receipt of shares of NNS Common Stock or shares of New Tenneco Common Stock,
(ii) each holder
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of Tenneco Common Stock will allocate his, her or its aggregate tax basis in
the Tenneco Common Stock immediately before the Distributions among Tenneco
Common Stock, NNS Common Stock and New Tenneco Common Stock in proportion to
their respective fair market values, (iii) the holding period of each holder
of Tenneco Common Stock for NNS Common Stock and New Tenneco Common Stock will
include the holding period for his, her or its Tenneco Common Stock, provided
that Tenneco Common Stock is held as a capital asset at the time of the
Distributions and (iv) Tenneco will not recognize any gain or loss on its
distribution of NNS Common Stock or New Tenneco Common Stock to its
stockholders.
No fractional shares of NNS Common Stock or New Tenneco Common Stock will be
distributed in the Distributions. A holder of Tenneco Common Stock who,
pursuant to the Distributions, receives cash in lieu of fractional shares of
NNS Common Stock will be treated as having received such fractional shares of
NNS Common Stock pursuant to the Distributions and then as having received
such cash in a sale of such fractional shares of NNS Common Stock. Such
holders will generally recognize capital gain or loss pursuant to such deemed
sale equal to the difference between the amount of cash received and such
holders' adjusted tax basis in the fractional share of NNS Common Stock
received. Such gain or loss will be capital (provided the Tenneco Common Stock
is held as a capital asset at the time of the Distributions) and will be
treated as a long-term capital gain or loss if the holding period for the
fractional shares of NNS Common Stock deemed to be received and then sold is
more than one year.
If the Distributions were not to qualify as tax-free distributions under
Section 355 of the Code, then in general a corporate level federal income tax
would be payable by the consolidated group of which Tenneco is the common
parent, which tax (assuming the internal spin-off transactions included in the
Corporate Restructuring Transactions also failed to qualify under Code Section
355) would be based upon the gain (computed as the difference between the fair
market value of the stock distributed and the distributing corporation's
adjusted basis in such stock) realized by each of the distributing
corporations upon its distribution of the stock of one or more controlled
corporations to its shareholders in the Transaction. The corporate level
federal income tax would be payable by Tenneco. Under the terms of the Tax
Sharing Agreement, the Company will not be liable to indemnify Tenneco for any
additional taxes incurred by reason of the Distributions being taxable, unless
the Distributions fail to qualify for tax-free treatment under Section 355 of
the Code as a result of the inaccuracy of certain factual statements or
representations made by the Company in connection with the requests for the
IRS private letter ruling or Tax Opinion or the Company takes any action which
is inconsistent with any factual statements or representations or the tax
treatment of the Transaction as contemplated in the IRS private letter ruling
request or the Tax Opinion. See the discussion of the Tax Sharing Agreement
under "--Relationships among Tenneco, the Company and New Tenneco After the
Distributions."
Furthermore, if the Distributions do not qualify as tax-free distributions
under Section 355 of the Code then each holder of Tenneco Common Stock who
receives shares of NNS Common Stock and New Tenneco Common Stock in the
Distributions would be treated as if such stockholder received taxable
distributions in an amount equal to the fair market value of NNS Common Stock
and New Tenneco Common Stock received which would result in: (i) a dividend to
the extent paid out of Tenneco's current and accumulated earnings and profits;
then (ii) a reduction in such stockholder's basis in Tenneco Common Stock to
the extent the amount received exceeds the amount referenced in clause (i);
and then (iii) gain from the sale or exchange of Tenneco Common Stock to the
extent the amount received exceeds the sum of the amounts referenced in
clauses (i) and (ii). Each stockholder's basis in his, her or its NNS Common
Stock and New Tenneco Common Stock would be equal to the fair market value of
such stock at the time of the Distributions.
Possible Future Legislation
The Administration's Budget Proposal issued March 19, 1996 contains several
revenue proposals, including a proposal (the "Anti-Morris Trust Proposal")
which would require a distributing corporation in a transaction otherwise
qualifying as a tax-free distribution under Section 355 of the Code to
recognize gain on the distribution of the stock of the controlled corporation
unless the direct and indirect stockholders of the distributing corporation
own more than 50% of the distributing corporation and controlled corporations
at all times during the four-year period commencing two years prior to the
distribution. The Anti-Morris Trust Proposal would apply
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to any distributions occurring after March 19, 1996, unless such distribution
was (i) pursuant to a binding contract on such date, (ii) described in a
ruling request submitted to the IRS on or before such date, or (iii) described
in a public announcement or SEC filing on or before such date.
On March 29, 1996, Senator William V. Roth, Chairman of the Senate Finance
Committee and Congressman Bill Archer, Chairman of the House Ways and Means
Committee, issued a joint statement (the "Roth-Archer Statement") to the
effect that should certain of the revenue proposals included in the
Administration's Budget Proposal, including the Anti-Morris Trust Proposal, be
enacted, the effective date will be no earlier than the date of "appropriate
Congressional action." As of the date of this Information Statement, no
legislation has been introduced relating to the Anti-Morris Trust Proposal. On
June 27, 1996, Tenneco submitted its request for rulings (including rulings on
the tax-free treatment of the Distributions) to the IRS. Accordingly, in view
of the Roth-Archer Statement, any future Anti-Morris Trust legislation should
not apply to the Distributions assuming that the effective date of such
legislation contains a grandfather clause for transactions for which a ruling
request has been filed with the IRS prior to the date of "appropriate
Congressional action." Nevertheless, there can be no assurances that Congress
will not adopt Anti-Morris Trust legislation which would apply retroactively
to the Distributions. In the event such legislation is announced or introduced
prior to the consummation of the Transaction, under the terms of the Merger
Agreement El Paso may elect not to proceed with the Merger if it reasonably
determines that there exists a reasonable likelihood that the Distributions or
the Merger would not be tax-free for federal income tax purposes. If El Paso
elects to proceed with the Merger notwithstanding the announcement or
introduction of Anti-Morris Trust legislation, the Distributions, if
ultimately subject to such legislation, may result in significant taxable gain
to the Tenneco consolidated group under Section 355(c) of the Code. Although
Tenneco stockholders would not recognize taxable gain or loss on the receipt
of the stock of the Company and New Tenneco under the current Anti-Morris
Trust Proposal, the taxable gain required to be recognized by the Tenneco
consolidated group under Code Section 355(c) would significantly reduce the
value of the El Paso Common Stock and any El Paso Preferred Depositary Shares
received by the Tenneco stockholders in the Merger.
Back-up Withholding Requirements
United States information reporting requirements and backup withholding at
the rate of 31% may apply with respect to dividends paid on, and proceeds from
the taxable sale, exchange or other disposition of NNS Common Stock, unless
the stockholder (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates these facts or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not supply the Company
with his, her or its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
creditable against the stockholder's federal income tax liability.
Stockholders should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. If information reporting requirements apply to a stockholder, the
amount of dividends paid with respect to such shares will be reported annually
to the IRS and to such stockholder.
These backup withholding tax and information reporting rules currently are
under review by the United States Treasury Department and proposed Treasury
Regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules could be changed.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Tenneco and the Company
solely to provide information to Tenneco stockholders who will receive NNS
Common Stock in the Shipbuilding Distribution. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell any securities of
Tenneco or the Company. The information contained in this Information
Statement is believed by Tenneco and the Company to be accurate as of the date
set forth on its cover. Changes may occur after that date, and neither the
Company nor Tenneco will update the information except in the normal course of
their respective public disclosure practices.
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RISK FACTORS
Stockholders of Tenneco should be aware that the Shipbuilding Distribution
and ownership of NNS Common Stock involve certain risk factors, including
those described below and elsewhere in this Information Statement, which could
adversely affect the value of their holdings. Neither the Company nor Tenneco
makes, nor is any other person authorized to make, any representation as to
the future market value of NNS Common Stock.
RELIANCE ON MAJOR CUSTOMER AND UNCERTAINTY OF FUTURE WORK
Reliance on Major Customer. The Company's business is primarily dependent
upon the design, construction, repair, overhaul and refueling of nuclear-
powered aircraft carriers and submarines for the U.S. Navy. The Navy accounted
for approximately 97% and 94% of the Company's net sales for the year ended
December 31, 1995 and for the six months ended June 30, 1996, respectively.
Approximately 85% of its backlog consisted of contracts to build, repair or
overhaul nuclear-powered aircraft carriers as of June 30, 1996.
Uncertainty of Future Work. Although U.S. Government cuts in naval
shipbuilding have continued to put pressure on the Company's backlog, the
Company was successful in adding $1.0 billion in new work during 1995 and $443
million during the first six months of 1996. The Company's total backlog,
however, decreased from $5.6 billion at December 31, 1994 to $4.6 billion at
December 31, 1995 and, as of June 30, 1996, was $4.1 billion. The Company's
total backlog anticipated at December 31, 1996 is $3.4 billion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Backlog." Because much of the Company's business consists of
constructing aircraft carriers, which historically have been purchased by the
Navy every four to six years, the Company's backlog has typically declined
following each carrier contract, and peaked again when the Navy orders a new
aircraft carrier. For example, the Company's backlog dropped well below $3
billion in late 1994, then peaked at $5.6 billion with the signing of the CVN-
76 contract later in that year. The continuing effort of the U.S. Government
to reduce the federal budget deficit and the restructuring of U.S. Naval
forces in the post Cold War environment, however, will affect the level of
funding for shipbuilding programs, which can be revised at any time. The
Report on the Bottom-Up Review by the U.S. Department of Defense in 1993
stated a need for a fleet of 12 aircraft carriers (down from 15 in 1992),
creating demand for a new aircraft carrier every four to six years. Re-
evaluation of this need will continue by both the Department of Defense and
the Congress. Current Navy plans call for the award of a contract for the
construction of a new nuclear-powered aircraft carrier (CVN-77) beginning in
or before 2002 for delivery in 2009. The Navy has not determined whether
subsequent aircraft carriers will be nuclear-powered. If there is an eventual
shift towards building smaller, non-nuclear-powered aircraft carriers, it is
possible that the Company may have to compete with other shipyards in the
future to build such aircraft carriers. Furthermore, in response to the need
for cheaper alternatives and the proliferation of "smart weapons," it is also
possible that future strategy reassessments by the Department of Defense may
result in the need for fewer aircraft carriers. The Company is currently
performing design concept studies for the next generation of aircraft
carriers, which is expected to help the Company in maintaining its role as the
Navy's only aircraft carrier builder. For the year ended December 31, 1995 and
for the first six months of 1996, aircraft carrier construction accounted for
approximately 40.5% and 41% of the Company's revenues, respectively. In
addition, aircraft carrier programs and other government projects can be
delayed, and such delays typically cause loss of income during the period of
delay and retraining costs when work resumes. Any significant reduction in the
level of government appropriations for aircraft carrier or other shipbuilding
programs, or a significant delay of such appropriations, would have a material
adverse effect on the Company's financial condition and results of operations.
The prospects of U.S. shipyards, including the Company, can be materially
affected by their success in securing significant U.S. Navy contract awards.
In 1987, the Company was awarded the lead design contract for the Seawolf
submarine. However, the collapse of the former Soviet Union Navy, with its
several hundred submarines, has greatly reduced the underwater threat to U.S.
and allied vessels. As a result, there was a dramatic cutback in the Seawolf
program (to three submarines), and the Company did not construct any Seawolf
submarines. Construction of the three Seawolf submarines was awarded to
Electric Boat Corporation ("Electric
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Boat"), a competitor of the Company and wholly-owned subsidiary of General
Dynamics Corporation ("General Dynamics"). More recently, Congress
preliminarily approved authorization legislation to have the Company construct
one of the Navy's new nuclear attack submarines ("NSSNs," the class of
submarines following the Seawolf) beginning in late 1998, and another NSSN
beginning in late 2000, although there can be no assurance that the NSSN
program will continue to be funded or proceed on schedule. Two NSSNs were also
authorized to be built by Electric Boat. Electric Boat has also been
designated as the lead design yard for NSSN submarines. Future contract awards
(after the fourth ship) for the construction of NSSNs, if made, are expected
to be determined by competitive bidding.
The Company, Ingalls Shipbuilding, Inc. ("Ingalls Shipbuilding") (the prime
contractor), Lockheed Martin Corporation ("Lockheed Martin") and National
Steel and Shipbuilding Co. ("National Steel") have entered into an alliance to
bid on the LPD-17 non-nuclear amphibious assault ship program, for which
approximately $974 million was recently appropriated for construction of the
first vessel. The U.S. Navy currently anticipates that 12 vessels will be
built for the LPD-17 program. The Navy has stated that it currently expects
that the LPD-17 vessels will be a mainstay of the Navy over the next two
decades, replacing a number of vessels nearing the end of their useful lives.
Funds for the construction of the first LPD-17 vessel have been appropriated
as part of the overall Department of Defense appropriations for 1996. However,
there can be no assurance that the Department of Defense and Congress will
fund the 12 vessels. Furthermore, there can be no assurance that the Company's
alliance will be awarded, assuming the appropriated funds are released, the
LPD-17 contract or that Congress will appropriate funds for any additional
LPD-17 vessels. It is possible that the U.S. Navy may award the program to a
competing bidder or it may allocate the vessels between competing bidders. It
could also delay implementation of the LPD-17 program. Even if the LPD-17
project is awarded to the Company's alliance, the U.S. Navy may decide to
award other work to competitors in order to sustain some level of work at
various shipyards.
An alliance consisting of the Company, Ingalls Shipbuilding and Lockheed
Martin was recently awarded a contract to develop design concepts for the U.S.
Navy's "Arsenal Ship." The Company's alliance was one of five alliances to
receive such an award. Current U.S. Navy plans call for a downselect to two
alliances following evaluation of submitted concepts. Ultimately, one alliance
is expected to prevail in the award of a construction contract. The members of
the Company's alliance initially designated Lockheed Martin as the prime
contractor. Although the Company's alliance was selected to develop design
concepts, there can be no assurance that it will be awarded the construction
work or other aspects of the project. The allocation of responsibilities among
members of the Company's LPD-17 alliance and the Company's Arsenal Ship
alliance is subject to future negotiation among such members, and thus there
has not been a determination of the level of work which may ultimately be
assigned to the Company if its alliances are awarded these projects.
As part of its expansion strategy, the Company has also been pursuing orders
for commercial ships. It has also submitted bids on the fast frigate (FF-21)
military ships to the United Arab Emirates and Kuwait, and is in the process
of developing bids for the Philippines and Norway. With respect to the
commercial nuclear market, the Company is preparing to bid (also with others
in an alliance) on several U.S. Department of Energy site management
contracts. Competition for these contracts and projects is intense and there
can be no assurance that the Company will be successful with its initiatives
in these areas.
With a substantial portion of the Company's current firm backlog scheduled
for completion in 1998 and 2002, the failure of the Company to receive the
contract for the construction of the CVN-77 on a timely basis and other
significant naval work would have a material adverse affect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
PROFIT RECOGNITION; GOVERNMENT CONTRACTING
Similar to other companies principally engaged in long-term construction
projects, the Company recognizes profits under the percentage of completion
method of accounting, with profit recognition commencing when progress under
the contract is sufficient to estimate final results with reasonable accuracy,
and loss recognition
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commencing immediately upon identification of such loss without regard to
percentage of completion. Because contract profit recognition is dependent
upon reliable estimates of the costs to complete the contract, profits
recognized upon completion of the contract may be significantly less than
anticipated, or the Company may incur a loss with respect to the contract, if
it proves necessary to revise cost estimates.
Moreover, the Company's principal U.S. Government business is currently
being performed under fixed price ("FP"), fixed price plus incentive fee
("FPIF"), cost plus incentive fee ("CPIF"), and cost plus fixed fee ("CPFF")
contracts. The risk to the Company of not being reimbursed for its costs
varies with the type of contract. Under FP contracts, the contractor retains
all costs savings on completed contracts but is liable for the full amount of
all expenditures in excess of the contract price. FPIF contracts, on the other
hand, provide for cost sharing between the U.S. Government and the contractor.
The contractor's fee is increased or decreased according to a formula set
forth in the contract which generally compares the amount of costs incurred to
the contract target cost. The Government is liable for all allowable costs up
to a ceiling price. However, the contractor is responsible for all costs
incurred in excess of such contract ceiling price. In addition, FPIF contracts
generally provide for the U.S. Government to pay escalation based on published
indices relating to the shipbuilding industry in order to shift the primary
risk of inflation to the Government. Under both CPIF and CPFF contracts,
generally the contractor is only required to perform the contract to the
extent the Government makes funds available. Under the former, the
contractor's profit is determined by a contractually specified formula which
essentially compares allowable incurred costs to the contract target cost.
Under the latter, with few exceptions, the fee is the same without regard to
the amount of cost incurred.
The Company currently constructs aircraft carriers pursuant to FPIF
contracts but it performs work for the U.S. Government under all of the types
of contracts described above. For example, most of its contracts for ship
design are of the cost type and some of its ship repair contracts are of the
fixed price type.
The costs of performing all such types of contracts include those for labor,
material and overhead. Therefore, unanticipated increases in any such costs as
well as delays in product delivery, poor workmanship requiring correction, and
all other factors which affect the cost of performing contracts, many of which
are long term in nature, affect the profitability of most contracts held or
anticipated by the Company.
In certain circumstances, the Company may submit Requests for Equitable
Adjustment ("REAs") to the U.S. Navy seeking adjustments to contract prices to
compensate the Company when it incurs costs for which it believes the U.S.
Government is responsible. For example, in June, 1996, the Company settled
REAs relating to U.S. Government initiated changes in the requirements for
renovating the container "roll-on, roll-off" heavy armored vehicle Sealift
transportation ships. As part of the settlement, the Sealift contract was
converted from a fixed price incentive contract to a fixed price contract and
the contract price was increased. See Note 13 to the Combined Financial
Statements of the Company. Although the Company pursues REAs and all other
contractual disputes vigorously, there is no assurance that the U.S. Navy will
resolve the REAs or any of these disputes in a manner favorable to the
Company. Under U.S. Government regulations, certain costs, including certain
financing costs and marketing expenses, are not allowable contract costs.
These costs can be substantial. The Government also regulates the methods by
which all costs, including overhead, are allocated to government contracts.
In cases where there are multiple suppliers, contracts for the construction
and conversion of U.S. Navy ships and submarines are subject to competitive
bidding. As a safeguard to anti-competitive bidding practices, the U.S. Navy
sometimes employs the concept of "cost realism," which requires that each
bidder submit information on pricing, estimated costs of completion and
anticipated profit margins. The U.S. Navy uses this and other data to
determine an estimated cost for each bidder. The U.S. Navy then re-evaluates
the bids by using the higher of the bidder's and the U.S. Navy's cost
estimates.
The U.S. Government has the right to suspend or debar a contractor from
government contracting for violations of certain statutes or government
procurement regulations. See "--Government Claims and Investigations." The
U.S. Government may also unilaterally terminate contracts at its convenience
with compensation for work completed.
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COMPETITION AND REGULATION
In the Company's opinion, programs currently planned by the U.S. Navy over
the next several years will not be sufficient to support all the U.S.
shipyards presently engaged in ship construction. The reduced level of
shipbuilding activity by the U.S. Navy during the past decade has resulted in
significant workforce reductions in the industry, but almost no other
significant consolidation. The general result has been fewer contracts awarded
to the same fixed number of large shipyards. The Company believes it currently
is (i) the only shipyard capable of building the Navy's nuclear-powered
aircraft carriers, (ii) the only non-government-owned shipyard capable of
refueling and overhauling the Navy's nuclear-powered aircraft carriers and
(iii) one of only two U.S. shipyards capable of building nuclear-powered
submarines. However, with respect to the market for U.S. military contracts
for other types of vessels, there are principally five major private U.S.
shipyards, including the Company, that compete for contracts to construct,
overhaul or convert other types of surface combatant vessels. Competition for
these vessels, including the LPD-17 and the Arsenal Ship, is extremely
intense. Additionally the Company's products, such as aircraft carriers,
submarines and other ships, compete with each other for defense monies.
With respect to the domestic commercial shipbuilding market, currently the
Jones Act requires that all vessels transporting products between U.S. ports
be constructed by U.S. shipyards. There are approximately 16 private U.S.
shipyards that can accommodate the construction of vessels up to 400 feet in
length, five of which the Company considers to be its direct competitors for
commercial contracts. Potential competitors include Alabama Shipyard, Inc.,
Avondale Industries, Inc. ("Avondale"), National Steel, Ingalls Shipbuilding
and Trinity Industries, Inc. Although the commercial market is growing, a
current overcapacity of suppliers has favored buyers and hindered the
profitability of shipyards. With respect to the international commercial
shipbuilding market, the Company competes with numerous shipyards in several
countries. Overseas firms control almost all of the international commercial
shipbuilding market. In 1995, Japanese, South Korean and European yards each
controlled approximately 30% of this market. Chinese firms held approximately
four percent and the shipyards in the remaining countries held the remaining
six percent. Many foreign shipyards are heavily subsidized by their
governments, and a number of overseas shipyards presently construct ships at a
cost and over a period which is substantially less than the cost and period
applicable to the Company. Although there can be no guarantees, the Company
has undertaken major initiatives to reduce its cost structure and cycle times
for product development and ship delivery in an effort to develop commercial
business. To date the Company has experienced substantial losses in connection
with its first major commercial construction contracts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Business Outlook" and "Business--Construction--Commercial." While the
percentage of the Company's total business for commercial shipbuilding could
increase, the U.S. Navy has historically been and for the foreseeable future
is expected to continue to be the Company's primary customer. See "Business."
The termination of the U.S. construction-differential subsidy program in
1981 significantly curtailed the ability of U.S. shipyards to compete
successfully for international commercial shipbuilding contracts with foreign
shipyards. Currently, the Company's future commercial shipbuilding
opportunities are dependent in part on certain U.S. laws and regulations,
including (i) the Jones Act, which, as noted above, currently requires that
all vessels transporting products between U.S. ports be constructed by U.S.
shipyards, (ii) the Oil Pollution Act of 1990, which beginning January 1,
1995, requires the phased-in transition of single-hulled tankers and product
carriers to double-hulled vessels by 2015 and (iii) the 1993 amendments to the
loan guarantee program under Title XI of the Merchant Marine Act of 1936,
which permit the U.S. Government to guarantee loan obligations of foreign
vessel owners for foreign-flagged vessels built in U.S. shipyards. In
connection with U.S. efforts to implement a 1994 multilateral agreement
designed in part to eliminate foreign government subsidies to overseas
commercial shipbuilders, Congress is currently considering legislation that
would eliminate the competitive advantage afforded to U.S. shipyards under the
1993 amendments to the Title XI loan guarantee program. In addition,
legislative bills seeking to rescind or substantially modify the provisions of
the Jones Act mandating the use of U.S.-built ships for coastwide trade are
introduced from time to time, and are expected to be introduced in the future.
Changes in these laws could have a material adverse effect on the Company's
financial condition and results of operations. See "Business."
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<PAGE>
The Company faces competition in the engineering, planning and design market
from other companies which provide lower cost engineering support services and
are located closer to the Washington D.C. area. The Company has established a
new Carrier Innovation Center for the development of the Navy's next
generation of aircraft carriers. The Company believes the Carrier Innovation
Center will offset the geographic and cost advantage of its competitors. There
can be no assurance, however, that the Company will be the successful bidder
on future U.S. Navy engineering work, including new aircraft carrier research
and development funding.
The Company is also directly dependent upon allocation of defense monies to
the U.S. Navy. In addition to competition from other shipyards, the Company
competes with firms providing other defense products and services, such as
tanks and aircraft, to other branches of the armed forces, and with other,
non-defense demands on the U.S. budget.
SUBSTANTIAL LEVERAGE
The Company has historically relied upon Tenneco for working capital
requirements on a short-term basis and for other financial support functions.
After the Shipbuilding Distribution, the Company will not be able to rely on
the earnings, assets or cash flow of Tenneco and the Company will be
responsible for paying dividends, servicing its own debt and obtaining and
maintaining sufficient working capital. The Company will have substantial new
indebtedness upon the consummation of the Offering. The Company's debt upon
consummation of the Transaction will include (on a pro forma basis at June 30,
1996): (i) the Notes in the aggregate amount of $400 million, and (ii) secured
borrowings of $214 million under the Senior Credit Facility. As of June 30,
1996, on a pro forma basis after giving effect to the Transaction, the Company
would have had outstanding $614 million of total indebtedness and
stockholders' equity of $194 million, with an additional $201 million
available for borrowing under the Senior Credit Facility, consisting of $111
million for advances and letters of credit and $90 million for standby letters
of credit.
The degree to which the Company will be leveraged following the Transaction
could have important consequences to holders of the NNS Common Stock,
including the following: (i) the Company's ability to pay dividends and obtain
financing in the future for working capital, capital expenditures and general
corporate purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness; and (iii) the high degree of
leverage may limit the Company's ability to react to changes in the industry,
make the Company more vulnerable to economic downturns and limit its ability
to withstand competitive pressures.
The Company's ability to pay dividends on the NNS Common Stock and service
its debt obligations will depend upon its future operating performance, which
will be affected by prevailing economic conditions and financial and business
factors, many of which are beyond the Company's control. If the Company cannot
generate sufficient cash flow from operations to meet its obligations, then
the Company's ability to pay dividends will be impaired and it may be required
to attempt to restructure or refinance its debt, raise additional capital or
take other actions such as selling assets or reducing or delaying capital
expenditures. There can be no assurance, however, that any of such actions
could be effected on satisfactory terms, if at all, or would be permitted by
the terms of the Senior Credit Facility, the trust indentures governing the
Notes (the "Indentures") or the Company's other credit and contractual
arrangements.
The Senior Credit Facility and the Indentures governing the Notes will
contain restrictive covenants that, among other things, limit the Company's
ability to pay dividends on the NNS Common Stock, incur additional
indebtedness, create liens and make investments and capital expenditures. The
Senior Credit Facility will require the Company to comply with certain
financial ratios and tests, under which the Company is required to achieve
certain financial and operating results. The Company's ability to meet these
financial ratios and tests may be affected by events beyond its control, and
there can be no assurance that they will be met. In the event of a default
under the Senior Credit Facility, the lenders thereunder may terminate their
lending commitments and declare the indebtedness immediately due and payable,
resulting in a default under the Notes. There can be no assurance that the
Company would have sufficient assets to pay indebtedness then outstanding
thereunder and under the Notes.
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<PAGE>
POTENTIAL LIABILITIES DUE TO FRAUDULENT TRANSFER CONSIDERATIONS AND LEGAL
DIVIDEND REQUIREMENTS
The Transaction, including the Shipbuilding Distribution, is subject to
review under various state and federal fraudulent conveyance laws. Under these
laws, if a court in a lawsuit by an unpaid creditor or a representative of
creditors (including a trustee or debtor-in-possession in a bankruptcy by
Tenneco, NNS or any of their subsidiaries) were to determine that Tenneco or
any of its subsidiaries did not receive fair consideration or reasonably
equivalent value for distributing the NNS Common Stock or taking other action
as part of the Transaction, or NNS or any of its subsidiaries did not receive
fair consideration or reasonably equivalent value for making the distribution
to Tenneco, incurring indebtedness, including the Notes and the Senior Credit
Facility, transferring assets or taking other action as part of the
Transaction and, at the time of such action, Tenneco, NNS or any of their
subsidiaries (i) was insolvent or would be rendered insolvent, (ii) had
reasonably small capital with which to carry on its business and all business
in which it intended to engage, or (iii) intended to incur, or believed it
would incur, debts beyond its ability to repay such debts as they would
mature, then such court could order the holders of the NNS Common Stock to
return the value of the stock and any dividends paid thereon, bar future
dividend and redemption payments on the stock, and invalidate, in whole or in
part, the Transaction, as a fraudulent conveyance.
The measure of insolvency for purposes of the fraudulent conveyance laws
will vary depending on which jurisdiction's law is applied. Generally,
however, an entity would be considered insolvent if the present fair saleable
value of its assets is less than (i) the amount of its liabilities (including
contingent liabilities), or (ii) the amount that will be required to pay its
probable liabilities on its existing debts as they become absolute and mature.
No assurance can be given as to what standard a court would apply in
determining insolvency or that a court would not determine that Tenneco, NNS
or any of their subsidiaries was "insolvent" at the time of or after giving
effect to the Transaction, including the distribution of the NNS Common Stock.
NNS' payment of the dividend to Tenneco and dividends to the holders of NNS
Common Stock is also subject to review under state corporate distribution
statutes. Under the General Corporation Law of the State of Delaware (the
"DGCL"), a corporation may only pay dividends to its stockholders either (i)
out of its surplus (net assets minus capital), or (ii) if there is no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Although NNS intends to make the
distribution to Tenneco and pay dividends to the holders of the NNS Common
Stock entirely from surplus, no assurance can be given that a court will not
later determine that some or all of the distribution to Tenneco or a dividend
to the holders of the NNS Common Stock was unlawful.
Prior to the Shipbuilding Distribution, the Tenneco Board expects to obtain
an opinion regarding the solvency of Tenneco and NNS and the permissibility of
the Shipbuilding Distribution and the dividend to be paid by NNS to Tenneco
under Section 170 of the DGCL. The Tenneco Board and management believe that,
in accordance with this opinion which is expected to be rendered in connection
with the Shipbuilding Distribution and the dividend to be paid by NNS to
Tenneco, (i) Tenneco and NNS each will be solvent at the time of the
Transaction (including after the payment of such dividend and the Shipbuilding
Distribution), will be able to repay its debts as they mature following the
Transaction and will have sufficient capital to carry on its businesses and
(ii) the Shipbuilding Distribution and such dividend will be made entirely out
of surplus in accordance with Section 170 of the DGCL. There is no certainty,
however, that a court would find this solvency opinion to be binding on
creditors of Tenneco or NNS or that a court would reach the same conclusions
set forth in such opinion in determining Tenneco or NNS was insolvent at the
time of, or after giving effect to, the Transaction, or whether lawful funds
were available for the Shipbuilding Distribution and the distribution to
Tenneco.
Pursuant to the Distribution Agreement, from and after the Distributions,
each of Tenneco, the Company and New Tenneco will be responsible for the
debts, liabilities and other obligations related to the business or businesses
which it owns and operates following the consummation of the Transaction.
Although the Company does not expect to be liable for any such obligations not
expressly assumed by it pursuant to the Distribution Agreement, it is possible
that a court would disregard the allocation agreed to among the parties, and
require the Company to assume responsibility for obligations allocated to
Tenneco or New Tenneco (for example, tax and/or environmental liabilities),
particularly if one of such other parties were to refuse or were to be unable
to pay or
33
<PAGE>
perform the subject allocated obligations. See "The Shipbuilding
Distribution--Relationships Among Tenneco, the Company and New Tenneco After
the Distributions."
GOVERNMENT CLAIMS AND INVESTIGATIONS
More than 90% of the Company's sales involve contracts entered into with the
U.S. Government. These contracts are subject to possible termination for the
convenience of the U.S. Government, to audit and to possible adjustments
affecting both cost-type and fixed price type contracts. Like many government
contractors, the Company has received audit reports which recommend that
certain contract prices be reduced, or costs allocated to government contracts
be disallowed, to comply with various government regulations. Some of these
audit reports involve substantial amounts. The Company has made adjustments to
its contract prices and the costs allocated to government contracts in those
cases in which it believes such adjustments are appropriate. In addition,
various governmental agencies may at any time be conducting various other
investigations or making specific inquiries concerning the Company. Management
is of the opinion that the ultimate resolution of these matters will not have
a material adverse effect on the Company's financial condition or results of
operations. In May 1996, the Company was subpoenaed by the Inspector General
of the Department of Defense as part of a joint inquiry conducted by the
Department of Defense, the Department of Justice, the U.S. Attorney's Office
for the Eastern District of Virginia and the Naval Criminal Investigation
Service. See "Business--Investigations and Legal Proceedings" and Note 13 of
the Combined Financial Statements.
POTENTIAL FEDERAL INCOME TAX LIABILITIES
The Shipbuilding Distribution is conditioned upon the receipt of a favorable
ruling from the IRS to the effect, among other things, that the Shipbuilding
Distribution will qualify as a tax-free distribution under Section 355 of the
Code. See "The Shipbuilding Distribution--Certain Federal Income Tax Aspects
of the Shipbuilding Distribution." Such a ruling, while generally binding upon
the IRS, is based upon certain factual representations and assumptions. If any
such factual representations and assumptions were incomplete or untrue in a
material respect, or the facts upon which such ruling was based are materially
different from the facts at the time of the Distributions, the IRS could
modify or revoke such ruling retroactively. Tenneco is not aware of any facts
or circumstances which would cause any of such representations and assumptions
to be incomplete or untrue. The Company, Tenneco, New Tenneco and El Paso have
each agreed to certain covenants on its future actions to provide further
assurances that the Shipbuilding Distribution will be tax-free for federal
income tax purposes. See "The Shipbuilding Distribution--Relationships among
Tenneco, the Company and New Tenneco After the Distributions."
If the Distributions were not to qualify as tax-free distributions under
Section 355 of the Code, then in general a corporate level federal income tax
would be payable by the consolidated group of which Tenneco is the common
parent, which tax (assuming the internal spin-off transactions included in the
Corporate Restructuring Transactions also failed to qualify under Code Section
355) would be based upon the gain (computed as the difference between the fair
market value of the stock distributed and the distributing corporation's
adjusted basis in such stock) realized by each of the distributing
corporations upon its distribution of the stock of one or more controlled
corporations to its stockholders in the Transaction. In this regard, the
failure of the Merger to qualify as a reorganization within the meaning of
Code Section 368(a)(1)(B) could cause the Shipbuilding Distribution to be
taxable to Tenneco and its stockholders. The corporate level federal income
tax would be payable by Tenneco. Under certain limited circumstances, however,
the Company has agreed to indemnify Tenneco for a defined portion of such tax
liabilities. See "The Shipbuilding Distribution--Relationships Among Tenneco,
the Company and New Tenneco After the Distributions--Terms of the Ancillary
Agreements--Tax Sharing Agreement." In addition, under IRS regulations, each
member of the consolidated group (including the Company) is severally liable
for such tax liability.
Furthermore, if the Shipbuilding Distribution were not to qualify as a tax-
free distribution under Section 355 of the Code, then each holder of Tenneco
Common Stock who receives shares of NNS Common Stock and
34
<PAGE>
New Tenneco Common Stock in the Distributions would be treated as if such
stockholder received a taxable distribution in an amount equal to the fair
market value of NNS Common Stock and New Tenneco Common Stock received, which
would result in: (i) a dividend to the extent paid out of Tenneco's current
and accumulated earnings and profits; then (ii) a reduction in such
stockholder's basis in Tenneco Common Stock to the extent the amount received
exceeds the amount referenced in clause (i); and then (iii) gain from the sale
or exchange of Tenneco Common Stock to the extent the amount received exceeds
the sum of the amounts referenced in clauses (i) and (ii). See "The
Shipbuilding Distribution--Certain Federal Income Tax Aspects of the
Shipbuilding Distribution."
NO CURRENT PUBLIC MARKET FOR NNS COMMON STOCK
There is not currently a public market for NNS Common Stock, although a
"when issued" market is expected to develop prior to the Distribution Date.
There can be no assurance as to the prices at which trading in NNS Common
Stock will occur after the Shipbuilding Distribution. Until NNS Common Stock
is fully distributed and an orderly market develops, the prices at which
trading in such stock occurs may fluctuate significantly. NNS has applied to
the NYSE for the listing of NNS Common Stock upon notice of issuance and
expects to receive approval of such listing prior to the Distributions. See
"The Shipbuilding Distribution--Trading of NNS Common Stock."
UNCERTAINTY REGARDING TRADING PRICES OF STOCK FOLLOWING THE TRANSACTION
Upon consummation of the Transaction, (i) in connection with the Merger, the
then outstanding shares of Tenneco Common Stock will be cancelled and holders
of Tenneco Common Stock will receive shares of El Paso Common Stock and, under
certain circumstances, El Paso Preferred Depositary Shares and (ii) in
connection with the Distributions, New Tenneco Common Stock and NNS Common
Stock. Tenneco Common Stock is currently listed and traded, and following the
Distributions, New Tenneco Common Stock is expected to be listed and traded,
on the New York, Chicago, Pacific and London Stock Exchanges. El Paso Common
Stock, El Paso Preferred Depositary Shares, if any, and NNS Common Stock will
be listed and traded on the NYSE. There can be no assurance that the combined
market value/trading prices of (i) El Paso Common Stock and any El Paso
Preferred Depositary Shares, (ii) New Tenneco Common Stock and (iii) NNS
Common Stock (plus any cash received in lieu of fractional shares or any
fractional El Paso Preferred Depositary Shares) received in respect of shares
of Tenneco Common Stock pursuant to the Transaction will be equal to or
greater than the market value/trading prices of shares of Tenneco Common Stock
immediately prior to the Transaction. See "The Shipbuilding Distribution--
Trading of NNS Common Stock."
UNCERTAINTY REGARDING FUTURE DIVIDENDS
NNS' dividend policy will be established by the NNS Board from time to time
based on the results of operations and financial condition of the Company and
such other business considerations as the NNS Board considers relevant.
Additionally, NNS and certain of its subsidiaries are subject to certain
restrictions on the payment of dividends pursuant to its financing and similar
arrangements. There can be no assurance that the combined annual dividends on
El Paso Common Stock and any El Paso Preferred Depositary Shares, New Tenneco
Common Stock and NNS Common Stock after the Transaction will be equal to the
annual dividends on Tenneco Common Stock prior to the Transaction (and it is
unlikely that the dividends would be greater than the annual dividends on
Tenneco Common Stock prior to the Transaction). For certain restrictions on
payment of dividends, see "Financing."
COLLECTIVE BARGAINING AGREEMENTS
The Company has entered into four collective bargaining agreements covering
all of the Company's approximately 10,780 hourly employees. The agreement with
the United Steelworkers of America covers approximately 10,520 employees and
expires April 4, 1999. The agreement with the United Plant Guard Workers of
America and its Amalgamated Local No. 451 covers approximately 100 employees
and expires February 11, 2001. The agreement with the International
Association of Fire Fighters, Local I-45 covers approximately 30 employees and
expires September 24, 2000. The Idaho General President's Project Maintenance
Agreement (a
35
<PAGE>
master agreement with approximately twelve craft unions) covers approximately
130 employees of Newport News Reactor Services, Inc., a subsidiary of Newport
News, working in Idaho. This agreement expires upon completion of the project.
Although the Company believes that its relationships with these unions are
good, there can be no assurance that the Company will not experience labor
disruptions associated with these collective bargaining agreements. See
"Business."
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
laws and regulations that impose limitations on the discharge of pollutants
into the environment and establish standards for the transportation, storage
and disposal of toxic and hazardous wastes. Stringent fines and penalties may
be imposed for non-compliance and certain environmental laws impose joint and
several "strict liability" for remediation of spills and releases of oil and
hazardous substances rendering a person liable for environmental damage,
without regard to negligence or fault on the part of such person. Such laws
and regulations may expose the Company to liability for the conduct of or
conditions caused by others, including, without limitation, Tenneco and New
Tenneco, or for acts of the Company which are or were in compliance with all
applicable laws at the time such acts were performed.
The nature of shipbuilding operations requires the use of hazardous
materials. The Company's shipyard also generates significant quantities of
wastewater which it treats before discharging pursuant to various permits. In
order to handle these materials, the shipyard has an extensive network of
above-ground and underground storage tanks, some of which have leaked and
required remediation in the past. In addition, the extensive handling of these
materials sometimes results in spills on the shipyard and occasionally in the
adjacent James River. The shipyard also has extensive waste handling programs
which it maintains and, periodically, must close in accordance with applicable
regulations. The cumulative cost of these normal operations are not expected
to have a material adverse effect on the Company's financial condition or
results of operations. See "Business--Health, Safety and Environmental."
CERTAIN ANTITAKEOVER FEATURES
Upon consummation of the Shipbuilding Distribution, certain provisions of
the NNS' Restated Certificate of Incorporation (the "Certificate") and its
Amended and Restated By-laws ("By-laws") (both the Certificate and the By-laws
will be adopted prior to the Distribution Date), along with the Company's
stockholder rights plan and Delaware statutory law, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the
then current market value of NNS Common Stock. Such provisions may also
inhibit fluctuations in the market price of NNS Common Stock that could result
from takeover attempts. The provisions could also have the effect of making it
more difficult for third parties to cause the immediate removal and
replacement of the members of the then current NNS Board or the then current
management of NNS without the concurrence of the NNS Board. See "Antitakeover
Effects of Certain Provisions."
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<PAGE>
FINANCING
In connection with the Transaction and to provide for working capital needs,
NNS intends to (i) issue Notes in the amount of $400 million and (ii) enter
into the $415 million secured Senior Credit Facility comprised of the $200
million six-year amortizing Term Loan and the $215 million six-year Revolving
Credit Facility, of which $125 million may be used for advances and letters of
credit and $90 million may be used for standby letters of credit.
The Company expects to utilize the proceeds of the Notes and Term Loan and
borrowings of $14 million under the Revolving Credit Facility to distribute
(i) $600 million as a dividend to Tenneco or one or more of its subsidiaries
for use in retiring certain Tenneco Consolidated Debt and (ii) $14 million in
payment of certain fees and expenses incurred in connection with the Senior
Credit Facility and the Notes.
It is expected that the Term Loan will amortize in 24 quarterly
installments, commencing March 31, 1997, with an annual aggregate payment
amount of $27.5 million in each of 1997 through 2001, and $62.5 million in
2002. Borrowings under the Senior Credit Facility are to be secured by
perfected liens on substantially all of the Company's assets. After January 1,
1998, the security interest in the collateral will be released if the Company
meets certain specific financial and other conditions.
Interest on borrowings under the Senior Credit Facility accrues at a
floating rate based on either LIBOR or a base rate. The Senior Credit Facility
will contain customary representations and warranties and financial and other
standard covenants, including minimum net worth, total debt to EBITDA and
EBITDA less capital expenditures to interest expense. The Senior Credit
Facility will also provide for limitations on debt and dividend levels and
specify mandatory prepayments (with certain agreed-upon exceptions), including
100% of the net proceeds from debt issuance, 50% of the net proceeds from
equity issuance and 100% of the net proceeds from asset sales.
The Notes will consist of $200 million of Senior Notes due 2006 and $200
million of Senior Subordinated Notes due 2006. Interest on the Notes is
payable semiannually. The Notes will be redeemable under certain
circumstances. The Senior Credit Facility places restrictions, subject to
certain exceptions, upon the right of NNS to declare and pay dividends and
make certain similar or related kinds of payments, including a cap of (i)
$10,000,000 plus (ii) 10% of consolidated net income (or minus 100% of
consolidated net loss) calculated for the period from the closing date under
the Senior Credit Facility through the end of the most recent fiscal quarter
for NNS and its subsidiaries (which for purposes of this calculation is
treated as a single accounting period). Additionally, the indentures for the
Notes, subject to certain exceptions, generally restrict the right of NNS and
its subsidiaries to declare and pay dividends and certain similar or related
kinds of payments. These restrictions may materially limit the right of NNS to
declare and pay dividends on the NNS Common Stock.
NNS' obligations under the Notes and Senior Credit Facility are guaranteed
by Newport News. Certain other subsidiaries of NNS are excluded as guarantors
pursuant to the indentures for the Notes and the agreements for the Senior
Credit Facility. Separate financial statements of the guarantors are not
included herein because the guarantors are jointly and severally liable for
the Notes and the aggregate assets, earnings and equity of such guarantors are
substantially equivalent to the assets, earnings and equity of NNS and its
combined subsidiaries.
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
the Company as of June 30, 1996, and unaudited pro forma capitalization as of
June 30, 1996, after giving effect to the Transaction described in the
"Unaudited Pro Forma Combined Financial Statements." The capitalization of the
Company should be read in conjunction with the Combined Financial Statements,
and the notes thereto, "Selected Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
each contained elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Allocated from Tenneco............................ $ 95(a) $--
Term Loan......................................... -- 28(b)
Long-term debt:
Allocated from Tenneco............................ 282(a) --
Revolving Credit Facility......................... -- 14(c)
Term Loan......................................... -- 172
Senior Notes due 2006............................. -- 200
Senior Subordinated Notes due 2006................ -- 200
---- ----
Total debt...................................... 377 614
---- ----
Equity:
Common stock...................................... -- 1
Paid-in capital................................... -- 193
Retained earnings................................. -- --
Combined equity................................... 349 --
---- ----
Total equity.................................... 349 194
---- ----
Total capitalization................................ $726 $808
==== ====
</TABLE>
--------
(a) Represents debt allocated to the Company from Tenneco. Tenneco's
historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited
number of subsidiaries, rather than at the operating company
level, and to centrally manage various cash functions. Management
believes that the historical allocation of corporate debt and
interest expense is reasonable; however, it is not necessarily
indicative of the Company's debt upon completion of the Debt
Realignment, nor debt and interest that may be incurred by the
Company as a separate public entity.
(b) Approximately $28 million of borrowings under the Term Loan will
mature within one year from the consummation of the Transaction,
and such amount is reflected as short-term debt.
(c) On a pro forma basis on June 30, 1996, $201 million of aggregate
principal amount will be unused and available for borrowing as
follows: $111 million for advances and letters of credit and $90
million for standby letters of credit.
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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Balance Sheet of the Company as
of June 30, 1996 and Unaudited Pro Forma Combined Statements of Earnings for
the six months ended June 30, 1996 and the year ended December 31, 1995 have
been prepared to reflect the Transaction, including: (i) the issuance of $400
million aggregate principal amount of Notes; (ii) borrowings of $214 million
under the Senior Credit Facility; (iii) the cash dividend of $600 million to
be paid by the Company to Tenneco or one or more of its subsidiaries pursuant
to the Debt Realignment; (iv) the payment of $14 million of certain fees and
expenses incurred in connection with the Notes and the Senior Credit Facility;
and (v) the issuance of the NNS Common Stock pursuant to the Shipbuilding
Distribution.
The historical Combined Financial Statements reflect the financial position
and results of operations of the Shipbuilding Business whose net assets will
be transferred to the Company pursuant to the Corporate Restructuring
Transactions. The accounting for such transfer of assets and liabilities
pursuant to the Corporate Restructuring Transactions represents a
reorganization of companies under common control and, accordingly, all assets
and liabilities are reflected at their historical cost in the Combined
Financial Statements.
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the
various components of the Transaction occurred on June 30, 1996; the Unaudited
Pro Forma Combined Statements of Earnings have been prepared as if the various
components of the Transaction occurred as of January 1, 1995. The Unaudited
Pro Forma Combined Financial Statements set forth on the following pages are
not necessarily indicative of the results that would have actually occurred if
the Transaction had been consummated as of June 30, 1996, or January 1, 1995,
or results which may be attained in the future.
The pro forma adjustments, as described in the Notes to the Unaudited Pro
Forma Combined Financial Statements, are based upon available information and
upon certain assumptions that management believes are reasonable. The
Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the Combined Financial Statements, and notes thereto,
included elsewhere in this Information Statement.
39
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS COMBINED
------ ---------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................... $ 1 $ 4 (a) $ 5
614 (b)
(614)(d)
Contracts in process........................ 282 282
Other current assets........................ 190 190
------ ----- ------
Total current assets...................... 473 4 477
------ ----- ------
NONCURRENT ASSETS
Property, plant and equipment, net.......... 824 824
Other assets................................ 155 (9)(c) 160
14 (d)
------ ----- ------
Total noncurrent assets................... 979 5 984
------ ----- ------
$1,452 $ 9 $1,461
====== ===== ======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable............................ $ 177 $ (73)(c) $ 104
Short-term debt............................. 95 28 (b) 28
(95)(e)
Other accrued liabilities................... 160 160
------ ----- ------
Total current liabilities................. 432 (140) 292
------ ----- ------
NONCURRENT LIABILITIES
Long-term debt.............................. 282 586 (b) 586
(282)(e)
Deferred income taxes....................... 140 140
Other long-term liabilities................. 249 249
------ ----- ------
Total noncurrent liabilities.............. 671 304 975
------ ----- ------
EQUITY
Common stock................................ 1 (f) 1
Paid-in capital............................. 193 (f) 193
Retained earnings........................... -- (f) --
Combined equity............................. 349 4 (a) --
64 (c)
(600)(d)
377 (e)
(194)(f)
------ ----- ------
Total equity.............................. 349 (155) 194
------ ----- ------
$1,452 $ 9 $1,461
====== ===== ======
</TABLE>
See the accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
40
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF EARNINGS
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................. $ 915 $ $ 915
Operating costs and expenses............... 834 1 (g) 835
------ ---- -----------
Operating earnings......................... 81 (1) 80
Interest expense........................... 17 (17)(e) 28
28 (g)
------ ---- -----------
Earnings before income taxes............... 64 (12) 52
Provision for income taxes................. 27 6 (e) 23
(10)(g)
------ ---- -----------
Net earnings............................... $ 37 $ (8) $ 29
====== ==== ===========
Average number of common shares
outstanding............................... 34,070,348
===========
Earnings per share......................... $ .85
===========
EBITDA(h).................................. $ 113 $ 113
====== ===========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................. $1,756 $ $ 1,756
Operating costs and expenses............... 1,599 2 (g) 1,601
------ ---- -----------
Operating earnings......................... 157 (2) 155
Interest expense........................... 29 (29)(e) 56
56 (g)
Other (income), net........................ (3) (3)
------ ---- -----------
Earnings before income taxes............... 131 (29) 102
Provision for income taxes................. 58 10 (e) 48
(20)(g)
------ ---- -----------
Net earnings............................... $ 73 $(19) $ 54
====== ==== ===========
Average number of common shares
outstanding............................... 34,799,188
===========
Earnings per share......................... $ 1.55
===========
EBITDA(h).................................. $ 227 $ 227
====== ===========
</TABLE>
See the accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) To reflect a cash contribution from Tenneco to the Company pursuant to the
Cash Realignment provisions in the Distribution Agreement covering the
Shipbuilding Distribution.
(b) To reflect $614 million in total borrowings under various credit
facilities which borrowings will consist of (i) a $200 million six-year
amortizing Term Loan with an estimated annual interest rate of 8%, (ii)
$200 million Senior Notes due 2006 with an estimated annual interest rate
of 9.25%, (iii) $200 million Senior Subordinated Notes due 2006 with an
estimated annual interest rate of 9.75%, and (iv) $14 million in
borrowings under a $215 million six-year Revolving Credit Facility, with
an estimated annual interest rate of 8% and commitment fees due on the
unused portion of the facility, for payment of certain fees and expenses
described in (d) below. Approximately $28 million of the assumed Term Loan
borrowings will mature within one year from the consummation of the
Transaction, and such amount is reflected as short-term debt in the
accompanying Pro Forma Combined Balance Sheet.
(c) To reflect the settlement or capitalization of intercompany accounts
payable with Tenneco affiliates and the transfer of certain assets prior
to the Shipbuilding Distribution pursuant to certain Corporate
Restructuring Transactions.
(d) To reflect: (i) a cash dividend of $600 million to be paid by the Company
to Tenneco or one or more of its subsidiaries, principally using
borrowings under the Senior Credit Facility and the Notes and (ii) a
payment of $14 million for certain fees and expenses in connection with
the Senior Credit Facility and Notes.
(e) To reflect the elimination of corporate debt and related interest expense
allocated by Tenneco to the Company. See the Combined Financial
Statements, and notes thereto, included elsewhere in this Information
Statement.
(f) To reflect the distribution of NNS Common Stock to holders of Tenneco
Common Stock at an exchange ratio of one share of NNS Common Stock for
five shares of Tenneco Common Stock.
(g) To reflect: (i) interest expense related to the borrowings assumed
outstanding under the Senior Credit Facility and the Notes at the assumed
annual interest rates discussed in (b), (ii) the cost of commitment fees
on the unused borrowing capacity under the Revolving Credit Facility, and
(iii) the amortization of deferred debt financing costs incurred in
connection with the Senior Credit Facility and the Notes, as well as the
related tax effects of these items at an assumed statutory rate of 35%. A
1/8% change in these assumed annual interest rates would change pro forma
annual interest expense by $0.8 million, before the effect of income
taxes.
(h) EBITDA represents earnings before cumulative effect of changes in
accounting principles, income taxes, interest expense and depreciation and
amortization. EBITDA is not a calculation based upon GAAP; however, the
amounts included in the EBITDA calculation are derived from amounts
included in the combined historical or pro forma Statements of Earnings.
In addition, EBITDA shall not be considered as an alternative to net
income or operating income, as an indicator of the operating performance
of the Company or as an alternative to operating cash flows as a measure
of liquidity.
42
<PAGE>
COMBINED SELECTED FINANCIAL DATA
The following combined selected financial data as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993 were derived
from the audited Combined Financial Statements of the Company. The combined
selected financial data as of December 31, 1993, 1992 and 1991 and for the
years ended December 31, 1992 and 1991 are unaudited and were derived from the
accounting records of Tenneco. The combined selected financial data as of and
for each of the six-month periods ended June 30, 1996 and 1995 were derived
from the unaudited Combined Financial Statements of the Company. In the
opinion of the Company's management, the combined selected financial data of
the Company as of December 31, 1993, 1992 and 1991 and for the years ended
December 31, 1992 and 1991, and as of and for the six months ended June 30,
1996 and 1995 include all adjusting entries (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results of operations for the six months ended June 30, 1996
should not be regarded as indicative of the results that may be expected for
the full year.
This information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Combined Financial Statements, and notes thereto, included elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- --------------------------------------------------
1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS)
STATEMENTS OF EARNINGS
DATA:
Net sales.............. $ 915 $ 845 $1,756 $1,753 $1,861 $2,265 $2,216
====== ====== ====== ====== ====== ====== ======
Operating earnings..... $ 81 $ 90 $ 157 $ 201 $ 210 $ 249 $ 224
Interest expense (net
of interest
capitalized).......... 17 20 29 30 36 42 23
Other.................. -- -- (3) 1 (15)(b) -- (2)
Provision for income
taxes................. 27 29 58 75 78 64 68
------ ------ ------ ------ ------ ------ ------
Earnings before
cumulative effect of
changes in accounting
principles............ 37 41 73 95 111 143 135
Cumulative effect of
changes in accounting
principles, net of
tax................... -- -- -- (4)(c) -- (93)(c) --
------ ------ ------ ------ ------ ------ ------
Net earnings........... $ 37 $ 41 $ 73 $ 91 $ 111 $ 50 $ 135
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Working capital........ $ 41 $ 4 $ (19) $ (75) $ (121) $ (89) $ (470)
Total assets........... 1,452 1,337 1,380 1,263 1,235 1,450 1,412
Short-term debt(d)..... 95 54 68 30 34 83 36
Long-term debt(d)...... 282 326 292 287 423 761 364
Combined equity........ 349 236 272 199 105 (173) (30)
STATEMENTS OF CASH FLOW
DATA:
Net cash provided
(used) by operating
activities............ $ (1) $ (18) $ 63 $ 182 $ 215 $ (174) $ 352
Net cash provided
(used) by investing
activities............ (45) (29) (87) (29) 21 6 (99)
Net cash provided
(used) by financing
activities............ 45 47 25 (154) (241) 181 (246)
Capital expenditures... 36 29 77 29 35 35 64
OTHER DATA:
EBITDA(e).............. $ 113 $ 123 $ 227 $ 270 $ 297 $ 323 $ 298
</TABLE>
(Continued on next page)
43
<PAGE>
(Continued from previous page)
- --------
(a) For a discussion of significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the six months ended
June 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Information Statement.
(b) Includes a gain of $15 million related to the sale of Sperry Marine
businesses.
(c) In 1994, the Company adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits." In 1992, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and FAS No. 109, "Accounting for Income Taxes."
(d) Historical amounts represent debt allocated to the Company from Tenneco
based on the portion of Tenneco's investment in the Company which is
deemed to be debt, generally based upon the ratio of the Company's net
assets to Tenneco's consolidated net assets plus debt. Tenneco's
historical practice has been to incur indebtedness for its consolidated
group at the parent company level or at a limited number of subsidiaries,
rather than at the operating company level, and to centrally manage
various cash functions. Management believes that the historical allocation
of corporate debt and interest expense is reasonable; however, it is not
necessarily indicative of the Company's debt upon completion of the Debt
Realignment, nor debt and interest that may be incurred by the Company as
a separate public entity. See the Combined Financial Statements, and notes
thereto, included elsewhere in this Information Statement.
(e) EBITDA represents earnings before cumulative effect of changes in
accounting principles, income taxes, interest expense and depreciation and
amortization. EBITDA is not a calculation based upon GAAP; however, the
amounts included in the EBITDA calculation are derived from amounts
included in the Statements of Earnings. In addition, EBITDA shall not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of the Company or as an alternative
to operating cash flows as a measure of liquidity.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Combined Selected
Financial Data and Combined Financial Statements, and notes thereto, presented
on pages F-1 to F-21. Reference is made to the "Basis of Presentation and
Description of Business" section of Note 1 to such Combined Financial
Statements for the definition of the "Company" as utilized herein.
BUSINESS OVERVIEW
Newport News Shipbuilding Inc. ("NNS") is the parent of Newport News
Shipbuilding and Dry Dock Company ("Newport News"). Newport News was acquired
by Tenneco in 1968 and since that time has represented the Shipbuilding
Business segment of Tenneco's diversified businesses. As a result of the
Shipbuilding Distribution, the Company will become a separate, publicly-held
corporation. See "The Shipbuilding Distribution" and Note 1 to the Combined
Financial Statements for further discussion.
The Company's primary business is the design, construction, repair, overhaul
and refueling of nuclear-powered aircraft carriers and submarines for the U.S.
Navy. The Company also provides ongoing maintenance for other U.S. Navy
vessels through work in overhauling, lifecycle engineering and repair. The
U.S. Navy accounted for approximately 97% and 94% of the Company's net sales
for the year ended December 31, 1995 and for the six months ended June 30,
1996, respectively. The following table summarizes the percentage of net sales
by contract type.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -----------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fixed-Price-Type........................ 67% 78% 75% 75% 67%
Cost-Type............................... 33% 22% 25% 25% 33%
------- ------- ------- ------- -------
Total................................. 100% 100% 100% 100% 100%
======= ======= ======= ======= =======
</TABLE>
The Company's primary activity is constructing ships. Similar to other
companies principally engaged in long-term construction projects, the Company
recognizes profits under the percentage of completion method of accounting,
with profit recognition commencing when costs are incurred under the contract,
and loss recognition commencing immediately upon identification of such loss
without regard to percentage of completion. Because contract profit
recognition is dependent upon reliable estimates of the costs to complete the
contract, profits recognized upon completion of the contract may be
significantly less than anticipated, or the Company may incur a loss with
respect to the contract, if it proves necessary to revise cost estimates.
Moreover, the Company's principal U.S. Government business is currently being
performed under fixed-price or fixed-price incentive contracts, which wholly
or partially shift the risk of construction costs that exceed the contract
target cost to the Company. See "Risk Factors--Profit Recognition; Government
Contracting." In addition to ship construction, the Company also provides
repair and overhaul services and engineering and design services. During 1993,
the "Other" captions presented herein included the Sperry Marine business
("Sperry"), which was involved in the domestic and international design and
manufacture of advanced electronics for maritime and other applications, prior
to the sale of such business. See "--Other--Divestiture" below.
45
<PAGE>
RESULTS OF OPERATIONS -- OVERVIEW
The following tables reflect the net sales, operating earnings and margins
of the Company by activity type for the years ended December 31, 1995, 1994
and 1993 and the six months ended June 30, 1996 and 1995.
NET SALES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- --------------------------------------
1996 1995 1995 1994 1993
-------------- -------------- ------------ ------------ ------------
NET % OF NET % OF NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL
(MILLIONS) ------ ------ ------ ------ ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction............ $ 536 59 $ 545 65 $1,107 63 $1,144 65 $1,046 57
Repair and Overhaul..... 281 31 187 22 414 24 383 22 471 25
Engineering............. 86 9 97 11 202 11 204 12 225 12
Other................... 12 1 16 2 33 2 22 1 119 6
------ ----- ------ ----- ------ --- ------ --- ------ ---
Net sales............. $ 915 100 $ 845 100 $1,756 100 $1,753 100 $1,861 100
====== ===== ====== ===== ====== === ====== === ====== ===
</TABLE>
OPERATING EARNINGS AND MARGINS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ------------------- ------------------- ------------------- -------------------
OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING
EARNINGS MARGIN % EARNINGS MARGIN % EARNINGS MARGIN % EARNINGS MARGIN % EARNINGS MARGIN %
(MILLIONS) --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction....... $38 7 $64 12 $ 95 9 $181 16 $135 13
Repair and
Overhaul.......... 37 13 18 10 45 11 13 3 51 11
Engineering........ 5 6 6 6 13 6 11 5 8 4
Other.............. 1 N.M. 2 N.M. 4 N.M. (4) N.M. 16 N.M.
--- ---- --- ---- ---- ---- ---- ---- ---- ----
Operating earnings. $81 9 $90 11 $157 9 $201 11 $210 11
=== ==== === ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------
N.M.=Not meaningful
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET SALES
Construction. The $9 million decrease in construction revenues is due to the
delivery of the aircraft carrier Stennis in late 1995 which decreased revenues
by $161 million, the continued decline in Los Angeles-class submarine
production resulting in decreased revenues of $32 million and lower levels of
revenue on the Sealift conversions in 1996 which decreased revenues by $55
million. These decreases are partially offset by a $43 million increase due to
production on Double Eagle product tankers and an increase in revenue of $112
million and $79 million on the aircraft carriers Reagan and Truman,
respectively.
Repair and Overhaul. The $94 million increase in repair and overhaul
revenues relates primarily to the aircraft carrier Eisenhower in 1996. There
was minimal aircraft carrier overhaul work performed in the first half of 1995
as a result of the delivery of the Enterprise in 1994, with the Eisenhower not
arriving until mid-1995.
Engineering. Engineering revenues decreased by $11 million as a result of
less work on the Seawolf- and Los Angeles-class submarine design programs as
the production of those submarine classes nears an end.
Other. Other revenues decreased by $4 million primarily as a result of lower
industrial products revenue.
46
<PAGE>
OPERATING EARNINGS
Construction. The $26 million decrease in operating earnings and 5% decrease
in operating margin on construction work relates to (i) the delivery of the
Stennis in late 1995 which decreased earnings by $29 million, (ii) additional
costs of $18 million associated with the Sealift conversion contract that were
not recoverable from the U.S. Government, and (iii) $26 million higher than
expected costs associated with the production of commercial product tankers.
Decreases in operating earnings for the period are partially offset by (i)
increased activity and productivity improvements on the aircraft carriers
Reagan and Truman, resulting in $28 million of additional earnings, and (ii)
the recognition of certain change orders related to previously delivered
submarines.
Repair and Overhaul. The $19 million increase in operating earnings and 3%
increase in operating margin for repair and overhaul work is a result of $14
million in work performed on the Eisenhower in 1996 and increased margins on
submarine repair and overhaul work. See "--Net Sales--Repair and Overhaul"
above.
Engineering. The decline in operating earnings for engineering is primarily
the result of less activity related to the Seawolf- and Los Angeles-class
submarine design programs.
Other. Other operating earnings were not significant to either period
presented.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NET SALES
Construction. The $37 million decrease in construction revenues in 1995 from
1994 is due to a $96 million decrease in submarine construction work as two of
the remaining four Los Angeles-class submarines were delivered during 1995.
The decrease in submarine work is partially offset by increased aircraft
carrier construction activity of $14 million as work on the Reagan replaced
construction of the Stennis which was delivered in the fourth quarter of 1995.
Additionally, work on the Truman continued during 1995 at a level consistent
with 1994. Increased construction activity on the Sealift conversion program
of $28 million and the commercial shipbuilding program also contributed to
offsetting the decrease in submarine construction work. The level of
construction activity on commercial work increased by $18 million during 1995
as the Company began work on the Double Eagle product tankers under contract.
Reference is made to "--Business Outlook" below for a discussion of
construction activity.
The $98 million increase in construction revenues in 1994 from 1993 is due
to several factors, some offsetting. First, there were increased production
efforts in the amount of $106 million on two aircraft carriers (Stennis and
Truman) for 1994 as the keel of the Truman was laid in November 1993. Second,
construction efforts on the Sealift conversions began late in 1993, doubling
in 1994 increasing revenues by $77 million. These increases were offset
primarily by decreased submarine construction work of $71 million with the
delivery of the USS Montpelier and USS Hampton in 1993, and the USS Charlotte
in 1994.
Repair and Overhaul. The $31 million increase in repair and overhaul
revenues in 1995 from 1994 relates primarily to the $32 million repair and
overhaul of the USS Thorn during 1995. There were additional increases of $29
million in other miscellaneous U.S. Navy repairs, partially offset by a $22
million reduction in work as the USS Independence cruise ship repair was
completed in 1994. Aircraft carrier overhauls and related post-shakedown
repairs remained stable with the completion of the overhaul work for the
Enterprise in 1994 replaced by the overhaul work on the Eisenhower in 1995.
The $88 million decrease in repair and overhaul revenues in 1994 from 1993 is
attributable to a decrease of $113 million in aircraft carrier overhaul work
on the Enterprise, partially offset by $22 million in repair work on the
Independence cruise ship in 1994.
Engineering. Engineering revenues declined $2 million in 1995 from 1994 due
primarily to less work on the Seawolf-class submarine design program.
Engineering revenues declined $21 million in 1994 from 1993 due primarily to
$32 million less work on the Seawolf-class submarine design, offset by the
initiation of engineering planning work related to the NSSN program.
47
<PAGE>
Other. Other revenues increased $11 million in 1995 from 1994 as a result of
a variety of nonrecurring jobs for miscellaneous services. The decline in
other revenues in 1994 from 1993 is principally due to the revenues of
approximately $113 million from Sperry recorded prior to its sale in November
1993 (see "--Other--Divestiture" below), offset in part by other miscellaneous
items.
OPERATING EARNINGS
Construction. The $86 million decrease in operating earnings and 7% decrease
in operating margin on construction work in 1995 from 1994 relates to (i)
additional costs of $25 million incurred as a result of the Company's re-entry
into the highly competitive commercial shipbuilding market, (ii) $11 million
less in contributions from aircraft carrier work in 1995 as a result of
productivity gains realized and reflected in 1994, and (iii) additional costs
incurred on the Sealift conversion work which management expects to be
substantially complete in the first quarter of 1997.
The $46 million increase in operating earnings and 3% increase in operating
margin on construction work in 1994 from 1993 relates to productivity gains
realized and reflected in 1994, as well as an increase of $34 million in
overall aircraft carrier production, principally involving the Truman.
Additional gains in profitability were realized on submarine contracts
resulting from productivity gains on the Los Angeles-class program. The
productivity gains realized on both the aircraft carrier and submarine
programs reflect the decreasing operating risks as these programs mature or
near completion.
Repair and Overhaul. The $32 million increase in operating earnings and 8%
increase in operating margin for repair and overhaul work in 1995 from 1994 is
due primarily to $12 million of work performed on the USS Long Beach
deactivation in 1995 coupled with the fact the Company experienced additional
costs of $20 million on certain U.S. Navy and commercial repair jobs in 1994.
Operating earnings from carrier overhauls and related post-shakedown repairs
remained stable with the completion of the overhaul work for the Enterprise in
1994 replaced by the overhaul work on the Eisenhower during 1995. Repair and
overhaul operating earnings and operating margin decreased $38 million and 8%,
respectively, in 1994 from 1993, due primarily to a $14 million decrease in
the level of aircraft carrier overhaul work on the Enterprise and $20 million
of additional costs experienced on certain U.S. Naval and commercial repair
jobs during 1994.
Engineering. The operating earnings for engineering work have remained
relatively stable in all years presented with the exception of higher than
anticipated costs to design a propulsion plant trainer in 1993.
Other. The increase in other operating earnings in 1995 from 1994 is
primarily the result of lower expenses related to pensions and other employee
benefits not currently allocable to contracts, but which are expected to be
allocable once funded. The decrease in other operating earnings in 1994 from
1993 is primarily the result of the 1993 operating earnings of $6 million of
Sperry prior to its sale (see "--Other--Divestiture" below), a 1993 benefit of
$14 million from recovering a portion of previously recorded postretirement
benefit costs and higher 1994 expense related to pensions and other employee
benefits not currently allocable to contracts.
48
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following table reflects the summarized components of the Company's cash
flow for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ -------------------
1996 1995 1995 1994 1993
-------- -------- ----- ----- -----
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities........................... $ (1) $ (18) $ 63 $ 182 $ 215
Capital expenditures.................. (36) (29) (77) (29) (35)
Other investing cash flows............ (9) -- (10) -- 56
-------- -------- ----- ----- -----
Subtotal.............................. (46) (47) (24) 153 236
Cash transfers (to) from Tenneco...... 45 47 25 (154) (241)
-------- -------- ----- ----- -----
Net cash flow after transactions with
Tenneco.............................. $ (1) $ -- $ 1 $ (1) $ (5)
======== ======== ===== ===== =====
</TABLE>
OPERATING CASH FLOWS
The $119 million decrease in net cash flow from operating activities from
1994 to 1995 is due to several factors, including lower operating earnings,
increased levels of contracts in process and a higher level of payments to
Tenneco for federal and state income taxes. The lower operating earnings is
attributable to the factors discussed in "--Results of Operations for the
Years 1995, 1994, and 1993--Operating Earnings" above. The additional costs
accumulated in contracts in process is due principally to higher levels of
costs on the Sealift conversion work and commencement of the commercial
shipbuilding projects. The higher level of income tax payments to Tenneco
during 1995 is attributable to the Company paying its allocation of 1994
income taxes from Tenneco (see "--Income Taxes" below) during 1995. The
payment of a significant portion of taxes allocated to the Company from
Tenneco has historically occurred in the year subsequent to when such taxes
are incurred and billed. Thus, the higher level of 1994 current income taxes,
due to higher 1994 pretax earnings, is reflected as a 1995 cash outflow. The
higher level of current income tax liability included in "Accounts Payable to
Tenneco" at December 31, 1994, was the principal reason that the Company was
in a working capital deficit position at that date. However, during 1995, the
Company was able to pay the December 31, 1994 current tax liability and other
current liabilities with its cash flows from operations. In addition, the
Company was in a positive working capital position at June 30, 1996.
The $33 million decrease in net cash flow from operating activities from
1993 to 1994 is principally attributable to a lower level of operating
earnings, and offsetting amounts related to higher costs in contracts in
process and lower tax payments in 1994 compared to 1993. The higher unbilled
costs in contracts in process inventory was principally due to the continuing
progression of the Sealift conversion work, which began in late 1993, and the
repair work related to the Independence cruise ship, which began in 1994. The
low tax payments in 1994 compared to 1993 is attributable to a large state tax
payment made in 1993 to Tenneco and lower federal tax payments in 1994
compared to 1993.
The $17 million increase in comparative cash flows from operating activities
for the six month periods ended June 30, 1996 and 1995 is due to several
factors, some offsetting. These factors include less contracts in process
build-up and a lower level of payments to Tenneco, offset by increased levels
of accounts receivable and lower operating earnings. The lower contracts in
process build-up coupled with the increase of accounts receivable is
essentially offsetting and is a result of normal timing differences in the
submission of billings, as well as the settlement and billing of a request for
equitable adjustment in 1996. The lower level of payments to Tenneco in 1996
is due to the higher payments for taxes in 1995 as described above.
Significant changes in accounts receivable, inventory, trade accounts
payable and other accrued liabilities not described above relate to normal
timing differences in the billing cycle, receipt and use of inventory, and
receipt and payment of invoices.
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CAPITAL EXPENDITURES
Capital expenditures increased to $77 million in 1995 from $29 million in
1994 due to the initiation of a strategic capital improvement program. The
capital improvement program consists principally of three separate projects:
(i) the development of a state-of-the-art automated steel cutting and
fabrication facility; (ii) the extension of a dry dock facility; and (iii) the
construction of the Carrier Refueling Complex. The automated steel cutting and
fabrication facility should directly support the Company's goals of reducing
the manufacturing cycle time on ship construction projects and reducing the
production cost structure. Portions of this facility are currently functional
and the entire facility is expected to be fully functional in 1997. The
extension of the dry dock facility was completed in June 1996 and allows for
concurrent, multiple-ship construction within the same dry dock. This
improvement is expected to enable construction resources to be utilized on
multiple projects. Lastly, the Carrier Refueling Complex includes a cost-
efficient facility strategically located next to the dry docks used to
overhaul nuclear-powered ships. Management estimates that approximately $39
million and $20 million will be expended in 1996 and 1997, respectively, to
complete the three capital improvement projects which are currently in
process. The Company expects to fund its planned capital expenditures with
cash flows generated from its operations. The 1994 and 1993 capital
expenditures of $29 million and $35 million, respectively, consisted
principally of normal capital improvements and purchases required to maintain
the Company's facilities. Since 1993, the Company has invested approximately
$177 million in modernizing its facilities. The $7 million increase in capital
expenditures for the six month period ended June 30, 1996 compared to the six
month period ended June 30, 1995 is attributable to the ongoing capital
improvement program described above.
OTHER INVESTING CASH FLOWS
Other investing cash flow activities consisted of a $9.6 million investment
as partial payment towards the Company's 40% equity interest in the Abu Dhabi
Ship Building Company joint venture during 1995 (see
"--Business Outlook" below) and $56 million in cash proceeds of the total $61
million in cash proceeds from the sale of Sperry in 1993. See "--Other--
Divestiture" below. The 1996 investing activity relates to a $9 million
investment for a 49% ownership interest in a limited partnership. The Company
is obligated to complete its subscription for the 40% equity interest by
paying an additional $9.6 million to Abu Dhabi Ship Building Company on
December 17, 1996. It expects that this additional payment will be funded with
cash flow from operations in 1996.
NET CASH FLOW
The Company's excess net cash flows from operating and investing activities
have historically been used by its parent to meet other Tenneco obligations.
During 1995, the Company received, on a net basis, $25 million from its
parent, primarily to cover costs of the capital improvement program discussed
above. Management of the Company believes that cash flows from operations will
generally be sufficient to meet its future capital requirements. However,
depending on market and other conditions, the Company may also utilize
external sources of capital to meet specific funding requirements. See "--
Capital Requirements and Resources--Sources of Capital Subsequent to the
Shipbuilding Distribution."
CAPITAL REQUIREMENTS AND RESOURCES
Requirements and Commitments. The Company's Shipbuilding Business requires
that adequate working capital be available at all times. Since an appreciable
portion of the Company's work is "negotiated" or in the form of "extras," the
price of the work must be negotiated, sometimes over a long period of time.
During this period of negotiation, the expended funds are not available for
other current work. Further, while construction and conversion contracts
provide for progress payments, they generally require extensive investment in
work in progress principally because of contract progress payment retentions.
Retainages, generally due upon completion or acceptance of the contracted
work, amounted to $64 million as of June 30, 1996. If the Company is the
successful bidder for the first LPD-17 contract, in order to satisfy the terms
of the contract, it will be required to make capital investments to provide
for, among others, the enhancement of its computer-aided design capabilities
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and installation of sophisticated computer-based data systems, which are
necessary for completing the LPD-17, a substantial portion of which
expenditures are expected to be reimbursed by the Navy.
In addition, the Company estimates that expenditures aggregating
approximately $90 million will be required after December 31, 1995, to
complete facilities and projects authorized at such date, and substantial
commitments have been made in connection therewith. Based on current
conditions, the Company also believes it will be required to make significant
tax payments in 1998 upon completion of the Stennis-Truman aircraft carrier
contract with the delivery of the Truman, which payments could be as high as
$124 million.
Sources of Capital Subsequent to the Shipbuilding Distribution. To provide
for working capital needs, the Company intends to enter into a $215 million
six-year Revolving Credit Facility as part of the secured Senior Credit
Facility, of which $125 million may be used for advances and letters of credit
and $90 million may be used for standby letters of credit. The Company expects
to utilize the borrowings of $14 million under the Revolving Credit Facility
to pay certain fees and expenses incurred in connection with the Notes and the
Senior Credit Facility. See "Risk Factors--Substantial Leverage" and "The
Shipbuilding Distribution--Debt and Cash Realignment."
Management believes that capital requirements after the Shipbuilding
Distribution and as described above for overall operations, capital
expenditures, payment of dividends, taxes and debt service can be met by
existing cash, internally generated funds and the Revolving Credit Facility
described above.
DEBT AND INTEREST ALLOCATION
Corporate Debt and Interest Allocation
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and centrally manage
various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense has been allocated to the Company based on the
portion of Tenneco's investment in the Company which is deemed to be debt,
generally based upon the ratio of the Company's net assets to Tenneco
consolidated net assets plus debt. Interest expense was allocated at a rate
equivalent to the weighted-average cost of all corporate debt, which was 7.7%,
8.3% and 7.4% for 1995, 1994, and 1993, respectively. Total pre-tax interest
expense allocated to the Company in 1995, 1994 and 1993 was $28 million, $26
million and $34 million, respectively. The Company has also been allocated tax
benefits approximating 35% of the allocated pre-tax interest expense. Although
interest expense, and the related tax effects, have been allocated to the
Company for financial reporting on a historical basis, the Company has not
been billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest have been included as a component of the
Company's combined equity. Although management believes that the historical
allocation of corporate debt and interest is reasonable, it is not necessarily
indicative of the Company's debt upon completion of the Debt Realignment nor
debt and interest that will be incurred by the Company as a separate public
entity. Further, management believes that the Company's interest rate and,
therefore, interest expense as a separate entity will be higher initially.
INCOME TAXES
The Company and Tenneco, together with certain of their respective
subsidiaries which are owned 80% or more, have historically entered into an
agreement to file a consolidated U.S. federal income tax return. Additionally,
the Company has historically filed consolidated income tax returns with other
Tenneco businesses for applicable state and foreign jurisdictions. The income
tax amounts reflected in the Combined Financial Statements under the
provisions of these tax sharing arrangements are not materially different from
the income taxes which would have been provided had the Company filed separate
tax returns. Income tax payments to Tenneco were higher in 1995 compared to
1994. See "--Liquidity and Capital Resources--Operating Cash Flows" above.
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The effective tax rate for 1995, 1994 and 1993 was approximately 44%, 44%
and 41%, respectively. The difference between the Company's effective tax rate
in all periods compared to the U.S. federal statutory rate of 35% is
principally due to state income taxes associated with ship deliveries.
In connection with the Distributions, the current tax sharing agreement will
be cancelled and the Company will enter into a new tax sharing agreement with
Tenneco, New Tenneco and El Paso. The new tax sharing agreement will provide,
among other things, for the allocation of taxes among the parties of tax
liabilities arising prior to, as a result of, and subsequent to the
Distributions. Generally, the Company will be liable for taxes imposed on the
Company and its affiliates engaged in the shipbuilding business. In the case
of federal income taxes imposed on the combined activities of the Tenneco
consolidated group, the Company and New Tenneco will be liable to Tenneco for
federal income taxes attributable to their activities, and each will be
allocated an agreed-upon share of estimated tax payments made by the Tenneco
consolidated group.
CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121
establishes new accounting standards for measuring the impairment of long-
lived assets. The adoption of this new standard did not have any impact on the
Company's combined financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued FAS No.
123, "Accounting for Stock-Based Compensation." This statement defines a fair
value based method of accounting for stock-based awards issued to employees
and others but also allows companies to choose to continue to measure
compensation cost for such plans as it is measured currently. The Company has
elected to continue to use the current method of accounting for stock-based
awards issued to employees. Consequently, FAS No. 123 will have no impact on
the Company's combined financial position or results of operations.
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual versus cash
basis of accounting. The Company recorded an after-tax charge of $4 million,
which was reported as a cumulative effect of change in accounting principle.
BACKLOG
The following table depicts the approximate firm backlog of the Company at
December 31, 1994 and 1995 and June 30, 1996, and the portion of the June 30,
1996 backlog which is anticipated to remain at December 31, 1996:
<TABLE>
<CAPTION>
(BILLIONS) ANTICIPATED DECEMBER 31,
---------- DECEMBER 31, JUNE 30, -------------
1996 1996 1995 1994
------------ -------- ------ ------
<S> <C> <C> <C> <C>
Construction.......................... $3.2 $3.6 $ 4.0 $ 5.2
Repair and Overhaul................... .1 .3 .3 .2
Engineering........................... .1 .2 .3 .2
---- ---- ------ ------
Total backlog....................... $3.4 $4.1 $ 4.6 $ 5.6
==== ==== ====== ======
</TABLE>
Backlog represents the total estimated remaining sales value of work under
contract. Because much of the Company's business consists of constructing
aircraft carriers, which historically have been purchased by the U.S. Navy
every four to six years, the Company's backlog has typically declined
following each carrier contract, and peaked again when the U.S. Navy orders a
new carrier. For example, the Company's backlog dropped well below $3 billion
in late 1994, then peaked at $5.6 billion with the signing of the CVN-76
(Reagan) contract later in that year. Backlog levels can change and U.S.
Government contracts can be unilaterally terminated at the
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convenience of the U.S. Government at any time with compensation for work
completed. See "Risk Factors--Reliance on Major Customer and Uncertainty of
Future Work."
More than 90% of the Company's backlog is U.S. Navy-related. The December
31, 1995 construction backlog included two Los Angeles-class submarines, two
Nimitz-class aircraft carriers (Truman and Reagan), the two ship Sealift
conversion contract, as well as contracts to construct four Double Eagle
product tankers. The majority of the June 30, 1996 backlog continued to be
U.S. Navy-related. Construction backlog at June 30, 1996 included one Los
Angeles-class submarine (Cheyenne), two Nimitz-class aircraft carriers (Truman
and Reagan), the two ship Sealift conversion contract and nine Double Eagle
product tankers. Repair and overhaul backlog at June 30, 1996 consisted of
overhauling the aircraft carrier Eisenhower, and repairs to several other
naval and commercial ships. The engineering backlog at June 30, 1996 was
consistent with that of December 31, 1995. The Company delivered its last Los
Angeles-class submarine in August, 1996. Although the Company was not awarded
construction contracts for the Seawolf-class submarine it was awarded the lead
design contract for the Seawolf submarine. Other engineering work is also
being performed related to the NSSNs and the next generation of aircraft
carrier ("CVX"). As of June 30, 1996, the Company had approximately $4.1
billion of backlog which is expected to run through 2002. See "--Business
Outlook" below.
BUSINESS OUTLOOK
The Company believes it is currently the only shipyard in the United States
capable of building nuclear-powered aircraft carriers. There are currently two
Nimitz-class carriers under construction which are scheduled to be delivered
in 1998 and 2002. Based on current U.S. Navy projections, the Company
anticipates the award in or before 2002 of a contract for the construction of
the last Nimitz-class aircraft carrier (CVN-77) for delivery in 2009. The
Company is currently performing design concept studies for the generation of
aircraft carriers to follow the Nimitz-class. The Company anticipates the
demand for a new carrier every four to six years; however, re-evaluation of
this need will continue by both the Department of Defense and the Congress.
See "Risk Factors--Reliance on Major Customer and Uncertainty of Future Work."
The final Los Angeles-class submarine was delivered on August 15, 1996. In
1987, the Company was awarded the lead design contract for the Seawolf
submarine. However, due to the end of the Cold War there was a dramatic
cutback in the Seawolf program (to three submarines), and the Company did not
construct any Seawolf submarines. Construction of the three Seawolf submarines
was awarded to Electric Boat, a competitor of the Company and wholly-owned
subsidiary of General Dynamics. More recently, directives from the U.S.
Congress call for the first four new nuclear attack submarines ("NSSNs," the
class of submarines following the Seawolf) to be equally allocated between the
Company and Electric Boat, with competition on subsequent NSSNs. The Company's
bid to be one of two suppliers for the U.S. Navy's $71 billion NSSN business
was affirmed during the first quarter of 1996 when legislation directing the
second NSSN to the Company became law. See "Risk Factors--Reliance on Major
Customer and Uncertainty of Future Work."
To broaden its base from nuclear-powered carriers and submarines, the
Company is currently marketing a number of new products and services to both
the U.S. and foreign governments and commercial customers. These products
include a new class of amphibious assault ships (LPD-17), surface combatant
ships like the "Arsenal Ship" and the Company's fast frigate (FF-21) and the
Double Eagle product tankers. Although the Company is currently pursuing
opportunities with respect to both LPD-17 and FF-21 sales, there can be no
assurance that the Company will be successful in these pursuits. See "Risk
Factors--Reliance on Major Customer and Uncertainty of Future Work." To better
position itself for international sales of these products, the Company
subscribed to purchase a 40% equity interest in the Abu Dhabi Ship Building
Company ("ADSB"), located in the United Arab Emirates in 1995. The Company is
obligated to complete its payment for its subscription in 1996. See
"--Liquidity and Capital Resources--Other Investing Cash Flows." ADSB is
currently renovating an existing shipyard and designing a new shipyard which
it plans to construct to replace the existing one. Each is intended to service
shipbuilding and repair demands of the United Arab Emirates military and
regional maritime fleets. The Company believes that its interest in ADSB will
provide the Company with a presence in the heavily navigated Persian Gulf. The
Company believes that its equity investment in ADSB may also serve as a means
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for the Company to satisfy offset obligations to the United Arab Emirates, if
any, arising from any contracts for sales of FF-21s or other ships it may be
able to secure. Typically, offset obligations, when applicable, require an
investment, capital expenditure, training commitment or other benefit for the
country making the purchase. Under the terms of the agreement relating to the
Company's investment, the Government of the Emirate of Abu Dhabi (the "Abu
Dhabi Government") will have an option to purchase the Company's interest upon
consummation of the Shipbuilding Distribution. The right of the Abu Dhabi
Government to exercise its purchase option in relation to a particular event
is deemed to be waived if not exercised within 90 days of the date the Abu
Dhabi Government becomes aware of such event. See "Business--Construction--
Foreign Military."
In 1994 and 1995, the Company entered into fixed price contracts (which
shift the risks of construction costs that exceed the contract price to the
Company) to construct four Double Eagle product tankers for affiliates of
Eletson Corporation ("Eletson") at a price of $36 million per ship.
Construction of the first tanker is substantially complete; construction has
begun on the second tanker; and a substantial portion of the materials needed
for the construction of the three uncompleted tankers has been ordered. The
Company presently estimates that these ships will be constructed over the
period ending in February, 1998. In connection with the construction of these
four tankers, the Company has incurred or estimates it will incur costs of
approximately $90 million in excess of the fixed contract prices. As of
September 30, 1996, the full amount of these excess costs has been reserved
for by a charge against income. Disagreements have arisen with the purchasers
during the course of construction as to whether the first and second ships
were and are being constructed in compliance with the specifications set forth
in the contracts, and the purchasers sent letters to the Company purporting to
invoke the procedures set forth in the contracts for resolution of this
situation and requested that the Company in the interim stop construction on
the ships. The Company saw no reason to stop construction on the ships because
of its confidence that the ships will be in compliance with all contract and
classification society requirements. The purchasers have withdrawn both their
invocation of the dispute resolution procedures under the contracts and their
request that the Company cease further construction of the ships. Discussions
between the Company and the purchasers to date have resulted in the resolution
of a significant number of these disagreements, although some remain
unresolved and are the subject of further discussions. No assurances can be
given as to the effect the resolution of these remaining disagreements will
have on the Company (although the Company does not believe such resolution
will materially and adversely affect it) or the extent to which the remaining
work on these contracts can be completed without further disagreements with
the purchasers or the incurrence of additional losses in excess of current
estimates, although the Company currently believes it can complete the four
ships within the current estimate of cost. See Note 13 to the Combined
Financial Statements of the Company.
In 1995, the Company entered into fixed price contracts with limited
liability companies ("HVO") comprised principally of Hvide Partners, L.P. and
an affiliate of Van Ommeren International BV to construct an additional five
Double Eagle product tankers having a somewhat different design for the
domestic Jones Act market at a current average price of $43.4 million per
ship. The Company is in the process of completing its design work on these
ships and expects to begin construction in the first half of 1997. These ships
are scheduled for delivery in 1998. The Company presently estimates that it
will break even on these ships on an aggregate basis, but there can be no
assurance that the costs incurred in constructing these ships will not exceed
the contract prices for them.
These double-hull tankers are intended to serve the market currently served
by single-hull product carriers whose retirement is mandated by the Oil
Pollution Act of 1990 ("OPA 90"). The OPA 90 requires, among other things,
that existing single-hull ships must be retired from domestic transportation
of petroleum products between 1995 and 2015 unless retrofitted with double
hulls.
Additional services being developed by the Company include the management
and operation of Department of Energy nuclear sites in the U.S. The Company
hopes to capitalize on its nearly four decades of experience in handling
nuclear materials and is teaming with other companies with complementary
experiences to bid on these site management contracts.
Management has undertaken a number of initiatives to reduce the overall cost
structure at the Company. These initiatives have included a 38% workforce
reduction (from approximately 29,000 employees in 1991 to 18,000 employees in
1996), overhead and other cost reductions, monetizing assets, the successful
negotiation of a labor agreement that stabilizes wages from February 1995
through April 4, 1999 and closing of several facilities. Management has also
made long-term investments in infrastructure and automation which are expected
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to impact favorably the future results of operations. In connection with these
initiatives, the Company delivered the aircraft carrier Stennis in November
1995, 7.5 months ahead of schedule and at a savings of over 1,000,000 man-
hours compared to the previously delivered aircraft carrier (despite
accommodating over 1,200 significant U.S. Navy ordered design improvements).
The remaining initiatives relate primarily to projects to reduce cycle times
for product development and ship delivery by reengineering key production and
design processes. Process innovation teams have been assigned to each key
process.
Management continues to reevaluate its strategy and consider additional
opportunities to enhance the value of the Company. The future results of
operations and financial position of the Company are dependent on several
factors including the allocation of defense budget funds to new ship
construction for the U.S. Navy, the successful award and completion of new
shipbuilding contracts from the U.S. Government, and the successful
diversification into the highly competitive commercial shipbuilding and
foreign military markets. Management believes that the Company is well
positioned to receive future U.S. Navy contract awards. However, there are no
guarantees as to the timing or level of future U.S. Navy contract awards to
the Company. Additionally, the level of profitability on such future contracts
will be dependent on the cost structure of the Company. The diversification of
the Company's business into the commercial market creates a heightened level
of risks and rewards. Thus, the future profitability of the proposed
commercial programs is subject to the successful management of such risks.
Additionally, there are no certainties as to the level of future commercial
business which will be secured by the Company.
The information included in this "Business Outlook" section is forward-
looking and involves risks and uncertainties that could significantly impact
expected results. The Company's outlook is based predominantly on its
interpretation of what it considers key economic and market assumptions, many
of which have already been discussed above. Factors that could cause actual
results to differ materially from current expectations include: changes in the
U.S. Navy's budgets; a reevaluation of ship requirements by the U.S. Navy; the
inability to successfully market and sell the new products and services
discussed; the award of contracts to the Company's competitors; the inability
to produce the new products or provide the new services at the costs
anticipated as a result of failure to meet productivity or learning curve
assumptions or increased cost of materials; or the inability to meet
production schedules and productivity improvement goals for contracts
currently being performed.
OTHER
GOVERNMENT CLAIMS AND INVESTIGATIONS
More than 90% of the Company's sales involve contracts entered into with the
U.S. Government. These contracts are subject to possible termination for the
convenience of the U.S. Government, to audit and to possible adjustments
affecting both cost-type and fixed price type contracts. Like many government
contractors, the Company has received audit reports which recommend that
certain contract prices be reduced, or costs allocated to government contracts
be disallowed, to comply with various government regulations. Some of these
audit reports involve substantial amounts. The Company has made adjustments to
its contract prices and the costs allocated to government contracts in those
cases in which it believes such adjustments are appropriate. In addition,
various governmental agencies may at any time be conducting various other
investigations or making specific inquiries concerning the Company. Management
is of the opinion that the ultimate resolution of these matters will not have
a material adverse effect on the Company's financial condition or results of
operations. In May 1996, the Company was subpoenaed by the Inspector General
of the Department of Defense as part of a joint inquiry conducted by the
Department of Defense, the Department of Justice, the U.S. Attorney's Office
for the Eastern District of Virginia and the Naval Criminal Investigation
Service. See "Risk Factors--Government Claims and Investigations," "Business--
Investigations and Legal Proceedings" and Note 13 of the Combined Financial
Statements.
REVENUE RECOGNITION
The Company reports profits on its long-term contracts using the percentage-
of-completion method of accounting, determined on the basis of total costs
incurred to date to estimated final total costs. Losses on
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contracts, including allocable general and administrative expenses, are
reported when first estimated. The performance of contracts usually extends
over several years, requiring periodic reviews and revisions of estimated
final contract prices and costs during the term of the contracts. The effect
of these revisions to estimates is included in earnings in the period the
revisions are made. Revenue arising from the claims process is neither
recognized as income nor as an offset against a potential loss until it can be
reliably estimated and its realization is probable.
SIGNIFICANT ESTIMATES
In 1994 and 1995, the Company entered into fixed price contracts with
Eletson and HVO to construct a total of nine of its Double Eagle product
tankers. The Company has recorded losses of approximately $90 million related
to its contracts with Eletson for four of these product tankers. The Company
presently estimates that it will break even on its contracts for the five
tankers from HVO. The Company believes it can complete construction of these
ships based on its current estimate of costs, but there can be no assurance
that the estimate of costs to be incurred will not be revised in the future.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Business Outlook."
Contracting with the U.S. Government can also result in the Company filing a
Request for Equitable Adjustment ("REA") in connection with a contract. REAs
represent claims against the U.S. Government for changes in the original
contract specifications and resulting delays and disruption in contract
performance. All major REAs filed by the Company in connection with its
contracts have been settled as of June 1996 for approximately the same amount
recorded previously by the Company. Through 1995, costs of $18 million had
been recognized on the Sealift REA in excess of the adjudicated REA price.
Cost growth of $36 million that was not recoverable through that REA has been
recognized in the first half of 1996. Due to uncertainties inherent in the
estimation process these contract completion costs could be increased in the
future by $0 to $10 million. The first of two Sealift ships was delivered in
August 1996. Management expects this contract to be substantially complete by
the end of the first quarter of 1997.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operating costs and expenses
as incurred. The amounts charged during the years ended December 31, 1995,
1994 and 1993 are $20 million, $14 million and $15 million, respectively.
Research and development costs for the six months ended June 30, 1996 were $20
million. Research and development costs for the year ending December 31, 1996
are expected to be between $40 million and $50 million. Under current
regulations, research and development costs can be passed through to the U.S.
Government as allowable overhead spread across all of the Company's contracts.
The actual amount of research and development costs allowed to pass through
the Navy contracts is reviewed annually. Research and development costs can
also be directly funded by the U.S. Government through specific contracts.
These contracts produce quantifiable deliverables for the U.S. Navy, for
example, certain research and development projects on aircraft carriers.
DIVESTITURE
During November 1993, the Company sold Sperry, which was part of its
Shipbuilding Business. Sperry was involved in the domestic and international
design and manufacture of advanced electronics for maritime and other
applications and contributed $113 million of net sales and $6 million of
operating earnings to the Company's 1993 results of operations. In accordance
with the sale agreement, the Company received $56 million of the total cash
proceeds of $61 million from the sale of Sperry. The remaining portion of the
cash proceeds was realized by other Tenneco entities. In addition to the cash
proceeds, the Company received $17 million in preferred stock of the
purchaser. A pre-tax gain on the total sale of $15 million was recognized by
the Company
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in 1993. An agreement was reached to sell the preferred stock of the purchaser
in late 1995 for $18 million. See Note 5 to the Combined Financial Statements.
UNION AGREEMENT
During 1995, the Company executed a collective bargaining agreement which
covers approximately 60% of its work force and 98% of its hourly employees.
The collective bargaining agreement is effective to April 1999, and generally
provides for static pay rates, promotion of multi-skilling, work teams, joint
cooperation on quality programs, a new managed health care program, reduction
in paid time off and contains "no strike, no lockout" provisions. This
agreement will assist the Company in managing its cost structure and
maintaining its skilled labor force.
ENVIRONMENTAL MATTERS
The Company is subject to stringent environmental laws and regulations in
all jurisdictions in which it operates. Management of the Company believes
that the Company is in substantial compliance with all applicable
environmental regulations, and the historical environmental compliance costs
incurred by the Company have not been significant. Although there can be no
certainties, management does not believe that any future environmental
compliance costs will have a material adverse effect on the Company's combined
financial position, results of operations or cash flows.
INFLATION
The Company's materials costs are impacted by inflation. However, the
majority of the Company's U.S. Government shipbuilding contracts allow
recovery of costs which are escalated due to inflation. Thus, the Company's
net exposure to inflation is minimal.
DEFENSE INDUSTRY OVERVIEW
The end of the Cold War has led to a reduction of the U.S. armed forces. As
a result, the federal defense budget for procurement has been reduced in real
terms by approximately 70% since 1985. The U.S. Navy budget has declined over
the same period of time. However, the Company believes that the U.S. Congress,
which has resisted additional defense budget cuts, and a continued uncertain
geopolitical environment will favor an end of the long decline in military
outlays. Additionally, President Clinton's 1996 Budget establishes the
following defense goals as the basis for recapitalizing the Department of
Defense budget: (i) projecting a presence overseas; (ii) maintaining an
acceptable level of training and readiness; (iii) ability to participate
effectively in two nearly simultaneous regional conflicts; and (iv) providing
a level of demand for equipment and services which will preserve the defense
industrial base.
A shift in military strategy has prompted the U.S. Navy to redefine its
role. Since the collapse of the former Soviet Union, there has been a dramatic
change in the primary global threat to the security of the U.S. As a result,
U.S. defense strategy, which was predicated on defending against a single
major threat, is evolving as well. A policy of protecting against a major
nuclear assault and securing containment of the Soviet Union is evolving to a
strategy requiring the need to address potential regional conflicts, perform
peacekeeping and aid activities in multiple unstable areas, and deter
international terrorism. This shift in U.S. military strategy, together with
the declining number of U.S. bases overseas, has prompted the Navy to
emphasize its role in projecting American military power from ship to shore.
In September 1992, the Navy released a new naval strategy entitled ". . . From
The Sea; Preparing the Naval Service for the 21st Century," Department of the
Navy, Washington, D.C., which stated that: (i) naval forces will be used in a
wide range of responses to crises around the globe; (ii) should the presence
of these forces fail to deter aggression, the Navy must be able to prevent the
U.S. from losing the conflict until the full combat power of the Army and Air
Force can arrive; and (iii) naval forces must also be able to conduct a full-
scale naval campaign in support of a land force.
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<PAGE>
AIRCRAFT CARRIERS
Aircraft carriers have played a major role in the Navy's strategy of
protecting U.S. global interests. From the early strikes in the Gulf War to the
recent American involvement in Bosnia, Haiti, Somalia, the China/Taiwan crisis
as well as to renewed Iraqi aggression, U.S. political and military leaders
have responded to overseas crises by deploying the nearest aircraft carrier.
Not only do aircraft carriers allow the naval forces to project military power
from the safety of the open ocean in times of war, but they also serve as
mobile naval bases that reassure allies and intimidate potential aggressors by
maintaining peacetime military presence in regions critically important to the
U.S.
The Navy currently plans to maintain a minimum of 12 aircraft carriers (down
from 15 in 1992) to respond quickly to overseas crises and command a credible
presence around the globe. The Company believes that even with 12 aircraft
carriers, the Navy is still prone to gaps in peacetime requirements and may not
be able to fulfill the need to confront two simultaneous major conflicts as
envisioned by President Clinton's 1996 Department of Defense budget. Admiral
Jay Johnson, the newly appointed Chief of Naval Operations, has publicly stated
his desire for 15 active carriers to ensure adequate on-station presence in
critical mission areas. As shown in the table below, the Navy currently
operates 12 carriers, seven of which are Nimitz-class carriers built by Newport
News.
CURRENT LIST OF AIRCRAFT CARRIERS
<TABLE>
<CAPTION>
LAUNCH COMMISSION
NUMBER NAME CLASS DATE DATE SHIPYARD
- ------ ---- ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
CV-62................... Independence Forrestal 06/06/58 01/10/59 New York Naval Shipyard
CV-63................... Kitty Hawk Kitty Hawk 05/21/60 04/29/61 New York Shipbuilding
CV-64................... Constellation Kitty Hawk 10/08/60 10/27/61 New York Naval Shipyard
CVN-65.................. Enterprise Enterprise 09/24/60 11/25/61 Newport News Shipbuilding
CV-67................... John F. Kennedy JFK 05/27/67 09/07/68 Newport News Shipbuilding
CVN-68.................. Nimitz Nimitz 05/13/72 05/03/75 Newport News Shipbuilding
CVN-69.................. Dwight D. Eisenhower Nimitz 10/11/75 10/18/77 Newport News Shipbuilding
CVN-70.................. Carl Vinson Nimitz 03/15/80 03/18/82 Newport News Shipbuilding
CVN-71.................. Theodore Roosevelt Nimitz 10/27/84 10/25/86 Newport News Shipbuilding
CVN-72.................. Abraham Lincoln Nimitz 02/13/88 11/11/89 Newport News Shipbuilding
CVN-73.................. George Washington Nimitz 07/21/90 07/04/92 Newport News Shipbuilding
CVN-74.................. John C. Stennis Nimitz 11/13/93 12/09/95 Newport News Shipbuilding
CVN-75.................. Harry S Truman Nimitz 09/07/96 07/98 Newport News Shipbuilding
CVN-76.................. Ronald Reagan Nimitz 03/18/00 01/03 Newport News Shipbuilding
</TABLE>
- -------
Source: Jane's Fighting Ships 1996-1997, 98th Edition
At present, the Navy has contracted for two more Nimitz-class aircraft
carriers: the CVN-75 to be delivered in June 1998 and the CVN-76 to be
delivered in December 2002. The Navy also intends to build another Nimitz-class
aircraft carrier, the CVN-77. The Navy's plans to maintain a fleet of 12
carriers translates into an optimal building rate of one carrier every four to
six years to gradually replace the existing Nimitz-class carriers (each has
approximately a 50-year service life and refueling age of approximately 25
years). The Navy is currently planning a next-generation aircraft carrier
("CVX") to follow the nuclear-powered Nimitz-class, the first of which is
expected to begin production in 2006. Newport News is currently developing
concepts for this new class of aircraft carriers. See "Risk Factors--Reliance
on Major Customer and Uncertainty of Future Work."
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<PAGE>
U.S. NAVY FUTURE CARRIER FLEET
LOGO
As shown in the chart above, there are 12 carriers in 1996 in the Navy's
fleet. These ships range from the newest, Stennis, to the oldest,
Independence. In the year 2000, the Independence will be retired and be
replaced by the Truman. Beyond 2000, the USS Kitty Hawk is scheduled to be
replaced by the Reagan; the USS Constellation by CVN-77; and the Enterprise by
CVX-78.
SUBMARINES
The collapse of the former Soviet Union Navy, with its several hundred
submarines, has dramatically reduced the underwater threat to U.S. and allied
vessels. Currently, most of the U.S. Navy's submarines are Los Angeles-class
vessels which were first commissioned in 1976, and will begin to reach the end
of their service lives starting in 2000. The Los Angeles-class is a high
speed, nuclear-powered fast attack submarine used to locate and destroy
hostile submarines and surface ships. Newport News is the lead design yard for
the Los Angeles-class and has built 28 out of a total of the 61 currently
active submarines in this class. This program reached the end of its
production run when the last submarine, Cheyenne, was completed by Newport
News in 1996.
In the 1980s, the Navy, with the Company as the lead design yard, developed
the Seawolf-class submarine to augment and ultimately replace the Los Angeles-
class. However, the Company did not build any Seawolf submarines. Seawolf's
high unit cost (roughly $2 billion), coupled with the end of the Cold War, led
to calls for a new type of submarine and a truncation of the Seawolf program
after three ships. Consequently, the Navy plans to develop the new nuclear
attack submarine ("NSSN"), a smaller, more cost-effective, nuclear-powered
submarine beginning in 1998. Congress has approved legislation to have Newport
News construct one NSSN beginning in late 1998 and another NSSN beginning in
late 2000. Two contracts were also designated for Electric Boat, a wholly-
owned subsidiary of General Dynamics. Beyond 2001, NSSN contract awards are
expected to be determined by competitive bidding. See "Risk Factors--Reliance
on Major Customer and Uncertainty of Future Work."
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<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is the largest non-government-owned shipyard in the United
States, as measured by each of net sales, size of facilities and number of
employees. Its primary business is the design, construction, repair, overhaul
and refueling of nuclear-powered aircraft carriers and submarines for the
United States Navy. The Company believes it currently is: (i) the only
shipyard capable of building the Navy's nuclear-powered aircraft carriers,
(ii) the only non-government-owned shipyard capable of refueling and
overhauling the Navy's nuclear-powered aircraft carriers, and (iii) one of
only two shipyards capable of building nuclear-powered submarines. Since its
inception in 1886, the Company has developed a preeminent reputation through
the construction of 264 naval ships and 542 commercial vessels. For the year
ended December 31, 1995 and the six months ended June 30, 1996, the Company
had net sales of $1,756 million and $915 million, respectively, and EBITDA (as
defined) of $227 million and $113 million, respectively. In addition, at June
30, 1996 the Company had $4.1 billion of estimated backlog.
Aircraft carrier and submarine construction contracts with the U.S. Navy
have generated the majority of the Company's net sales. Newport News has built
nine of the 12 active aircraft carriers in the U.S. fleet, including all eight
nuclear-powered aircraft carriers. For the last 35 years, Newport News has
been the sole designer and builder of the U.S. Navy's aircraft carriers.
Newport News currently holds contracts to build two nuclear-powered Nimitz-
class carriers, each representing approximately $2-3 billion in initial
contract revenue: the Truman, scheduled for delivery in 1998, and the Reagan,
scheduled for delivery in 2002. Based on current U.S. Navy projections, the
Company anticipates the award in or before 2002 of a contract for the
construction of the last Nimitz-class aircraft carrier for delivery in 2009.
Under contract to the Navy, Newport News is currently performing design
concept studies for the next generation of aircraft carriers. In addition,
Newport News, as one of only two manufacturers of nuclear-powered submarines,
has constructed 53 nuclear-powered submarines comprised of seven different
classes. Newport News has recently been designated by legislation to build two
of the first four of the next generation of the Navy's new nuclear attack
submarines ("NSSNs") commencing in late 1998.
The Company built all the active Nimitz-class aircraft carriers. The Company
also believes it currently is the only non-government-owned shipyard currently
capable of refueling nuclear-powered aircraft carriers. Puget Sound, a
government-owned shipyard, could refuel nuclear-powered carriers if it made
additional investments in its facilities, and Portsmouth Naval Shipyard, a
government-owned shipyard in Kittery, Maine, is presently involved in nuclear
refueling, overhauling and de-activating Los Angeles-class submarines. As a
result, the Company has had the leading share of the refueling and overhaul
market for aircraft carriers. A Nimitz-class aircraft carrier must be refueled
at approximately the midpoint of its estimated 50-year life. The Navy often
commissions a major overhaul of each carrier to coincide with a refueling. It
normally takes two years to complete a refueling and overhauling. Currently
the Company is overhauling the Eisenhower (an approximate $400 million
contract), and it holds planning contracts to overhaul the Roosevelt in 1997
and to refuel and overhaul the Nimitz beginning in 1998. The Company believes
that, if awarded, the contracts for the Roosevelt and the Nimitz will be for
approximately $230 million and approximately $1 billion, respectively. In
addition, the Navy has announced its schedule to begin the refueling of the
Eisenhower in 2001, the Vinson in 2006 and the Roosevelt in 2009 at an
estimated cost of approximately $1 billion each. Supported by its new Carrier
Refueling Complex, the Company believes it is well-positioned to be awarded
future refueling contracts.
Newport News' management is highly regarded in the defense and shipbuilding
industry and has been successful in creating a motivated and experienced
management team and enhancing its position as the premier U.S. shipyard. Led
by William P. Fricks, the Chief Executive Officer of Newport News, who has 30
years of experience, the Company's senior executives average 10 years of
shipbuilding experience. Newport News is a separate operating entity with its
own corporate headquarters, management team and separate financial reporting
systems. Management therefore expects an orderly transition to an independent,
publicly-traded company.
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<PAGE>
BUSINESS STRATEGY
To broaden and strengthen its competitive position, the Company has
developed strategies with the following key elements: (i) maintain a
leadership position in its core business; (ii) further reduce its cost
structure; (iii) continue to reduce cycle time; and (iv) broaden and expand
products and markets.
MAINTAIN A LEADERSHIP POSITION IN ITS CORE BUSINESS. Aircraft carriers and
submarines remain vital components of the Navy's strategy for protecting U.S.
global interests. The Navy has stated that it needs to maintain a minimum of
12 aircraft carriers to respond quickly to overseas crises and command a
credible presence around the world. As the aircraft carrier and submarine
fleets continue to age, the Company believes there will be a steady long-term
demand for new construction and refueling and overhauling services, which it
intends to aggressively pursue.
FURTHER REDUCE ITS COST STRUCTURE. In 1991, the Company embarked on a
program to reduce its cost structure and increase productivity in order to
remain a market leader in its core business as well as to facilitate entry
into related commercial markets. Management initiatives to reduce the overall
cost structure of the Company have included workforce reductions of 38% (from
approximately 29,000 employees in 1991 to approximately 18,000 employees in
1996), overhead and other cost reductions, the successful negotiation of a
long-term labor agreement that stabilizes wages through April 1999, and the
closing of certain facilities. As a second step in its cost reduction program,
Newport News has begun outsourcing low value-added production activities and
has been investing in programs to upgrade and automate its operations. Since
1993, the Company has spent $177 million on a variety of discretionary capital
programs designed to lower costs and improve efficiency. Recent and ongoing
expenditures include new computing technology ($85 million), an automated
steel factory ($71 million), the extension of a drydock to accommodate multi-
ship construction ($30 million), and the construction of the Carrier Refueling
Complex ($19 million).
CONTINUE TO REDUCE CYCLE TIME. The Company plans to continue to reduce the
cycle times for product development and ship delivery by re-engineering key
production processes, including design, production planning, materials
management, steel fabrication and outfitting. Process innovation teams have
been assigned to each key production process to implement this strategy. In
connection with these initiatives, the Company delivered the Stennis in
November 1995, 7.5 months ahead of schedule and at a savings of over 1,000,000
man-hours compared to the previously delivered aircraft carrier.
BROADEN AND EXPAND PRODUCTS AND MARKETS. The Company has begun to seek to
leverage its existing expertise by expanding its commercial and other
shipbuilding projects. The Company believes that this expansion effort should
create additional growth opportunities. In addition, by allowing for increased
economies of scale, the Company believes its expansion initiatives should help
it reduce per ship costs and thereby make it more competitive in its core U.S.
Navy business, which currently accounts for over 90% of the Company's net
sales. As part of this expansion effort, the Company secured long-term, fixed
price contracts with two purchasers for a total of nine "Double Eagle" product
tankers. The initial ships under contract are being built at a loss, for which
the Company has created a reserve. This new line of double-hulled product
tankers is designed to meet all of the stringent domestic and international
shipping specifications. Additionally, drawing on its nearly four decades of
safe fuel handling and reactor services for the U.S. Navy, the Company won a
contract from the Department of Energy in 1995 to construct a facility to
store damaged fuel from Three Mile Island. The Company is pursuing bids on
additional projects from the Department of Energy.
In order to further strengthen its position as a leading U.S. Navy
contractor, the Company is attempting to broaden its naval portfolio to
include non-nuclear ships by bidding with others in an alliance on the design
and construction of the LPD-17 non-nuclear amphibious assault ship. The
Company has also joined an alliance to develop design concepts for the Navy's
new "Arsenal Ship," a floating missile platform that utilizes a commercially
available double-hulled design, and pursue awards in the construction of such
ships. International
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<PAGE>
military sales are also a key growth opportunity. The Company is pursuing
orders for several versions of its international frigate, the FF-21, from
foreign navies and is currently focusing on naval modernization programs
presently underway in the United Arab Emirates, the Philippines, Norway and
Kuwait.
GENERAL
Currently, the Company's business centers primarily on three areas involving
U.S. Naval and commercial ships: (i) construction; (ii) repair and overhaul;
and (iii) engineering and design. The Company also engages in certain other
related businesses. In 1993, the Company divested its maritime electronics
manufacturing business.
The following table sets forth information on the percentage of total net
sales contributed by the Company's various classes of products and services:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------
JUNE 30, 1996 1995 1994 1993
--------------- ------------ ------------ ------------
NET % OF NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL
------- ------ ------ ----- ------ ----- ------ -----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Construction............ $536 59 $1,107 63 $1,144 65 $1,046 57
Repair and Overhaul..... 281 31 414 24 383 22 471 25
Engineering and Design.. 86 9 202 11 204 12 225 12
Other................... 12 1 33 2 22 1 119 6
------- ------ ------ --- ------ --- ------ ---
Net sales............. $915 100 $1,756 100 $1,753 100 $1,861 100
======= ====== ====== === ====== === ====== ===
</TABLE>
CONSTRUCTION
The Company's primary activity is constructing ships, with approximately 63%
of net sales for the year ended December 31, 1995 and 59% of net sales for the
six months ended June 30, 1996 being generated from construction work. In
recent history, the Company has relied on major carrier and submarine
contracts with the U.S. Navy, but the Company's current objective is to
selectively add to its core business with contracts for other Naval segments
(e.g. LPD-17 and Arsenal Ship), and in the commercial and foreign military
markets.
The following chart shows the number of naval and commercial ships, and
other vessels built by the Company, including ships currently under
construction.
<TABLE>
<CAPTION>
PRE 1900- 1920- 1940- 1960- 1980-
1900 1919 1939 1959 1979 1996 TOTAL
---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. NAVY SHIPS:
Aircraft Carriers................... -- -- 3 14 3 9 29
Submarines.......................... -- 8 -- -- 29 24 61
Amphibious Cargo; Attack Cargo;
Amphibious Flagship; Ammunition.... -- -- -- 53 5 -- 58
Battleships......................... -- 11 2 1 -- -- 14
Cruisers............................ -- 5 4 9 5 1 24
Destroyers.......................... -- 17 14 -- -- -- 31
Miscellaneous; including Coast Guard
Cutters, Landing Ships (Dock) and
Landing Ships (Tank)............... 3 10 1 31 2 -- 47
--- --- --- --- --- --- ---
Total U.S. Navy Ships............... 3 51 24 108 44 34 264
--- --- --- --- --- --- ---
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
PRE 1900- 1920- 1940- 1960- 1980-
1900 1919 1939 1959 1979 1996 TOTAL
---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL SHIPS:
Cargo Vessels....................... 8 35 4 13 14 -- 74
Freighters.......................... -- -- -- 190 -- -- 190
Passenger Liners.................... 2 17 33 11 -- -- 63
Tankers............................. -- 22 11 42 11 4 90
Miscellaneous, including Dredges,
Ferry Boats, Steamers, (Bay and
River), Tugs and Yachts............ 8 20 22 2 -- -- 52
--- --- --- --- --- --- ---
Total Commercial Ships.............. 18 94 70 258 25 4 469
--- --- --- --- --- --- ---
OTHER VESSELS (Barges, Caissons, Car
Floats, Pilot Boats)................. -- -- -- -- -- -- 73
--- --- --- --- --- --- ---
TOTAL U.S. NAVY, COMMERCIAL AND OTHER
SHIPS................................ 21 145 94 366 69 38 806
=== === === === === === ===
</TABLE>
U.S. Navy
The Company believes it currently is the only manufacturer in the U.S.
capable of constructing nuclear-powered aircraft carriers. Currently, the
Company is constructing two Nimitz-class nuclear-powered aircraft carriers,
the Truman and the Reagan, which are scheduled for delivery in 1998 and 2002,
respectively. A contract for an additional Nimitz-class aircraft carrier is
currently anticipated to be awarded in or before 2002. The first ship in a new
class of aircraft carrier, the CVX-78, is anticipated to be awarded in 2006.
Because of its past experience in manufacturing aircraft carriers, and the
lack of direct competitors, the Company believes it is in a strong competitive
position to be awarded these contracts, although no assurances can be made
that it will be awarded these contracts, that these projects will not be
delayed, or that these contracts will be funded by Congress.
The Company is also one of two producers of nuclear-powered submarines.
Currently, the only other competitor is Electric Boat, a wholly-owned
subsidiary of General Dynamics. The Company delivered its last Los Angeles-
class submarine on August 15, 1996. In 1987, the Company was awarded the lead
design contract for the Seawolf submarine. However, due to the end of the Cold
War, there was a dramatic cutback in the Seawolf program to three submarines
which are being constructed by Electric Boat. More recently the Company was
designated by legislation to build two of the next generation of attack
submarines known as the new nuclear attack submarines or NSSN program. The
Company anticipates that it will construct the second and the fourth NSSN
submarines, and that Electric Boat will construct the first and third NSSN
submarines. After the fourth NSSN submarine, the Company and Electric Boat are
expected to compete against each other for additional NSSN construction
contracts by competitive bidding. The Company has constructed 53 nuclear-
powered submarines, including 39 attack submarines and 14 of the larger, fleet
ballistic missile submarines.
The Company has formed an alliance with Ingalls Shipbuilding (the prime
contractor), Lockheed Martin and National Steel to submit a bid for the LPD-17
program. The LPD-17 is a program for the design and construction of non-
nuclear amphibious assault ships. According to current U.S. Navy estimates,
twelve ships are expected to be built in the LPD-17 program. The U.S. Navy has
stated that it currently expects that the LPD-17 vessels will be a mainstay of
the U.S. Navy over the next two decades, replacing a number of vessels nearing
the end of their useful lives. The Company (with its alliance) submitted its
bid for the LPD-17 program on June 28, 1996. The contract for the LPD-17
program is expected to be awarded prior to the end of 1996. Competing firms
have also formed an alliance and submitted a bid.
An alliance consisting of the Company, Ingalls Shipbuilding and Lockheed
Martin, was recently awarded a contract to develop design concepts for the
Arsenal Ship. The Company's alliance was one of five alliances to receive such
an award. Current U.S. Navy plans call for a downselect to two alliances
following evaluation of submitted concepts. Ultimately, one alliance is
expected to prevail in the award of a construction contract.
The Company is also completing conversion of two container ships to "roll-
on, roll-off" heavy armored vehicle Sealift transportation ships for the U.S.
Navy. The first ship was delivered in August 1996 and the second ship is
scheduled to be delivered in March 1997.
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Commercial
As part of its expansion strategy, the Company has also been pursuing orders
for products and services from commercial customers.
In 1994 and 1995, the Company entered into fixed price contracts (which
shift the risks of construction costs that exceed the contract price to the
Company) to construct four Double Eagle product tankers for affiliates of
Eletson at a price of $36 million per ship. Construction of the first tanker
is substantially complete; construction has begun on the second tanker; and a
substantial portion of the materials needed for the construction of the three
uncompleted tankers has been ordered. The Company presently estimates that
these ships will be constructed over the period ending in February, 1998. In
connection with the construction of these four tankers, the Company has
incurred or estimates it will incur costs of approximately $90 million in
excess of the fixed contract prices. As of September 30, 1996, the full amount
of these excess costs has been reserved for by a charge against income.
Disagreements have arisen with the purchasers during the course of
construction as to whether the first and second ships were and are being
constructed in compliance with the specifications set forth in the contracts,
and the purchasers sent letters to the Company purporting to invoke the
procedures set forth in the contracts for resolution of this situation and
requested that the Company in the interim stop construction on the ships. The
Company saw no reason to stop construction on the ships because of its
confidence that the ships will be in compliance with all contract and
classification society requirements. The purchasers have withdrawn both their
invocation of the dispute resolution procedures under the contracts and their
request that the Company cease further construction of the ships. Discussions
between the Company and the purchasers to date have resulted in the resolution
of a significant number of these disagreements, although some remain
unresolved and are the subject of further discussions. No assurances can be
given as to the effect the resolution of these remaining disagreements will
have on the Company (although the Company does not believe such resolution
will materially and adversely affect it) or the extent to which the remaining
work on these contracts can be completed without further disagreements with
the purchasers or the incurrence of additional losses in excess of current
estimates, although the Company currently believes it can complete the four
ships within the current estimate of cost. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Business Outlook"
and Note 13 to the Combined Financial Statements of the Company.
In 1995, the Company entered into fixed price contracts with HVO to
construct an additional five Double Eagle product tankers having a somewhat
different design for the domestic Jones Act market at a current average price
of $43.4 million per ship. The Company is in the process of completing its
design work on these ships and expects to begin construction in the first half
of 1997. These ships are scheduled for delivery in 1998. The Company presently
estimates that it will break even on these ships on an aggregate basis, but
there can be no assurance that the costs incurred in constructing these ships
will not exceed the contract prices for them.
These double-hull tankers are intended to serve the market currently served
by single-hull product carriers whose retirement is mandated by the OPA 90.
The OPA 90 requires, among other things, that existing single-hull ships must
be retired from domestic transportation of petroleum products between 1995 and
2015 unless retrofitted with double hulls.
On October 8, 1996, the President signed into law, H.R. 1350--the Maritime
Security Act of 1996 (the "Maritime Act"), amending Title XI of the Merchant
Marine Act, 1936. The Maritime Act, among other things, (i) authorizes a $1
billion, 50-ship ten-year subsidy program for ship owners who agree to make
their ships available to the Department of Defense during national
emergencies, (ii) gives the U.S. Maritime Administration greater flexibility
in assigning risk factors to guaranteed loans and (iii) modifies several
aspects of the assessment and payment of loan guarantee fees. The primary
purpose of this Act is to assist ship operators and U.S. seamen, but the
legislation also has provisions which can indirectly assist U.S. shipbuilders.
The effect of these legislative changes is uncertain, but generally more
Title XI loan guarantee authority should be available (assuming Title XI funds
continue to be appropriated), on a facilitated basis, for potential purchasers
of U.S.-built ships. It is
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unclear whether any of the new ships would be purchased from the Company, and
further whether the Company would be in a position to build any such ships at
a significant profit. Accordingly, at this time the Company is unable to
determine that it reasonably expects this development to have a material
impact on its business.
Although the commercial market is growing, a current overcapacity of
suppliers has favored buyers and hindered the profitability of shipyards.
Additionally, overseas firms control almost all of the international
commercial shipbuilding market. Many of the Company's global competitors enjoy
government and/or corporate subsidies. The Company is exploring various
possibilities to penetrate this market; however, there can be no assurance
that the Company's efforts in this market will be successful. See "Risk
Factors--Competition and Regulation."
Foreign Military
Several U.S. allies overseas have or plan to embark on navy modernization
programs. Most of these programs anticipate the purchase of one or more
frigate size ships. The Company has developed a flexible, multi-mission design
frigate called the FF-21 and has submitted bids for the construction of these
ships to the United Arab Emirates and Kuwait, and is in the process of
developing bids for Norway and the Philippines. A number of international
companies compete for these sales, and this market would represent a new
market for the Company. To better position itself for the United Arab Emirates
market, the Company subscribed to purchase a 40% interest in the Abu Dhabi
Ship Building Company ("ADSB") in 1995. ADSB is currently renovating an
existing shipyard and designing a new shipyard which it plans to construct to
replace the existing one. Each is to service shipbuilding and repair demands
of the United Arab Emirates military and regional maritime fleets. The Company
believes that its equity investment in ADSB may also serve as a means for the
Company to satisfy offset obligations to the United Arab Emirates, if any,
arising from contracts for sales of FF-21s or other ships. Typically, offset
obligations, when applicable, require an investment, capital expenditure,
training commitment or other benefit for the country making the purchase. The
Company is obligated to make an additional payment of $9.6 million with
respect to its 40% equity interest in ADSB on December 17, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Other Investing Cash Flows." If
there is a change in control of Newport News, the Abu Dhabi Government has the
right to require the Company to sell all of its shares to the Abu Dhabi
Government or such other person(s) as the Abu Dhabi Government may nominate at
a price determined as set forth in the Founder's Agreement relating to the
Company's investment in ADSB (the "Founder's Agreement"). The right of the Abu
Dhabi Government to exercise its purchase option in relation to a particular
event is deemed to be waived if not exercised within 90 days of the date the
Abu Dhabi Government becomes aware of such event. The Shipbuilding
Distribution will cause a change in control of Newport News under the
Founder's Agreement. The Founder's Agreement reflects the oral agreement of
these matters between the parties thereto but has not yet been executed.
REPAIR AND OVERHAULS
U.S. Navy Nuclear Refueling, Overhaul and Conversion
The Company provides ongoing maintenance for the U.S. Navy's vessels through
overhauling, refueling and
repair work. The Company possesses unique expertise in servicing nuclear naval
systems, and believes it currently is the only non-government-owned shipyard
capable of refueling nuclear-powered aircraft carriers. Puget Sound, a
government-owned shipyard, could refuel nuclear-powered carriers if it made
additional investments in its facilities, and Portsmouth Naval Shipyard, a
government-owned shipyard in Kittery, Maine, is presently involved in nuclear
refueling, overhauling and de-activating Los Angeles-class submarines. As a
result, the Company has had a leading share of the market in aircraft carrier
refueling and overhauls.
Since aircraft carrier work is generally assigned by the U.S. Navy based on
the type of work, location and cost, the Company intends to maintain its
leadership in this area of business by, among other things, positioning the
Company as a low-cost refueling center, and providing unique competencies such
as nuclear fuel handling. The Company completed the overhaul work for the
Enterprise in 1994, and is currently overhauling the Eisenhower. The Company
also completes "Post Shake-Down Availabilities" on submarines. This process
involves making repairs and performing maintenance after sea trials of the
completed submarine.
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<PAGE>
Naval Non-Nuclear Surface Ship Repair
The Company was able to diversify its overhaul work by winning its first
contract to overhaul a guided missile cruiser, the Thorn. In 1995, the Company
experienced a $31 million increase from 1994 in repair and overhaul revenues
as a result of the repair and overhaul of the Thorn, together with increases
in other miscellaneous U.S. Navy repairs. Subsequently, it overhauled its
first Aegis radar-equipped ship, the USS Monterey. The Company has a number of
competitors bidding for a substantial share of U.S. Navy non-nuclear repair
and overhaul contracts, such as Norfolk Shipbuilding and Dry Dock Corporation
and Metro Machine.
Commercial Vessels
From February, 1992 through December, 1995, the Company completed over 100
ship repair or overhauls of commercial vessels. The Company believes that the
world's commercial fleet, on average, is approximately 15 years old; repair of
this fleet is undertaken on an ongoing basis. Furthermore, the Company expects
seaborne trade to exhibit steady growth over the next 10 years in all major
segments--oil, dry cargo and general cargo. While some customers are primarily
concerned with price, other customers also give substantial weight to other
factors such as geographic location, dock availability, manpower supply and
the amount of time spent in dock. The Company believes it has successfully
differentiated itself from its competitors as a premium quality repair
shipyard, with specialized facilities and an extensive workforce. The Company
also believes that by engaging in the commercial ship repair market, it should
be able to transfer its experience to new construction of commercial vessels,
as well as to its core U.S. Navy business.
ENGINEERING AND DESIGN
The Company provides engineering planning and design services to both U.S.
Government and commercial customers. The Company maintains a stable level of
funded engineering support for the U.S. Navy. Support services provided by the
Company include new aircraft carrier research and development, aircraft
carrier non-nuclear overhaul planning, the reactor plant planning yard,
aircraft carrier engineering support, and training and logistics. The Company
is a leader in aircraft carrier design, accounting for the majority of ship
integration and related design development for the Naval Sea Systems Command
("NAVSEA"). The Navy's Puget Sound and Norfolk Naval Shipyards, however, are
typically assigned the design contracts for the non-nuclear portions of the
aircraft carriers. The Company has been able to apply its engineering
capabilities in a variety of projects for the U.S. Navy, including being the
lead design yard for the Los Angeles and Seawolf-class submarines. See "Risk
Factors--Competition and Regulation."
The Company also employs its engineering capabilities to successfully secure
and complete commercial and frigate construction contracts. In this respect,
the Company is developing generic class designs and plans to minimize new
product costs, dramatically reduce cycle times for design and production, and
develop commercial ship engineering expertise through selective international
recruiting and strategic alliances.
OTHER
As part of its expansion strategy, the Company also intends to actively
pursue opportunities in the management and operation of U.S. Department of
Energy nuclear sites. The Company believes that, among other things, its
ability to effectively conduct radiological control operations and manage
large integrated sites, its world-class health, safety and environmental
practices, and its experienced personnel in the areas of Spent Nuclear Energy
("SNE") would provide for a strong foundation in pursuing such opportunities.
The Company is also forming alliances with other companies with complementary
experiences to bid on some of these site management contracts.
MATERIALS AND SUPPLIES
The principal materials used by the Company in its shipbuilding, conversion
and repair business are standard steel shapes, steel plate and paint. Other
materials used in large quantities include aluminum, copper-nickel and steel
pipe, electrical cable and fittings. The Company also purchases component
parts such as propulsion systems, boilers, generators and other equipment. All
of these materials and parts are currently available in adequate supply from
domestic and foreign sources. Generally, for all its long-term contracts, the
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<PAGE>
Company obtains price quotations for its materials requirements from multiple
suppliers to ensure competitive pricing. In addition, through the cost
escalation provisions contained in its U.S. Government contracts, the Company
is generally protected from increases in its materials costs to the extent
that the increases in the Company's costs are in line with industry indices.
In connection with its government contracts, the Company is required to
procure certain materials and component parts from supply sources approved by
the U.S. Government. The Company has not generally been dependent upon any one
supply source; however, due largely to the consolidation of the defense
industry, there are currently several components for which there is only one
supplier. The Company believes that these sole source suppliers as well as its
overall supplier base are adequate to meet its future needs.
HEALTH, SAFETY AND ENVIRONMENTAL
In 1995, the Company became the only shipyard to be awarded the Star Award
from the Occupational Safety and Health Administration's Voluntary Protection
Program. To earn this award, the Company and its unions joined efforts and
supported the participation in the Voluntary Protection Program in which all
parties help each other to make the Company's shipyard a safer place to work.
The Company is the only shipyard and the largest single site (of any type) in
the United States to earn the Star Award; the next largest facility to earn
this award was approximately one-half the size of the Company.
The Company has also been recognized by its Local Sanitation District
(Hampton Roads Sanitation District) as a Gold Award Winner for its management
of wastes going to the local water treatment system.
The Company is subject to stringent environmental laws and regulations in
all jurisdictions in which it operates. Management of the Company believes
that the Company is in general compliance with all applicable environmental
regulations, and historical environmental compliance costs incurred by the
Company have not been significant. Like all of its competitor shipbuilders,
the Company will be required to upgrade its air emission control facilities
pursuant to recently drafted regulations under the Clean Air Act Amendments of
1990. These regulations call for a phased-in compliance program so that the
Company will incur its expenditures during the years from 1997 through 2000.
The Company's preliminary estimate of the cost of these upgrades is between
$10 million and $15 million. Although there can be no certainties, management
does not believe that future environmental compliance costs for the Company
will have a material adverse effect on the Company's financial condition or
results of operations. The Nuclear Regulatory Commission, the Department of
Energy and the Department of Defense regulate and control various matters
relating to nuclear materials handled by the Company. Subject to certain
requirements and limitations, the Company's government contracts generally
provide for indemnity by the U.S. Government for any loss arising out of or
resulting from certain nuclear risks.
PROPERTIES
The Company's facilities are located in Newport News, Virginia on
approximately 550 acres owned by the Company at the mouth of the James River,
which is part of Chesapeake Bay, the premier deep water harbor on the east
coast of the United States. The Company's shipyard is one of the most
technically advanced in the world. Its facilities include seven graving docks,
a floating dry dock, two outfitting berths and five outfitting piers. Dry Dock
12 is the largest in the Western Hemisphere, and has recently been extended to
662 meters. Dry Dock 12 is serviced by a 900 metric ton capacity gantry crane
that spans the dry dock and work platen.
The Company's shipyard also has a wide variety of other facilities including
an 11-acre all weather on-site steel fabrication shop, accessible by both rail
and transporter, a module outfitting facility which enables the Company to
assemble a ship's basic structural modules indoors and on land, machine shops
totaling 300,000 square feet, and its own school which provides a four-year
accredited apprenticeship program that trains shipbuilders.
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<PAGE>
The Company believes that substantially all of its plants and equipment are,
in general, well maintained and in good operating condition. They are
considered adequate for present needs and, as supplemented by planned
construction, are expected to remain adequate for the near future. The
Company's shipbuilding facilities were originally built on dredged fill
material beginning at the southern end of the site. Over the last 100 years,
the facilities expanded northward by sequential filling. A large portion of
the fill material consists of waste generated on-site by shipbuilding
activities.
INVESTIGATIONS AND LEGAL PROCEEDINGS
Retirement Plan
Tenneco and the Company 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 the Company and other Tenneco
divisions. The DCAA has been advised that (i) the TRP will retain the
liability for all benefits accrued by the Company's employees through the
Distribution Date, (ii) the Company's employees will not accrue additional
benefits under the TRP after the Distribution Date and (iii) no liabilities or
assets of the TRP will be transferred from the TRP to any plan maintained by
the Company. A determination of the ratio of assets to liabilities of the TRP
attributable to the Company will be based on facts, assumptions and legal
issues which are complicated and uncertain; however, it is likely that the
Government will assert a claim against the Company with respect to the amount,
if any, by which the assets of the TRP attributable to the Company's employees
are alleged to exceed the liabilities. New Tenneco, with the full cooperation
of the Company, will defend against any claim by the Government, and in the
event there is a determination that an amount is due to the Government, New
Tenneco and the Company will share its obligation for such amount plus the
amount of related defense expenses, in the ratio of 80% and 20%, respectively.
Pending a final determination of any such claim, the Government may, absent an
agreement with the Company to defer the payment of the amounts claimed,
withhold all or a portion of all future progress payments due the Company
under its government contracts until it has recovered its alleged share of the
claimed amount plus interest. In the event of a claim by the Government, the
Company will diligently seek a deferral agreement with the Government;
however, there can be no assurance that the Company will be able to arrange
such an agreement and thus avoid an offset against future progress payments
pending a final determination. At this preliminary stage, it is impossible to
predict with certainty any eventual outcome regarding this matter; however,
the Company does not believe that this matter will have a material adverse
effect on its financial condition or results of operations.
CVN-76 Cost and Pricing Data Submission
In March 1995, the DCAA informed the Company that it would conduct a post-
award audit of the contract to build the aircraft carrier Reagan (CVN-76),
pursuant to federal regulations relating to defective cost and pricing data.
The audit concerns the Company's submission to the U.S. Navy of data relating
to labor and overhead costs in connection with the proposals and negotiations
relating to the CVN-76 contract. The audit is ongoing and the DCAA has not
issued its audit report. In informal discussions with DCAA auditors, however,
the DCAA auditors indicated that the $2.5 billion CVN-76 contract price should
be reduced by approximately $122 million based on an alleged submission of
defective cost and pricing data.
In addition, in May 1996, the Company received a subpoena from the Inspector
General of the Department of Defense requesting documents in connection with a
joint inquiry being conducted by the Department of Defense, the Department of
Justice, the U.S. Attorney's Office for the Eastern District of Virginia, and
the Naval Criminal Investigative Service. Like the DCAA audit, the
investigation appears to focus on whether data relating to labor and overhead
costs that the Company supplied in connection with the proposals and
negotiations relating to the CVN-76 contract were current, accurate, and
complete. In 1995, Inspector General subpoenas were also served on at least
two of the Company's consultants. The Company believes that these subpoenas
are part of this same inquiry.
The Government has not asserted any formal claims against the Company
relating to these CVN-76 contract matters. Based on the Company's present
understanding of the focus of the inquiries, it is the Company's opinion that
it has substantial defenses to claims that the Government might potentially
assert that the Company
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<PAGE>
submitted cost or pricing data relating to its labor and overhead costs that
were not current, accurate, and complete in its proposals or during the
negotiations for the CVN-76 contract. It is the Company's intention to
vigorously assert these defenses in the event that the Government should
assert such claims. Based on the Company's present understanding of the claims
the Government might assert concerning the CVN-76 contract, the Company is of
the opinion that the ultimate resolution of such claims will not have a
material adverse effect on the financial condition or results of operations of
the Company.
However, the early stage of the investigation and audit relating to the CVN-
76 contract, and the uncertainties and vagaries attendant to such
investigations and audits and any litigation which may ultimately arise with
respect to these potential claims make it impossible to predict with certainty
any eventual outcome. Construction of the Reagan (CVN-76) is scheduled for
completion in 2002 and the contract represents a substantial portion of the
Company's current backlog of business. Depending on the outcome of the audit
and investigation, the Company could be subject, under various civil and
criminal statutes, to a reduction to the CVN-76 contract price and to fines
and other penalties, including the suspension or debarment from government
contracting work. Any of these in substantial amounts could have a material
adverse effect on the Company's financial condition and results of operations.
Pending the ultimate resolution of the investigation and audit relating to
the CVN-76 contract and to reduce the consequences of an adverse outcome, the
Company has taken steps to adjust its future progress billings on the CVN-76
contract. Although these steps will reduce the Company's cash flow pending a
final resolution, management believes these steps will not have a material
adverse effect on the Company's financial condition or results of operations.
See "Risk Factors--Profit Recognition; Government Contracting."
Other
As a general practice within the defense industry, the DCAA continually
reviews the cost accounting practices of government contractors. In the course
of those reviews, cost accounting issues are identified, discussed and
settled, or resolved through legal proceedings. In addition, various
government agencies may at any time be conducting various other investigations
or making specific inquiries. The Company is currently engaged in discussions
on several cost accounting and other matters in addition to those described
above. The Company is also a party to numerous other legal proceedings
relating to its business and operations. The Company believes that the outcome
of these cost accounting or other matters and proceedings will not have a
material adverse effect on the Company's financial condition or results of
operations.
Additionally, the Kirby Corporation ("Kirby"), an owner and operator of
several tankers with which the Company's Hvide Van Ommeren tankers (the "Van
Ommeren Tankers") will compete, has instituted three legal proceedings
effectively seeking to have construction of the Van Ommeren Tankers stopped
(the "Kirby Proceedings"). The Company is not a party to the Kirby
Proceedings. The first Kirby Proceeding, brought in the United States District
Court for the District of Columbia, was voluntarily dismissed. Kirby
Corporation v. The Honorable Frederico Pena (No. CA 96-0019). The other two
Kirby Proceedings have been consolidated and are currently pending in the
United States Court of Appeals for the Fifth Circuit. Kirby Corporation v. The
Honorable Frederico F. Pena, et al. (No. 96-20582); Kirby Corporation v. The
United States of America, et al. (No. 96-60154). Kirby alleges that the U.S.
Maritime Administration acted unlawfully in guaranteeing, pursuant to Title XI
of the Merchant Marine Act, 1936, as amended ("Title XI"), the $215 million of
ship financing bonds issued to finance the construction of the Van Ommeren
Tankers. Kirby asserts that the U.S. Maritime Administration erroneously
determined that the project is economically sound and that the entities that
will own the vessels are U.S. citizens qualified to operate the vessels in the
coastwide trade. Certain of the entities that will own the vessels have
intervened in the Kirby Proceedings to support the U.S. Department of Justice
in having the first Kirby Proceeding dismissed and in defending and seeking
the dismissal of the remaining Kirby
Proceedings. The Company believes that the Kirby Proceedings are without
merit. Based on discussions with counsel, the Company believes that, even in
the event that Kirby ultimately prevails in the Kirby Proceedings, the matter
is not likely to have a material adverse effect on the Company because the
Kirby Proceedings are expected to extend beyond the delivery dates for some or
all of the Van Ommeren Tankers and the project would be completed or near
completion.
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<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
Upon consummation of the Shipbuilding Distribution, the NNS Board will
consist of three members. Each director will serve for a term expiring at the
annual meeting of stockholders in the year indicated below and until his
successor shall have been elected and qualified. Pursuant to the Certificate
(as defined herein), the NNS Board is divided into three classes. Information
concerning the individuals who will serve as directors of NNS as of the
Distribution Date is set forth below.
Term Expiring at the 1997 Annual Meeting of Stockholders (Class I)
WILLIAM P. FRICKS has served as the President of Newport News since
September, 1994, and as its Chief Executive Officer since November, 1995. Mr.
Fricks first joined Newport News in the Industrial Engineering Department
after graduating from college in 1966. He was then appointed Controller and
Treasurer of Newport News in 1979, Vice President-Finance in 1980, Vice
President in charge of various business functions (Marketing, Human Resources
and Technical) from 1983 to 1988, Senior Vice President in 1988, Executive
Vice President in 1992, and President and Chief Operating Officer in 1994. Mr.
Fricks is 52 years old. Mr. Fricks is currently the Vice Chairman of the Board
of Directors of the American Shipbuilding Association and is on the Board of
Directors of the Virginia Manufacturers Association. On July 1, 1996, Mr.
Fricks was appointed to the Board of Visitors of the College of William and
Mary.
Term Expiring at the 1998 Annual Meeting of Stockholders (Class II)
JOSEPH J. SISCO has been a partner of Sisco Associates, a management
consulting firm, since January 1980. From 1976 until January 1980, he served
as President of The American University, and, until February 1981 he was
Chancellor of that University. Prior to 1976, Dr. Sisco was employed by the
United States Department of State for 25 years, last serving as Under
Secretary of State for Political Affairs. He is also a director of The
Interpublic Group of Companies, Inc., Raytheon Company, and Braun AG. Dr.
Sisco is 76 years old and served as a Director of Tenneco from 1977 until his
retirement from the Tenneco Board in May 1996. Prior to his retirement, he
also served as a member of the Executive Committee, the Nominating and
Management Development Committee, and as a member and the Chairman of the
Compensation and Benefits Committee of Tenneco.
Term Expiring at the 1999 Annual Meeting of Stockholders (Class III)
DANA G. MEAD has served as an executive officer of Tenneco since April 1992,
when he joined Tenneco as Chief Operating Officer. Prior to joining Tenneco,
Mr. Mead served as an Executive Vice President of International Paper Company,
a manufacturer of paper, pulp and wood products, from 1988, and served as
Senior Vice President of that company from 1981. He is also a director of Alco
Standard Corporation, Baker Hughes Incorporated, Case Corporation and Textron
Inc. Mr. Mead is 60 years old and has been a director of Tenneco since April
1992. He has served as a member and Chairman of the Executive Committee and an
ex officio member of the Audit, and Nominating and Management Development
Committees of Tenneco.
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EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who will serve as executive officers of the Company after the Shipbuilding
Distribution. Each such person will be elected to the indicated office with
the Company in anticipation of the Shipbuilding Distribution and will serve at
the direction of the NNS Board and the Board of Directors of Newport News.
<TABLE>
<CAPTION>
NAME (AND AGE AT JULY EFFECTIVE
31, 1996) OFFICES HELD* DATE OF TERM
--------------------- ------------- --------------
<S> <C> <C>
William P. Fricks(52)... President and Chief Executive Officer November 1995
President and Chief Operating Officer January 1995
Executive Vice President January 1992
Senior Vice President September 1988
Thomas C.
Schievelbein(43)....... Executive Vice President--Operations October 1995
Vice President--Human Resources and Administration January 1995
Vice President--Strategy and Naval Program Development January 1994
Vice President--Naval Marketing March 1993
Director--Naval Marketing March 1992
Director--Marketing Field Office January 1990
David J. Anderson(47)... Senior Vice President and Chief Financial Officer July 1996
Thomas J. Bradburn(53).. Vice President--Finance and Corporate Controller September 1996
Vice President--Finance September 1986
Stephen B. Clarkson(59). Vice President, General Counsel and Secretary January 1991
Whylen G. Cooper(46).... Vice President--Sourcing November 1995
William G. Cridlin,
Jr.(50)................ Vice President--Marketing January 1995
Vice President--Commercial Shipbuilding April 1992
Vice President--Manufacturing September 1988
T. Michael Hatfield(49). Vice President--Communications October 1995
Director--Public Relations November 1993
Robert C. Hoard(57)..... Vice President--Trades Management and Manufacturing October 1995
Director--Trades and Manufacturing January 1994
Director--Trades August 1993
Director--Steel Fabrication April 1991
Director--Machine Shop and Foundry June 1989
Alfred Little, Jr.(49).. Vice President--Human Resources July 1996
James A. Palmer(59)..... Vice President--Commercial Nuclear October 1995
Vice President--Engineering January 1995
Vice President--Aircraft Carriers April 1992
Director--Engineering Administration January 1991
Marc Y. E. Pelaez(50)... Vice President--Engineering August 1996
John E. Shephard,
Jr.(40)................ Vice President--Strategy and Process Innovation October 1995
Director--Strategic Planning August 1993
Patrick A. Tucker(49)... Vice President--Government Relations December 1996
George A. Wade(52)...... Vice President--Submarine and Refueling Program October 1995
Vice President--Construction January 1995
Vice President--Submarines March 1993
Director--Submarine Construction April 1992
Director--Construction Engineering January 1990
D. R. Wyatt(38)......... Treasurer September 1996
Assistant Treasurer August 1995
Manager of Finance April 1989
</TABLE>
- --------
*Unless otherwise indicated, all offices held are with the Company.
Each of the executive officers of the Company has been continuously engaged
in the business of the Company, its affiliates or predecessor companies during
the past five years except that: (i) from 1991 to 1996, David J. Anderson was
employed by RJ Reynolds Corporation, last serving in the capacity of Executive
Vice President and Chief Financial Officer; from 1987 to 1991, he was employed
by The Quaker Oats Co., last serving
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in the capacity of Senior Vice President--Finance and Customer Service; (ii)
from 1991 to 1995, Wylen G. Cooper was employed by GE Power Systems, last
serving in the capacity of Manager of Sourcing; (iii) from 1989 to 1993, T.
Michael Hatfield was employed by Lockheed Co., last serving in the capacity of
Director of Communications; (iv) from 1992 to 1996, Alfred Little, Jr. was
employed by Sun Co., last serving in the capacity of Vice President--Human
Resources and from 1988 to 1992 in the capacity of Director--Human Resources;
(v) from 1993 to 1996, Marc E. Pelaez was employed by the United States Navy,
last serving in the capacity of Chief of Naval Research; and from 1990 to 1993
in the capacity of Assistant Executive Secretary to the Assistant Secretary of
the Navy; (vi) from 1977 to 1991, John E. Shephard, Jr. was employed as an
Infantry Officer by the United States Army, last serving as Assistant G3,
Operations of the 101st Airborne Division; and from 1991 to 1993 was employed
by the U.S. Army Reserves as an Individual Mobilization Augmentee assigned to
the U.S. Military Academy faculty and to the 157th IMA Detachment in
Washington, D.C.; and (vii) from January 1996 to December 1996, Patrick A.
Tucker was and will continue to be employed by Tenneco, last serving in the
capacity of Executive Director--Government Relations, and from 1994 to 1996,
he was employed by Tenneco, serving as Director--Federal Relations; in 1993,
he was Counsel to Senator John Warner; and from 1983 to 1993 he was the
Minority Staff Director and Counsel to the U.S. Senate Armed Services
Committee.
STOCK OWNERSHIP OF MANAGEMENT
Set forth below is the ownership as of July 31, 1996 (without giving effect
to the Transaction) of the number of shares and percentage of Tenneco Common
Stock beneficially owned by (i) each director of NNS, (ii) each of the
executive officers of the Company whose names are set forth on the Summary
Compensation Table and (iii) all executive officers of the Company and
directors of NNS as a group. Pursuant to the Shipbuilding Distribution, NNS
Common Stock will be distributed to holders of Tenneco Common Stock on the
basis of one share of NNS Common Stock for every five shares of Tenneco Common
Stock. See "Summary of Certain Information--The Shipbuilding Distribution."
<TABLE>
<CAPTION>
SHARES OF TENNECO % OF TENNECO
DIRECTORS COMMON STOCK OWNED(A)(B) COMMON STOCK OUTSTANDING
--------- ------------------------ ------------------------
<S> <C> <C>
William P. Fricks 29,324 (c)
Dana G. Mead 199,284 (c)
Joseph J. Sisco 4,148 (c)
<CAPTION>
EXECUTIVE OFFICERS
------------------
<S> <C> <C>
Thomas C. Schievelbein 14,698 (c)
Stephen B. Clarkson 11,921 (c)
James A. Palmer, Jr. 15,906 (c)
George A. Wade 14,240 (c)
All directors and
executive officers as a
group: 361,708(d) (c)
</TABLE>
- --------
(a) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
set forth in note (b) below) as set forth in this column, except for (i)
shares that are held in trust for each director and executive officer
under the Tenneco restricted stock plans, and (ii) shares that executive
officers of the Company have the right to acquire pursuant to the Tenneco
stock option plans. The restricted stock and stock options were granted by
Tenneco. It is anticipated that the restricted stock held by employees
(including executive officers) will be vested prior to the Distributions.
As described in footnote (e) to the Option Grant Table, it is anticipated
that Tenneco stock options held by Company employees will be replaced by
options to purchase NNS Common Stock upon consummation of the Shipbuilding
Distribution.
(b) Includes shares that are: (i) held in trust under the Company's restricted
stock plans (at July 31, 1996, Messrs. Mead, Fricks, Schievelbein,
Clarkson, Palmer and Wade held 24,500; 6,000; 9,100; 6,800; 8,800; and
8,340 restricted shares, respectively, under the Tenneco restricted stock
plans); and (ii) subject to options, which were granted under Tenneco's
stock option plans, and are exercisable at July 31, 1996 or
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<PAGE>
within 60 days of said date, for Messrs. Mead, Fricks, Schievelbein,
Clarkson, Palmer and Wade to purchase 133,335; 8,880; 3,100; 3,000; 2,100;
and 3,367 shares, respectively.
(c) The percent of the class of Tenneco Common Stock owned by each director
and by all executive officers and directors as a group was less than one
percent.
(d) Includes 165,154 shares of Tenneco Common Stock that are subject to
options that are exercisable by all executive officers of the Company as a
group, and includes 94,505 shares that are held in trust under the Tenneco
restricted stock plans, for all executive officers and directors of the
Company as a group.
COMMITTEES OF THE BOARD OF DIRECTORS
The NNS Board will establish four standing committees as permitted by the
By-laws, which will have the following described responsibilities and
authority:
Audit Committee. The NNS Board will establish an Audit Committee which will
have the responsibility, among other things, to (i) recommend the selection of
the Company's independent public accountants, (ii) review and approve the
scope of the independent public accountants' audit activity and extent of non-
audit services, (iii) review with management and such independent public
accountants the adequacy of the Company's basic accounting system and the
effectiveness of the Company's internal audit plan and activities, (iv) review
with management and the independent public accountants the Company's certified
financial statements and exercise general oversight of the Company's financial
reporting process and (v) review with the Company litigation and other legal
matters that may affect the Company's financial condition and monitor
compliance with the Company's business ethics and other policies.
Compensation and Benefits Committee. The NNS Board will establish a
Compensation and Benefits Committee which will have the responsibility, among
other things, to (i) establish the salary rate of officers and employees of
the Company, (ii) examine periodically the compensation structure of the
Company and (iii) supervise the welfare and pension plans and compensation
plans of the Company.
Nominating and Management Development Committee. The NNS Board will
establish a Nominating and Management Development Committee which will have
the responsibility, among other things, to (i) review possible candidates for
election to the NNS Board and recommend a slate of nominees for election as
directors at NNS' annual stockholders' meeting, (ii) review the function and
composition of the other committees of the NNS Board and recommend membership
on such committees and (iii) review the qualifications and recommend
candidates for election as officers of the Company.
Executive Committee. The NNS Board will establish an Executive Committee.
Other than matters assigned to the Compensation and Benefits Committee, the
Executive Committee will have, during the interval between the meetings of the
NNS Board, the authority to exercise all the powers of the NNS Board that may
be delegated legally to it by the NNS Board in the management and direction of
the business and affairs of the Company.
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<PAGE>
EXECUTIVE COMPENSATION
Prior to the Shipbuilding Distribution, the Shipbuilding Business was owned
and operated by Tenneco through its direct and indirect subsidiaries and as
such, the management of the Company has been employed by Tenneco and its
direct and indirect subsidiaries. The following table sets forth the
remuneration paid by Tenneco and/or its direct and indirect subsidiaries (i)
to the President and Chief Executive Officer of the Company and (ii) to each
of the four key executive officers expected to be the most highly compensated
executive officers of the Company, other than the Chief Executive Officer,
whose salary and bonus exceeded $100,000, for the years indicated in
connection with his position with the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION(A)(B) YEAR SALARY(C) BONUS COMPENSATION(D) AWARDS(E) OPTIONS COMPENSATION(F)
- ------------------------ ---- --------- -------- --------------- ---------- ------- --------------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William P. Fricks(g) 1995 $323,759 $195,000 $29,591 -- 12,000 $34,680
President and Chief 1994 $276,960 $145,000 $14,156 $161,814 7,000 $35,226
Executive Officer 1993 $265,326 $125,000 $ 2,823 $139,875 0 $31,782
Thomas C. Schievelbein 1995 $188,202 $ 90,000 $ 7,188 $ 90,038 3,300 $ 9,810
Executive Vice President 1994 $125,000 $ 75,000 $ 7,829 $107,876 3,000 $ 8,288
1993 $115,000 $ 55,000 $ 2,109 $ 69,938 0 $ 6,946
David J. Anderson -- -- -- -- -- -- --
Senior Vice President
and Chief Financial
Officer(h)
Stephen B. Clarkson 1995 $200,400 $ 75,000 $ 6,664 $ 85,750 3,000 $13,287
Vice President, General 1994 $199,920 $ 84,000 $ 7,203 $ 80,907 3,000 $11,767
Counsel and Secretary 1993 $190,000 $ 60,000 $ 2,142 $ 69,938 -- $11,431
James A. Palmer, Jr. 1995 $206,760 $ 95,000 $ 6,735 $ 98,613 3,500 $31,735
Vice President 1994 $189,480 $ 95,000 $ 7,732 $107,876 3,150 $30,752
1993 $183,246 $ 80,000 $ 2,434 $102,575 -- $29,902
George A. Wade 1995 $195,960 $ 90,000 $ 6,664 $ 98,613 3,500 $24,299
Vice President 1994 $139,800 $ 95,000 $ 7,227 $107,876 3,150 $22,252
1993 $131,406 $ 80,000 $ 973 $ 95,l15 -- $ 9,946
</TABLE>
- --------
(a) William R. Phillips served as Chairman and Chief Executive Officer of
Newport News from September 13, 1994 until his retirement effective
October 31, 1995. Mr. Phillips will not serve as an executive officer of
the Company.
(b) Dana G. Mead received compensation from Tenneco for services rendered to
Newport News. Mr. Mead will continue to serve as a director of the Company
but will not serve as an executive officer of the Company.
(c) Includes base salary plus amounts paid in lieu of Company matching
contributions to the Tenneco Inc. Thrift Plan.
(d) Includes amounts attributable to (i) the value of personal benefits
provided by the Company to its executive officers, which have an aggregate
value in excess of $50,000, such as the personal use of Company owned
property, membership dues, assistance provided to such persons with regard
to financial, tax and estate planning, (ii) reimbursement for taxes and
(iii) amounts paid as dividend equivalents on performance share equivalent
units under the Company's Stock Ownership Plan ("Dividend Equivalents").
The amount of each such personal benefit that exceeds 25% of the estimated
value of the total personal benefits provided by the Company,
reimbursement for taxes and amounts paid as Dividend Equivalents to the
individuals
74
<PAGE>
named in the table was as follows: During 1995: $15,191 for reimbursement
for taxes, and $14,400 in Dividend Equivalents paid to Mr. Fricks; $7,188,
$6,664, $6,735, and $6,664, for reimbursement for taxes for Messrs.
Schievelbein, Clarkson, Palmer and Wade, respectively; During 1994: $6,130,
$2,938, $2,312, $2,841, and $2,337, for reimbursement for taxes for Messrs.
Fricks, Schievelbein, Clarkson, Palmer and Wade, respectively; During 1993:
$2,823, $2,109, $2,142, $2,434, and $973, for reimbursement for taxes for
Messrs. Fricks, Schievelbein, Clarkson, Palmer and Wade, respectively.
(e) Includes the dollar value of grants of restricted stock made pursuant to
Tenneco restricted stock plans based on the price of the Tenneco Common
Stock on the date of grant. At December 31, 1995, Messrs. Fricks,
Schievelbein, Clarkson, Palmer and Wade, held 20,000; 6,435; 6,330; 8,390;
and 7,450 restricted shares and/or performance share equivalent units,
respectively, under such plans. The value at December 31, 1995, (based on
per equivalent units held) was $992,500 for Mr. Fricks; $319,337 for Mr.
Schievelbein; $314,126 for Mr. Clarkson; $416,354 for Mr. Palmer; and
$369,706 for Mr. Wade. Dividends/Dividend Equivalents will be paid on the
restricted shares and performance share equivalent units held by each
individual.
(f) Includes amounts attributable during 1995 to benefit plans of the Company
as follows:
(1) The amounts contributed pursuant to the Tenneco Inc. Thrift Plan for
the accounts of Messrs. Fricks, Schievelbein, Clarkson, Palmer and Wade
were $9,240, $8,656, $7,500, $9,240, and $9,240 respectively.
(2) The amounts accrued under the Tenneco Inc. Deferred Compensation Plan,
together with adjustments based upon changes in the Consumer Price Index
for All Urban Households, as computed by the Bureau of Labor Statistics,
for Messrs., Fricks, Wade and Palmer were $19,662; $11,566; and $11,566,
respectively.
(3) Amounts imputed as income for federal income tax purposes under the
Company's group life insurance plan for Messrs. Fricks, Schievelbein,
Clarkson, Palmer and Wade were $5,779; $1,154; $5,787; $9,402; and
$3,493, respectively.
(g) William P. Fricks has served as President and Chief Executive Officer of
Newport News since November 1, 1995, prior to which he served as President
and Chief Operating Officer from January 24, 1995. Prior to that time, Mr.
Fricks also served as an Executive Vice President of Newport News from
January 1, 1992 and prior to which he served as a Senior Vice President
from September 1, 1988.
(h) David J. Anderson became the Company's Senior Vice President and Chief
Financial Officer on July 22, 1996 at an annual base salary of $260,000.
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OPTION GRANTS IN 1995
The following table sets forth the number of stock options to acquire
Tenneco Company Stock that were granted by Tenneco during 1995 to the persons
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(D)
--------------------------------------------------------- -----------------
% OF TOTAL EXERCISE
OPTIONS OR BASE
OPTIONS GRANTED GRANTED TO PRICE
(NO. OF EMPLOYEES PER
NAME SHARES)(A)(B)(E) IN FISCAL YEAR SHARE(C) EXPIRATION DATE 5% 10%
---- ---------------- -------------- -------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks 12,000 0.8% $42.88 January 10, 2005 $323,520 $819,960
Thomas C. Schievelbein 3,300 0.2% $42.88 January 10, 2005 $ 88,968 $225,489
Stephen B. Clarkson 3,000 0.2% $42.88 January 10, 2005 $ 80,880 $204,990
James A. Palmer, Jr. 3,500 0.2% $42.88 January 10, 2005 $ 94,360 $239,155
George A. Wade 3,500 0.2% $42.88 January 10, 2005 $ 94,360 $239,155
</TABLE>
- --------
(a) The options reported in this column and in the Summary Compensation Table
consist of non-qualified options. The options become exercisable at the
rate of one-third per year on January 10, of 1996, 1997 and 1998,
respectively. As described in footnote (e) below it is anticipated that
Tenneco options held by Company employees will be replaced by options to
acquire NNS Common Stock upon consummation of the Shipbuilding
Distribution.
(b) These options provide that a grantee who delivers shares of Tenneco Common
Stock to pay the option exercise price will be granted, upon such delivery
and without further action by Tenneco, an additional option to purchase
the number of shares so delivered. These "reload" options are granted at
100% of the fair market value (as defined in the plan) on the date they
are granted become exercisable six months from that date and expire
coincident with the options they replace. Grantees are limited to 10
reload options and the automatic grant of such reload options is limited
to twice during any one calendar year.
(c) All options were granted by Tenneco at 100% of the fair market value on
the date of grant.
(d) The dollar amounts under these columns are the result of calculations for
the period from the date of grant to the expiration of the option at the
5% and 10% annual appreciation rates set by the Commission and, therefore,
are not intended to forecast possible future appreciation, if any, in the
price of Tenneco Common Stock. No gain to the optionee is possible without
an increase in price of the underlying stock. In order to realize the
potential values set forth in the 5% and 10% columns of this table, the
per share price of Tenneco Common Stock would be $69.84 and $111.21,
respectively, or 63% and 160%, respectively, above the exercise or base
price. As described in footnote (e) below, however, it is anticipated that
options to acquire Tenneco Common Stock held by Company employees will be
replaced by options to acquire NNS Common Stock upon Consummation of the
Shipbuilding Distribution.
(e) All Tenneco stock options held by employees of the Company will be
cancelled as of the Shipbuilding Distribution. The Company will adopt a
plan (the "Company Stock Ownership Plan") which is substantially similar
to the 1994 Tenneco Inc. Stock Ownership Plan. Prior to the Shipbuilding
Distribution, Tenneco will have approved the Company Stock Ownership Plan
as the sole stockholder of NNS. Options will be granted under the Company
Stock Ownership Plan as of the Shipbuilding Distribution to all employees
of the Company who formerly held Tenneco options. Each such employee will
receive options of the Company under which the excess of the fair market
value of the shares subject to the options immediately after the grant
over the aggregate option price is not more than the excess of the
aggregate fair market value of all Tenneco shares subject to his or her
Tenneco stock options immediately before such cancellation over the
aggregate option price under such Tenneco options. The terms of the
Company options will be the same as if the Tenneco options had remained
outstanding except to the extent that the Company Stock Ownership Plan
reflects legal changes adopted after the Tenneco options were granted.
These options provide that a grantee who delivers shares of Tenneco Common
Stock to pay the option exercise price will be granted, upon such delivery
and without further action by the Company, an additional option to
purchase the number of shares so delivered. These "reload" options are
granted at 100% of the fair market value (as defined in the Company Stock
Ownership Plan) on the date they are granted, become exercisable six
months from that date and expire at the same time as the options they
replace. Grantees are limited to 10 reload options and automatic grant of
such reload options is limited to twice during any one calendar year.
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<PAGE>
OPTIONS EXERCISED IN 1995 AND 1995 YEAR-END VALUES
The following table sets forth the number of options to acquire Tenneco
Common Stock held, as of December 31, 1995, by the persons named in the
Summary Compensation Table. No options to acquire shares of Tenneco Common
Stock were exercised during 1995.
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
AT DECEMBER 31, 1995(A) AT DECEMBER 31, 1995(A)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William P. Fricks 2,546 16,667 $1,811 $81,000
Thomas C. Schievelbein 1,000 5,300 $ -- $22,275
Stephen B. Clarkson 1,000 5,000 $ -- $20,250
James A. Palmer, Jr. 1,050 5,600 $ -- $23,625
George A. Wade 1,150 5,600 $ 850 $23,625
</TABLE>
- --------
(a) As described in footnote (e) to the Option Grant Table, the options to
acquire Tenneco Common Stock will be replaced by options to acquire NNS
Common Stock.
The following table sets forth information concerning performance based
awards made to the persons named in the Summary Compensation Table during 1995
by Tenneco.
LONG-TERM INCENTIVE PLANS
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE
SHARES, OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR PERIOD UNTIL NON-STOCK PRICE BASED PLANS(A)
OTHER MATURATION OR ---------------------------------
NAME RIGHTS(B) PAYOUT(C) THRESHOLD(D) TARGET(D) MAXIMUM(D)
---- --------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
William P. Fricks 9,000 4 Years -- 4,500 9,000
</TABLE>
- --------
(a) Estimated Future Payouts are based on earnings per share ("EPS") from
continuing operations as shown in the record of progress included in the
published financial statements of the Company. Earnings per share for 1995
were $4.16 and represents achievement of 25% of the performance goal
applicable to this award. Mr. Fricks was provisionally credited with 100%
of his performance goal for 1995 and 2,250 shares were credited to his
Plan account, subject to adjustment, for payout at the end of the
performance cycle.
(b) Each performance share equivalent unit represents one share of Tenneco
Common Stock that may be earned under this award and the number of
performance share equivalent units listed in this column represents the
maximum number of performance share equivalent units that may be earned
under this award.
(c) Performance share equivalent units are earned at the rate of 25% per year
based on achievement of annual EPS goals. However, it is anticipated that
prior to the consummation of the Shipbuilding Distribution the conditions
to issuance of all shares of Tenneco Common Stock underlying the
performance share unit equivalent awards will be waived and the maximum
number of shares of Tenneco Common Stock subject thereto will be issued.
(d) Represents maximum performance share equivalent units earned where the
goals were consistently within the indicated performance range on an
individual year and accumulated four-year basis.
77
<PAGE>
The following table sets forth the aggregate estimated annual benefits
payable upon normal retirement pursuant to the Company's Retirement Plan (the
"Retirement Plan"), the TRP and certain non-qualified structures. The Company
has not yet adopted or made a final decision on the design of its Retirement
Plan; however, it is anticipated that its Retirement Plan will be virtually
identical to the TRP and will count service with Tenneco for benefit accrual
purposes but with an offset for benefits accrued under the TRP. It is
anticipated that the Company will adopt one or more non-qualified structures
to provide employees with the benefits that would be provided under the
Retirement Plan but for applicable legal limits. The numbers set forth in the
following table assume that plans are adopted accordingly.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
----------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 350,000 $ 82,500 $110,000 $137,500 $ 165,000 $ 192,500
400,000 94,300 125,700 157,100 188,600 220,000
450,000 106,100 141,400 176,800 212,100 247,500
500,000 117,900 157,100 196,400 235,700 275,000
550,000 129,600 172,900 216,100 259,300 302,500
600,000 141,400 188,600 235,700 282,900 330,000
650,000 153,200 204,300 255,400 306,400 357,000
700,000 165,000 220,000 275,000 330,000 365,000
750,000 176,800 235,700 294,600 353,600 412,500
800,000 188,600 251,400 314,300 377,100 440,000
850,000 200,400 267,100 333,900 400,700 467,500
900,000 212,100 282,900 353,600 424,300 495,000
950,000 223,900 298,600 373,200 447,900 522,500
1,000,000 235,700 314,300 392,900 471,400 550,000
</TABLE>
The benefits set forth above are computed as a straight life annuity and are
based on years of credited participation in the Retirement Plan and the
employee's average base salary during the final five years of credited
participation in the Plan; such benefits are not subject to any deduction for
Social Security or other offset amounts.
CHANGE-IN-CONTROL ARRANGEMENTS
The Company has established a severance plan for the benefit of certain
employees and officers whose position is terminated under certain
circumstances following a change in control of the Company. Under the
severance plan, key executives of the rank of Senior Vice President and above
would receive three times their annual compensation and the average of their
incentive and special awards over the last three years if they are terminated
within two years of a change in control. Certain other key employees would
receive two times their annual salaries and the average of their incentive and
special awards over the last three years if they are terminated within two
years of a change in control. The Transaction is not deemed to constitute a
"change in control" for purposes of the plan.
COMPENSATION OF DIRECTORS
Following the Shipbuilding Distribution, all directors who are not also
officers of the Company will each be paid a director's fee of $25,000 per
annum, one-half in cash and one-half in restricted shares of NNS Common Stock,
and each will be paid an attendance fee of $1,000 plus expenses for each
meeting of the NNS Board and each meeting of a committee of the NNS Board
attended. Each director who serves as chairman of a committee of the NNS Board
will be paid an additional fee of $3,000 per chairmanship. Payment of all or a
portion of such fees, as adjusted by hypothetical investment performance, may
be deferred at the election of the director.
78
<PAGE>
Directors who are not also officers of the Company will each receive an
initial grant of 2,000 stock options and 1,000 stock options annually.
Directors who are not also officers of the Company will each receive a one-
time grant of 1,000 shares of restricted stock.
BENEFIT PLANS FOLLOWING THE SHIPBUILDING DISTRIBUTION
The Company will adopt two plans qualified under Section 401(a) of the Code:
a defined benefit pension plan and an employee stock ownership plan which will
also provide for 401(k) salary reduction contributions. It is anticipated that
the Company will adopt non-qualified plans designed to provide covered
individuals with benefits which they would receive under the qualified defined
benefit pension absent legal limitations.
Prior to the consummation of the Shipbuilding Distribution, the Company will
adopt the Company Stock Ownership Plan, which will be approved by Tenneco as
the sole stockholder of the Company. The Company Stock Ownership Plan will be
substantially similar to the Tenneco Inc. 1994 Stock Ownership Plan and will
provide for the grant of stock options, restricted stock, performance shares
and other forms of awards. The Company will adopt, and Tenneco will approve as
its sole stockholder, an employee stock purchase plan which will be
substantially similar to the Tenneco employee stock purchase plan.
79
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Prior to the Distribution Date, the NNS Board and Tenneco, as sole
stockholder of NNS, will approve and adopt the Restated Certificate of
Incorporation ("Certificate"), and Tenneco, as sole stockholder of NNS, will
approve and adopt the Amended and Restated By-laws ("By-laws"). Under the
Certificate, NNS' authorized capital stock will consist of 70,000,000 shares
of NNS Common Stock, and 10,000,000 shares of Preferred Stock, par value $.01
per share ("NNS Preferred Stock"). In addition, it is anticipated that the NNS
Board will adopt resolutions pursuant to the Certificate designating 700,000
shares of NNS Preferred Stock as Series A Participating Junior Preferred
Stock, par value $.01 per share, of NNS ("NNS Junior Preferred Stock") and
reserving shares of NNS Junior Preferred Stock for issuance in connection with
the Rights to be issued in connection with the Shipbuilding Distribution. No
NNS Preferred Stock will be issued in the Shipbuilding Distribution. Based on
the number of shares of Tenneco outstanding on July 31, 1996 up to
approximately 34,128,892 shares of the NNS Common Stock will be issued in the
Shipbuilding Distribution.
NNS COMMON STOCK
The holders of NNS Common Stock will be entitled to one vote for each share
on all matters on which stockholders generally are entitled to vote, and
except as otherwise required by law or provided in any resolution adopted by
the NNS Board with respect to any series of Preferred Stock, the holders of
the NNS Common Stock will possess 100% of the voting power. The Certificate
does not provide for cumulative voting.
Subject to the preferential rights of any outstanding NNS Preferred Stock
which may be created by the NNS Board under the Certificate, the holders of
NNS Common Stock will be entitled to such dividends as may be declared from
time to time by the NNS Board and paid from funds legally available therefor,
and the holders of NNS Common Stock will be entitled to receive pro rata all
assets of NNS available for distribution upon liquidation. All shares of NNS
Common Stock received in the Shipbuilding Distribution will be fully paid and
nonassessable, and the holders thereof will not have any preemptive rights.
There is no established public trading market for NNS Common Stock, although
a "when issued" market is expected to develop prior to the Distribution Date.
NNS has applied to the NYSE for the listing of NNS Common Stock upon notice of
issuance and expects to receive approval of such listing prior to the
Distributions.
The declaration of dividends on NNS Common Stock will be at the discretion
of the NNS Board. The NNS Board has not adopted a dividend policy as such.
Subject to legal and contractual restrictions, its decisions regarding
dividends will be based on all considerations that in its business judgment
are relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated
developments concerning the Company's business and operations. For additional
information concerning the payment of dividends by NNS, see "Risk Factors --
Dividends" and "Financing."
NNS' cash flow and the consequent ability of NNS to pay any dividends on NNS
Common Stock will be substantially dependent upon the earnings and cash flow
of NNS' subsidiaries available after its debt service and the availability of
such earnings to NNS by way of dividends, distributions, loans and other
advances. The agreements relating to Senior Credit Facility and Notes contain
provisions that limit the amount of dividends that may be paid on NNS Common
Stock. See "Financing."
Under the DGCL, dividends may be paid by NNS out of "surplus" (as defined
under Section 154 of the DGCL) or, if there is no surplus, out of net profits
for the fiscal year in which the dividends are declared and/or the preceding
fiscal year. On a pro forma basis, at June 30, 1996, the Company had surplus
of
80
<PAGE>
approximately $194 million (on a book value basis) for the payment of
dividends, and NNS will also be able to pay dividends out of any net profits
for the current and/or prior fiscal year, if any.
NNS PREFERRED STOCK
Under the Certificate, the NNS Board is authorized to issue NNS Preferred
Stock, in one or more series, and to fix the number of shares constituting
such series and the designation of such series, the voting powers (if any) of
the shares of such series, and the preferences and relative, participating,
optional or other special rights, if any, and any qualifications, limitations
or restrictions thereof, of the shares of such series. See "Antitakeover
Effects of Certain Provisions."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Certificate, the By-laws, the Rights and Delaware statutory law contain
certain provisions that could make the acquisition of the Company by means of
a tender offer, a proxy contest or otherwise more difficult. The description
set forth below is intended as a summary only and is qualified in its entirety
by reference to the Certificate, the By-laws and the Rights Agreement which
are attached as exhibits to NNS's Registration Statement on Form 10 under the
Exchange Act relating to NNS Common Stock.
CLASSIFIED BOARD OF DIRECTORS
The Certificate provides that the NNS Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The NNS Board consists of the persons referred to in "Management--
Board of Directors" above. The Certificate provides that, of the initial
directors of NNS, approximately one-third will continue to serve until the
first succeeding annual meeting of NNS' stockholders, approximately one-third
will continue to serve until the second succeeding annual meeting of NNS's
stockholders and approximately one-third will continue to serve until the
third succeeding annual meeting of NNS' stockholders. Of the initial
directors, Mr. Fricks will serve until the first succeeding annual meeting of
NNS' stockholders, Mr. Sisco will serve until the second succeeding annual
meeting of NNS' stockholders and Mr. Mead will serve until the third
succeeding annual meeting of NNS' stockholders. At each annual meeting of NNS'
stockholders, one class of directors will be elected for a term expiring at
the third succeeding annual meeting of stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the NNS Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the members of the NNS Board.
Such a delay may help ensure that NNS' directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer,
or an extraordinary corporate transaction, would have sufficient time to
review the proposal as well as any available alternatives to the proposal and
to act in what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the NNS Board would be
beneficial to NNS and its stockholders and whether or not a majority of NNS'
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of NNS, even though such an attempt
might be beneficial to NNS and its stockholders. The classification of the NNS
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of NNS' stock by purchasers whose
objective is to take control of the Company and remove a majority of the
members of the NNS Board, the classification of the NNS Board could tend to
reduce the likelihood of fluctuations in the market price of NNS Common Stock
that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain
81
<PAGE>
opportunities to sell their shares of NNS Common Stock at a higher market
price than might otherwise be the case.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of NNS Preferred Stock have the right,
voting separately as a class or series, to elect directors, such directors
will not be classified, unless expressly provided by the terms of such series
of NNS Preferred Stock.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that the business and affairs of the Company will
be managed by or under the direction of a Board of Directors, consisting of
not less than three nor more than sixteen directors, the exact number thereof
to be determined from time to time by affirmative vote of a majority of the
entire Board of Directors. In addition, the Certificate provides that any
vacancy on the NNS Board that results from an increase in the number of
directors may be filled by a majority of the NNS Board then in office,
provided that a quorum is present, and any other vacancy occurring in the NNS
Board may be filled by a majority of the directors then in office, even if
less than a quorum, or by a sole remaining director.
Under the DGCL, unless otherwise provided in the Certificate, directors
serving on a classified board may only be removed by the stockholders for
cause. The Certificate does not provide that directors may be removed without
cause.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of NNS Preferred Stock have the right,
voting separately as a class or series, to elect directors, the election,
removal, term of office, filling of vacancies and other features of such
directorships will be governed by the terms of the Certificate applicable
thereto.
SPECIAL MEETINGS
The By-laws provide that special meetings of stockholders will be called by
the NNS Board. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the purposes specified in the notice of
meeting given by NNS.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election of directors, or to bring other
business before an annual meeting of stockholders of NNS (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the NNS Board, or by a stockholder who
has given timely written notice to the Secretary of NNS prior to the meeting
at which directors are to be elected, will be eligible for election as
directors of NNS. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the NNS Board or by a stockholder who has
given timely written notice to the Secretary of NNS of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, for stockholder notice in respect of the annual meeting of
NNS' stockholders to be timely, such notice must be delivered to the Secretary
of the NNS not less than 50 days nor more than 75 days prior to the annual
meeting; provided, however, that in the event that less than 65 days' notice
or prior public announcement of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
announcement was made, whichever first occurs.
Under the Stockholder Notice Procedure, a stockholder's notice to NNS
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and
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<PAGE>
address of the nominating stockholder, the class and number of shares of stock
of NNS which are beneficially owned by such stockholder, and as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of
NNS which are beneficially owned by the person and (iv) any other information
relating to the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Rule 14A under the Exchange Act.
Under the Stockholder Notice Procedure, a stockholder's notice relating to the
conduct of business other than the nomination of directors must contain
certain information about such business and about the proposing stockholder,
including, without limitation, a brief description of the business the
stockholder proposes to bring before the meeting, the reasons for conducting
such business at such meeting, the name and address of such stockholder, the
class and number of shares of stock of NNS beneficially owned by such
stockholder, and any material interest of such stockholder in the business so
proposed. If the Chairman of the meeting determines that a person was not
nominated, or other business was not brought before the meeting, in accordance
with the Stockholder Notice Procedure, such person will not be eligible for
election as a director, or such business will not be conducted at any such
meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the NNS Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the NNS Board, to inform stockholders about such qualifications.
By requiring advance notice of other proposed business, the Stockholder Notice
Procedure will also provide a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by
the NNS Board, will provide the NNS Board with an opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendations as to the NNS Board's
position regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the By-laws do not give the NNS Board any power to approve or
disapprove stockholder nominations for the election of directors or proper
stockholder proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to NNS and its stockholders.
RECORD DATE PROCEDURE FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
The By-laws establish a procedure for the fixing of a record date in respect
of action proposed to be taken by NNS' stockholders by written consent in lieu
of a meeting. The By-laws provide that any person seeking to have the
stockholders authorize or take corporate action by written consent without a
meeting shall by written notice addressed to the Secretary and delivered to
NNS, request that a record date be fixed for such purpose. The By-laws state
that the NNS 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 NNS Board and shall not precede the date such
resolution is adopted. If the NNS Board fails within 10 days after NNS
receives such notice to fix a record date for such purpose, the By-laws
provide that the record date shall be the day on which the first written
consent is delivered to NNS unless prior action by the NNS Board is required
under the DGCL, in which event the record date shall be at the close of
business on the day on which the NNS Board adopts the resolution taking such
prior action. The By-laws also provide that the Secretary of NNS or, under
certain circumstances, two inspectors designated by the Secretary shall
promptly conduct such ministerial review of the sufficiency of any written
consents of stockholders duly delivered to NNS and of the validity of the
action to be taken by stockholder consent as he deems necessary or
appropriate, including, without limitation, whether the holders of a number of
shares having the requisite voting power to authorize or take the action
specified in the written consents have given consent.
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STOCKHOLDER MEETINGS
The By-laws provide that the NNS Board and the chairman of a meeting may
adopt rules for the conduct of stockholder meetings and specify the types of
rules that may be adopted (including the establishment of an agenda, rules
relating to presence at the meeting of persons other than stockholders,
restrictions on entry at the meeting after commencement thereof and the
imposition of time limitations for questions by participants at the meeting).
NNS PREFERRED STOCK
The Certificate authorizes the NNS Board to provide for series of NNS
Preferred Stock and, with respect to each such series, to fix the number of
shares constituting such series and the designation of such series, the voting
powers (if any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series.
Tenneco and the Company believe that the ability of the NNS Board to issue
one or more series of NNS Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs which might arise. The authorized shares of NNS
Preferred Stock, as well as shares of NNS Common Stock, will be available for
issuance without further action by NNS' stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which the Company's securities may be listed or traded.
The NYSE currently requires stockholder approval as a prerequisite to listing
shares in several instances, including where the present or potential issuance
of shares could result in a 20% increase in the number of shares of common
stock outstanding or in the amount of voting securities outstanding. If the
approval of NNS' stockholders is not required for the issuance of shares of
NNS Preferred Stock or NNS Common Stock, the NNS Board may determine not to
seek stockholder approval.
Although the NNS Board has no intention at the present time of doing so, it
could issue a series of NNS Preferred Stock that could, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. The NNS Board will make any determination to issue such
shares based on its judgment as to the best interests of NNS and its
stockholders. The NNS Board, in so acting, could issue NNS Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the NNS Board, including a
tender offer or other transaction that some, or a majority, of NNS'
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
RIGHTS
The NNS Board will adopt a stockholder rights plan and cause to be issued,
with each share of NNS Common Stock to be distributed in the Shipbuilding
Distribution, one preferred share purchase right (a "Right"). Each Right will
entitle the registered holder to purchase from NNS a unit consisting of one
one-hundredth of a share (a "Unit") of NNS Junior Preferred Stock, at a price
of $50 per Unit (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement"), between NNS and First Chicago Trust Company of New York, as
Rights Agent (the "Rights Agent").
Initially, the Rights will be represented by NNS Common Stock certificates,
and no separate certificates representing the Rights ("Rights Certificates")
will be distributed. The Rights will separate from the NNS Common Stock and a
distribution date (a "Rights Distribution Date") will occur upon the earlier
of (i) 10 business days following the first date of public announcement (the
"Stock Acquisition Date") that a person or group of affiliated or associated
persons (an "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of NNS
Common Stock, (ii) 10 business days (or such later date as may be determined
by the NNS Board) following the commencement of a tender offer or
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exchange offer that would result in a person or group beneficially owning 20%
or more of such outstanding shares of NNS Common Stock or (iii) 10 business
days after the NNS Board determines that any person, alone or together with
its affiliates and associates, has become the Beneficial Owner of an amount of
NNS Common Stock which the NNS Board determines to be substantial (which
amount shall in no event be less than 10% of the shares of NNS Common Stock
outstanding) and at least a majority of the NNS Board who are not officers of
the Company, after reasonable inquiry and investigation, including
consultation with such persons as such directors shall deem appropriate, shall
determine that (a) such beneficial ownership by such person is intended to
cause NNS to repurchase the NNS Common Stock beneficially owned by such person
or to cause pressure on NNS to take action or enter into a transaction or
series of transactions intended to provide such person with short-term
financial gain under circumstances where the NNS Board determines that the
best long-term interests of NNS and its stockholders would not be served by
taking such action or entering into such transactions or series of
transactions at that time or (b) such beneficial ownership is causing or is
reasonably likely to cause a material adverse impact (including, but not
limited to, impairment of relationships with customers or impairment of the
Company's ability to maintain its competitive position) on the business or
prospects of the Company (any such person being referred to herein and in the
Rights Agreement as an "Adverse Person").
Until the Rights Distribution Date, (i) the Rights will be evidenced by NNS
Common Stock certificates and will be transferred with and only with such NNS
Common Stock certificates, (ii) NNS Common Stock certificates will contain a
notation incorporating the Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for NNS Common Stock outstanding
will also constitute the transfer of the Rights associated with NNS Common
Stock represented by such certificate.
The Rights will not be exercisable until the Rights Distribution Date and
will expire at the close of business on June 10, 1998 (the "Final Expiration
Date"), unless (i) earlier redeemed by NNS as described below or (ii) the
Rights Agreement is extended (with stockholder approval) as discussed below.
The Final Expiration Date is the same date on which the stockholder rights
issued under the current Tenneco's stockholder's rights plan would have
terminated, but for the Merger.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the NNS Common Stock as of
the close of business on the Rights Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the NNS Board, only shares of NNS Common Stock issued
prior to the Rights Distribution Date will be issued with Rights.
In the event that (i) any person becomes an Acquiring Person (except
pursuant to an offer for all outstanding shares of NNS Common Stock that the
independent directors determine to be fair to and otherwise in the best
interests of NNS and its stockholders) or (ii) the NNS Board determines that a
person is an Adverse Person, each holder of a Right will thereafter have the
right to receive, upon exercise, NNS Common Stock (or, in certain
circumstances, cash, property or other securities of NNS) having a value equal
to two times the exercise price of the Right. Upon the occurrence of either of
the events set forth in the preceding sentence, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by the Acquiring Person or Adverse Person (or certain related parties)
will be null and void. Rights will not be exercisable following the occurrence
of either of such events until such time as the Rights are no longer
redeemable by NNS as set forth below.
For example, at an exercise price of $50 per Right, each Right not owned by
an Acquiring Person or by an Adverse Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $100 worth of NNS Common Stock (or other consideration, as
noted above) for $50. Assuming that NNS Common Stock had a per share value of
$20 at such time, the holder of each valid Right would be entitled to purchase
5.0 shares of NNS Common Stock for $50.
In the event that, at any time following the Stock Acquisition Date, (i) NNS
is acquired in a merger or other business combination transaction (other than
a merger meeting prescribed terms and conditions that
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follows an offer described in the second preceding paragraph) or (ii) more
than 50% of NNS' assets or earning power is sold or transferred, each holder
of a Right (except Rights that previously have been voided as set forth above)
shall thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
The Purchase Price payable, and the number of Units of NNS Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, NNS Junior Preferred Stock, (ii) if holders of NNS Junior
Preferred Stock are granted certain rights or warrants to subscribe for NNS
Junior Preferred Stock or convertible securities at less than the current
market price of NNS Junior Preferred Stock or (iii) upon the distribution to
holders of the NNS Junior Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights
or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of NNS Junior Preferred Stock
on the last trading date prior to the date of exercise.
In general, at any time until 10 business days following the Stock
Acquisition Date, NNS may redeem the Rights in whole, but not in part, at a
price of $.02 per Right. NNS may not redeem the Rights if the NNS Board has
previously declared a person to be an Adverse Person. Immediately upon the
action of the NNS Board ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.02 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of NNS, including, without limitation, the right to vote or
to receive dividends. While the distribution of the Rights will not be taxable
to stockholders or to NNS, stockholders may, depending upon the circumstances,
recognize taxable income in the event that the Rights became exercisable for
NNS Common Stock (or other consideration) of NNS or for common stock of the
acquiring company as set forth above.
Other than those provisions relating to the duration of the Rights Agreement
and the principal economic terms of the Rights, any of the provisions of the
Rights Agreement may be amended by the NNS Board prior to the Rights
Distribution Date. After the Rights Distribution Date, the provisions of the
Rights Agreement may be amended by the NNS Board in order to cure any
ambiguity, to make changes that do not adversely affect the interests of
holders of Rights, or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable. Notwithstanding the foregoing, unless approved by a vote of the
stockholders of NNS, the Rights Agreement may not be supplemented or amended
to alter the redemption price, the Final Expiration Date, the Purchase Price
or the number of Units for which a Right is exercisable.
The Rights Agreement is designed to protect the stockholders of NNS in the
event of unsolicited offers to acquire NNS and other coercive takeover tactics
which, in the opinion of the NNS Board, could impair its ability to represent
stockholder interests. The provisions of the Rights Agreement may render an
unsolicited takeover of NNS more difficult or less likely to occur, even
though such takeover may offer NNS' stockholders the opportunity to sell their
stock at a price above the prevailing market rate and may be favored by a
majority of NNS' stockholders.
THE FOREGOING SUMMARY OF THE TERMS OF THE RIGHTS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED
AS AN EXHIBIT TO NNS' REGISTRATION STATEMENT ON FORM 10 UNDER THE EXCHANGE ACT
RELATING TO NNS COMMON STOCK. THE RIGHTS ARE BEING REGISTERED UNDER THE
EXCHANGE ACT, TOGETHER WITH NNS COMMON STOCK, PURSUANT TO SUCH REGISTRATION
STATEMENT. IN THE EVENT
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THAT THE RIGHTS BECOME EXERCISABLE, NNS WILL REGISTER THE SHARES OF NNS JUNIOR
PREFERRED STOCK FOR WHICH THE RIGHTS MAY BE EXERCISED, IN ACCORDANCE WITH
APPLICABLE LAW.
ANTITAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced
(excluding certain shares) or (iii) on or subsequent to such time, the
business combination is approved by the board of directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. Section 203 of the
DGCL generally defines an "interested stockholder" to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. Section 203 of the DGCL
generally defines a "business combination" to include (1) mergers and sales or
other dispositions of 10% or more of the assets of the corporation with or to
an interested stockholder, (2) certain transactions resulting in the issuance
or transfer to the interested stockholder of any stock of the corporation or
its subsidiaries, (3) certain transactions which would result in increasing
the proportionate share of the stock of the corporation or its subsidiaries
owned by the interested stockholder and (4) receipt by the interested
stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges, or other financial benefits.
Under certain circumstances, Section 203 of the DGCL makes it more difficult
for a person who would be an "interested stockholder" to effect various
business combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted by-laws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
nor the By-laws exclude NNS from the restrictions imposed under Section 203 of
the DGCL. It is anticipated that the provisions of Section 203 of the DGCL may
encourage companies interested in acquiring NNS to negotiate in advance with
the NNS Board since the stockholder approval requirement would be avoided if
the NNS Board approves, prior to the time the stockholder becomes an
interested stockholder, either the business combination or the transaction
which results in the stockholder becoming an interested stockholder.
COMPARISON WITH RIGHTS OF HOLDERS OF TENNECO COMMON STOCK
Except as otherwise described herein, the provisions of the Certificate and
the By-laws (including the provisions thereof relating to the classification
of directors, the calling of special meetings of stockholders, the advance
notice requirements for stockholder nominations and proposals and the setting
of a record date for actions by written consent of stockholders in lieu of a
meeting) are substantially identical to the provisions of the Tenneco
Certificate of Incorporation (the "Tenneco Certificate") and the Tenneco By-
laws (the "Tenneco By-laws").
Capitalization
Tenneco's authorized capital stock consists of 350,000,000 shares of Tenneco
Common Stock, 15,000,000 shares of Preferred Stock, without par value
("Tenneco Preferred Stock"), and 50,000,000 shares of Junior Preferred Stock,
without par value ("Tenneco Junior Preferred Stock"). NNS's authorized capital
stock consists of 70,000,000 shares of NNS Common Stock and 10,000,000 shares
of NNS Preferred Stock.
The Tenneco Board is generally authorized to issue Tenneco Preferred Stock
and Tenneco Junior Preferred Stock in series and to fix the terms of such
series, but such authority is subject to numerous requirements and/or
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limitations relating to, among other things, the voting rights of such series
and the ability of Tenneco to pay dividends and acquire its capital stock. The
NNS Board is authorized to issue NNS Preferred Stock in series and to fix the
terms of such series, without limitation (other than as provided in the DGCL).
All series of Tenneco Preferred Stock (but not Tenneco Junior Preferred
Stock) must rank on a parity with respect to the payment of dividends. Any of
the terms of a series of NNS Preferred Stock may differ from those of any
other series.
Business Combinations
The Tenneco Certificate prohibits certain "Business Combinations" with
"Interested Stockholders" without supermajority stockholder approval unless
(i) approved by a majority of the "Continuing Directors," or (ii) certain
detailed requirements as to, among other things, the value and type of
consideration to be paid to the Tenneco stockholders, the maintenance of
Tenneco's dividend policy, the public disclosure of the Business Combination
and the absence of any major change in Tenneco's business or equity capital
structure without the approval of a majority of Continuing Directors, have
been satisfied. The Certificate contains no such restrictions on Business
Combinations.
Charter Amendments
Under the Tenneco Certificate, a majority in voting power of the outstanding
shares of voting stock is generally required to effect a charter amendment,
other than an amendment of the provisions relating to Business Combinations.
Under the Certificate, a majority in voting power of the outstanding shares of
voting stock is generally required to effect a charter amendment.
Class Voting
Under the Tenneco Certificate, approval of 66 2/3% of the outstanding shares
of Tenneco Preferred Stock or Tenneco Junior Preferred Stock, or of a series
thereof, is required for any charter amendment which adversely
affects the rights, powers or preferences of the Tenneco Preferred Stock or
Tenneco Junior Preferred Stock, or of a series thereof, as the case may be.
Under the Certificate, there is no such two-thirds approval requirement;
however, the DGCL generally requires any charter amendment that so adversely
affects a particular class or series of stock be approved by a majority of the
outstanding shares of such class or series, as the case may be.
The Tenneco Certificate requires separate class votes of Tenneco Preferred
Stock and of Tenneco Junior Preferred Stock (i) to create a class of stock
ranking senior thereto, (ii) to sell, lease, transfer or convey all or
substantially all of Tenneco's assets or (iii) to merge with another
corporation (unless Tenneco survives). No such class votes are required under
the Certificate.
Stockholder Meetings
The By-laws provide that the NNS Board and the chairman of a meeting may
adopt rules for the conduct of stockholder meetings and specify the types of
rules that may be adopted (including the establishment of an agenda, rules
relating to presence at the meeting of persons other than stockholders,
restrictions on entry at the meeting after commencement thereof and the
imposition of time limitations for questions by participants at the meeting).
Such issues are not expressly addressed by the Tenneco By-laws.
Number of Directors
Under the Tenneco By-laws, the number of directors constituting the whole
Tenneco Board is required to be not less than 8, nor more than 16, and
determined from time to time, within such limits, by the Tenneco Board. The
Certificate provides for the number of directors to be not less than 3, nor
more than 16, and
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determined from time to time, within such limits, by the NNS Board. The NNS
Board currently consists of 3 directors.
Stockholder Rights Plans
Tenneco adopted a stockholder rights plan on May 24, 1988, which was amended
and restated on October 1, 1989 (the "Tenneco Rights Plan"). Pursuant to and
in accordance with such plan, one preferred share purchase right (a "Tenneco
Right") is attached to each share of Tenneco Common Stock. Each Tenneco Right
entitles the registered holder thereof to, among other things, purchase, under
certain circumstances, from Tenneco a unit consisting of one one-hundredth of
a share of Tenneco Series A Junior Preferred Stock. Tenneco has amended the
Tenneco Rights Plan to exempt El Paso and El Paso Merger Company from becoming
an "acquiring person" thereunder, or otherwise triggering the Tenneco Rights,
solely by reason of the execution of the Merger Agreement and consummation of
the transactions contemplated thereby, and to cause the Tenneco Rights to
expire at the Merger Effective Time.
The Company will adopt the Rights Agreement. The Rights Agreement is, in all
material respects, the same as the Tenneco Rights Plan except that the
Redemption Price (as defined therein), the Final Expiration Date, the Purchase
Price and the number of one one-hundredths of a share of NNS Junior Preferred
Stock for which a Right is exercisable (which under the Tenneco Rights Plan
may not be supplemented or amended) may be supplemented or amended with
stockholder approval.
Indemnification
The Tenneco By-laws provide for mandatory indemnification for directors and
officers of Tenneco and for directors and officers of Tenneco serving as
directors and officers of other entities at the request of Tenneco to the
fullest extent permitted by the DGCL. The By-laws provide similar mandatory
indemnification except (i) such indemnification includes directors and
officers of NNS serving as directors, officers, employees or agents of another
entity at the request of NNS and (ii) suits (or parts thereof) instituted by
any such indemnitee without NNS Board approval are excluded from such
mandatory indemnification.
The By-laws also provide for mandatory advancement of expenses in defending
any proceeding for which mandatory indemnification may be available. The
Tenneco By-laws do not provide for such mandatory advancement of expenses.
Under the By-laws, persons claiming indemnification or advancement may file
suit in respect thereof if NNS does not pay such a claim within 30 days after
receipt of a written claim therefor and, if successful in whole or in part,
are entitled to be paid the expense of prosecuting such claim. The By-laws
provide that in any such action, NNS has the burden of proving that the
indemnitee is not entitled to the requested indemnification or advancement.
Such issues are not expressly addressed by the Tenneco By-laws.
Director Exculpation
Pursuant to Section 102(b)(7) of the DGCL, the Tenneco Certificate provides
that a director thereof shall not be liable to Tenneco or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tenneco or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Certificate provides that a director of NNS shall not be liable to NNS
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may thereafter
be amended. The Certificate, therefore, affords directors of NNS the benefit
of any subsequent broadening of director exculpation permitted by the DGCL
without the need for a further charter amendment.
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Ratification
The Tenneco Certificate provides that a director of Tenneco shall not be
disqualified by his or her office from dealing or contracting with Tenneco
either as a vendor, purchaser or otherwise, nor shall any transaction or
contract of Tenneco be void or voidable by reason of the fact that any
director or any firm of which any director is a member, or any corporation of
which any director is a shareholder, officer or director, is in any way
interested in such transaction or contract, provided that such transaction or
contract is or shall be authorized, ratified or approved either (i) by a vote
of a majority of a quorum of the Tenneco Board or of the Executive Committee
of Tenneco, without counting in such majority or quorum any director so
interested or a member of a firm so interested, or a stockholder, officer or
director of a corporation so interested, or (ii) by the written consent, or by
the vote at any stockholders' meeting, of the holders of record of a majority
of all the outstanding shares of stock of Tenneco entitled to vote, nor shall
any director be liable to account to Tenneco for any profits realized by or
from or through any such transaction or contract of Tenneco authorized,
ratified or approved as aforesaid by reason of the fact that he, or any firm
of which he is a member or any corporation of which he or she is a
stockholder, officer or director was interested in such transaction or
contract.
The Tenneco By-laws provide that any transaction questioned in any
stockholders derivative suit on the ground of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation, or the application of improper principles or
practices of accounting may be ratified before or after judgment, by the
Tenneco Board or by Tenneco's stockholders. The Tenneco By-laws also provide
that, if so ratified, the transaction shall have the same force and effect as
if it had been originally duly authorized, and said ratification shall be
binding upon Tenneco and shall continue as a bar to any claim or execution of
any judgment in respect of such questioned transaction.
Such issues are not expressly addressed by either the Certificate or the By-
laws. However, Section 144 of the DGCL provides, in relevant part, that no
contract or transaction between a corporation and one or more of its directors
or officers, or between a corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the board or committee which
authorized the contract or transaction, or solely because his, her or their
votes are counted for such purpose, if: (i) the material facts as to his or
her relationship or interest and as to the contract or transaction are
disclosed or are known to the board of directors or the committee, and the
board or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or
ratified, by the board of directors, a committee or the stockholders.
Contracts
The By-laws provide that, except as otherwise required by law, the
Certificate or the By-laws, any contracts or other instruments may be executed
and delivered in the name and on the behalf of the Company by such officer or
officers of the Company as the NNS Board may from time to time direct. The By-
laws state that such authority may be general or confined to specific
instances as the NNS Board may determine. The By-laws also provide that (i)
the Chairman of the NNS Board, the President or any Vice President may execute
bonds, contracts, deeds, leases and other instruments to be made or executed
for or on behalf of the Company, and (ii) subject to any restrictions imposed
by the Board, the Chairman of the NNS Board, the President or any Vice
President of NNS may delegate contractual powers to others under his or her
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise
of such delegated power. Such issues are not expressly addressed by the
Tenneco By-laws.
90
<PAGE>
Proxies
The By-laws provide that unless otherwise provided by resolution adopted by
the NNS Board, the Chairman of the NNS Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of NNS, in the name and on behalf of NNS, to cast the votes which NNS
may be entitled to cast as the holders of stock or other securities in any
other corporation or other entity, any of whose stock or other securities may
be held by NNS, 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 NNS 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 NNS and under its corporate seal or
otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises. Such issues are not expressly addressed
by the Tenneco By-laws.
91
<PAGE>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director of NNS will not be liable to NNS or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may thereafter
be amended. Based on the DGCL as presently in effect, a director of NNS will
not be personally liable to NNS or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to NNS or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, which
concerns unlawful payments of dividends, stock purchases or redemptions, or
(iv) for any transactions from which the director derived an improper personal
benefit.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of NNS only if he or she is a
director of NNS and is acting in his or her capacity as director, and do not
apply to officers of NNS who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws provide that NNS will indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
thereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, she, or a person for whom he or
she is the legal representative, is or was a director or officer of NNS or,
while a director or officer of NNS, is or was serving at the request of NNS as
a director, officer, employee or agent of another company or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such Indemnitee.
The By-laws also provide that, notwithstanding the foregoing, but except as
described in the second following paragraph, NNS will be required to indemnify
an Indemnitee in connection with a proceeding (or part thereof) commenced by
such Indemnitee only if the commencement of such proceeding (or past thereof)
by the Indemnitee was authorized by the NNS Board.
The By-laws further provide that NNS will pay the expenses (including
attorneys' fees) incurred by an Indemnitee in defending any proceeding in
advance of its final disposition, provided however, that, to the extent
required by law, such payment of expenses in advance of the final disposition
of the proceeding will be made only upon receipt of an undertaking by the
Indemnitee to repay all amounts advanced if it should be ultimately determined
that the Indemnitee is not entitled to be indemnified under the relevant
section of the By-laws or otherwise.
Pursuant to the By-laws, if a claim for indemnification or payment of
expenses thereunder is not paid in full within 30 days after a written claim
therefor by the Indemnitee has been received by NNS, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, will be entitled to be paid the expense of prosecuting such claim.
The By-laws provide that, in any such action, NNS will have the burden of
proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
The By-laws also provide (i) that the rights conferred on any Indemnitee
thereby are not exclusive of any other rights which such Indemnitee may have
or thereafter acquire under any statute, provision of the Certificate, the By-
laws, agreement, vote of stockholders or disinterested directors or otherwise,
(ii) that NNS' obligation,
92
<PAGE>
if any, to indemnify or to advance expenses to any Indemnitee who was or is
serving at its request as a director, officer, employee or agent of another
company, partnership, joint venture, trust, enterprise or nonprofit entity
will be reduced by any amount such Indemnitee may collect as indemnification
or advancement of expenses from such other company, partnership, joint
venture, trust, enterprise or nonprofit enterprise, and (iii) that any repeal
or modification of the relevant provisions of the By-laws will not adversely
affect any right or protection thereunder of any Indemnitee in respect of any
act or omission occurring prior to the time of such repeal or modification.
The By-laws also expressly state that the provisions thereof will not limit
the right of NNS, 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.
93
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE BUSINESSES OF NEWPORT NEWS
Report of Independent Public Accountants................................ F-2
Combined Statements of Earnings for each of the three years in the
period ended December 31, 1995 and the six months ended June 30, 1996
and 1995............................................................... F-3
Combined Balance Sheets--December 31, 1995 and 1994 and June 30, 1996... F-4
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 and the six months ended June 30, 1996
and 1995............................................................... F-5
Statements of Changes in Combined Equity for each of the three years in
the period ended December 31, 1995 and the six months ended June 30,
1996 and 1995.......................................................... F-6
Notes to Combined Financial Statements.................................. F-7
FINANCIAL STATEMENT SCHEDULE
Valuation and Qualifying Accounts....................................... S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined balance sheets of the businesses of
Newport News (see Note 1) as of December 31, 1995 and 1994, and the related
combined statements of earnings, cash flows and changes in combined equity for
each of the three years in the period ended December 31, 1995. These combined
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
businesses of Newport News as of December 31, 1995 and 1994, and the results
of its combined operations and cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the combined financial statements, effective January
1, 1994, the businesses of Newport News changed its method of accounting for
postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule
listed in the index to the combined financial statements and schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic combined financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic combined financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic combined financial statements of
the businesses of Newport News taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
October 1, 1996
F-2
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER ENDED
31, JUNE 30,
---------------------- ------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ------ ------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................................ $1,756 $1,753 $1,861 $ 915 $ 845
OPERATING COSTS AND EXPENSES............. 1,599 1,552 1,651 834 755
------ ------ ------ ----- -----
OPERATING EARNINGS....................... 157 201 210 81 90
Interest Expense, net of interest
capitalized............................. (29) (30) (36) (17) (20)
Gain on Sale of Business................. -- -- 15 -- --
Other Income (Expense), net.............. 3 (1) -- -- --
------ ------ ------ ----- -----
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................... 131 170 189 64 70
Provision for Income Taxes............... 58 75 78 27 29
------ ------ ------ ----- -----
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.......... 73 95 111 37 41
Cumulative Effect of Change in Accounting
Principle, net of tax.................... -- (4) -- -- --
------ ------ ------ ----- -----
NET EARNINGS............................. $ 73 $ 91 $ 111 $ 37 $ 41
====== ====== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these combined statements of
earnings.
F-3
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
JUNE 30,
(MILLIONS) 1995 1994 1996
- ---------- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents............................. $ 2 $ 1 $ 1
Accounts Receivable, net.............................. 67 89 125
Contracts in Process.................................. 263 184 282
Inventory............................................. 54 45 49
Notes Receivable...................................... 18 -- --
Other Current Assets.................................. 15 11 16
------ ------ ------
Total Current Assets.................................. 419 330 473
------ ------ ------
NONCURRENT ASSETS
Property, Plant and Equipment, net.................... 820 796 824
Other Assets.......................................... 141 137 155
------ ------ ------
Total Noncurrent Assets............................... 961 933 979
------ ------ ------
$1,380 $1,263 $1,452
====== ====== ======
LIABILITIES AND COMBINED EQUITY
CURRENT LIABILITIES
Trade Accounts Payable................................ $ 99 $ 63 $ 104
Accounts Payable to Tenneco........................... 67 117 73
Short-Term Debt....................................... 68 30 95
Deferred Income Taxes................................. 39 38 5
Other Accrued Liabilities............................. 165 157 155
------ ------ ------
Total Current Liabilities............................. 438 405 432
------ ------ ------
NONCURRENT LIABILITIES
Long-Term Debt........................................ 292 287 282
Postretirement Benefits............................... 101 104 103
Deferred Income Taxes................................. 138 141 140
Other Long-Term Liabilities........................... 139 127 146
Commitments and Contingencies (See Note 13)
------ ------ ------
Total Noncurrent Liabilities.......................... 670 659 671
------ ------ ------
COMBINED EQUITY (SEE NOTE 4).......................... 272 199 349
------ ------ ------
$1,380 $1,263 $1,452
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-4
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
---------------- -------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings................................. $ 73 $ 91 $111 $ 37 $ 41
Cumulative Effect of Change in Accounting
Principle................................... -- (4) -- -- --
Adjustments to Reconcile Net Earnings Before
Accounting Changes to Net Cash (Used)
Provided by Operating Activities--
Depreciation............................... 67 70 72 32 33
Deferred Income Taxes...................... (2) (46) 30 (32) --
Gain on Sale of Business................... -- -- (15) -- --
Allocated Corporate Interest, net of tax... 18 17 22 12 12
Changes in Components of Working Capital--
Decrease(Increase) in--
Accounts Receivable, net................. 22 (15) (22) (58) 18
Contracts in Process..................... (95) (20) 76 (19) (94)
Inventory................................ (9) (1) -- 5 (12)
Other Current Assets..................... (4) (6) -- (1) (2)
Increase(Decrease) in--
Trade Accounts Payable................... 36 (1) (17) 5 4
Accounts Payable to Tenneco.............. (50) 58 (69) 6 (70)
Other Accrued Liabilities................ 8 29 15 (10) 36
Other, net................................. (1) 10 12 22 16
---- ---- ---- ----- -----
Net Cash (Used) Provided by Operating
Activities.................................. 63 182 215 (1) (18)
---- ---- ---- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business............... -- -- 56 -- --
Capital Expenditures......................... (77) (29) (35) (36) (29)
Other........................................ (10) -- -- (9) --
---- ---- ---- ----- -----
Net Cash (Used) Provided by Investing
Activities.................................. (87) (29) 21 (45) (29)
---- ---- ---- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Transfers (to) from Tenneco............. 25 (154) (241) 45 47
---- ---- ---- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 1 (1) (5) (1) --
Effect of Exchange Rate Changes on Cash and
Cash Equivalents............................ -- -- -- -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD...................................... 1 2 7 2 1
---- ---- ---- ----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ 2 $ 1 $ 2 $ 1 $ 1
==== ==== ==== ===== =====
CASH PAID DURING THE PERIOD FOR INCOME TAXES
(SEE NOTE 3)................................ $122 $ 53 $120 $ 9 $ 16
==== ==== ==== ===== =====
CASH PAID DURING THE PERIOD FOR INTEREST (SEE
NOTE 4)...................................... $ -- $ -- $ -- $ -- $ --
==== ==== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these combined statements of
cash flows.
F-5
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
STATEMENTS OF CHANGES IN COMBINED EQUITY
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ------------
1995 1994 1993 1996 1995
---- ----- ------ ----- -----
(MILLIONS)
- ---------- (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Combined Equity, beginning of period......... $199 $ 105 $ (173) $ 272 $ 199
Net Earnings................................. 73 91 111 37 41
Net Cash Transfers (To) From Tenneco......... 25 (154) (241) 45 47
Non-Cash Transactions With Tenneco
Net Change in Allocated Corporate Debt..... (43) 140 386 (17) (63)
Allocated Corporate Interest, net of tax... 18 17 22 12 12
---- ----- ------ ----- -----
Combined Equity, end of period............... $272 $ 199 $ 105 $ 349 $ 236
==== ===== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these combined statements of
changes in combined equity.
F-6
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements represent the financial
position, results of operations and cash flows for all shipbuilding operations
owned directly or indirectly by Tenneco Inc. ("Tenneco") and its subsidiaries
(see "Control" below).
Unless the context otherwise requires, as used herein, the term "Company"
refers: (i) for periods prior to the Shipbuilding Distribution (as defined
below), to Newport News Shipbuilding and Dry Dock Company ("Newport News") and
certain other consolidated subsidiaries through which Tenneco conducted its
shipbuilding business (the "Shipbuilding Business") during such period, and
(ii) for periods after the Shipbuilding Distribution, to Newport News
Shipbuilding Inc. ("NNS," formerly Tenneco InterAmerica Inc.) and its
consolidated subsidiaries, including Newport News.
Investments in 20% to 50% owned companies where the Company has the ability
to exert significant influence over operating and financial policies are
carried at cost plus equity in undistributed earnings since the date of
acquisition. Earnings recognized and distributions received from equity method
investees was not significant during any of the periods presented in the
accompanying combined financial statements. All significant transactions and
balances among combined businesses have been eliminated.
Description of Business
The Company is in the business of designing, constructing, repairing,
overhauling and refueling ships, primarily for the United States Government.
Prior to November 1993, the Company was also involved in the manufacture of
advanced electronics for maritime and other applications (see Note 5).
Except with respect to its interest in Abu Dhabi Ship Building Company, the
Company does not have significant operations or assets outside the U.S. The
largest single customer of the Company is the U.S. Government. Contract
revenues from the U.S. Government were $1,697 million (97%), $1,700 million
(97%) and $1,771 million (95%) in 1995, 1994, and 1993, respectively.
2. THE SHIPBUILDING DISTRIBUTION
On June 19, 1996, Tenneco and El Paso Natural Gas Company ("El Paso")
entered into a merger agreement pursuant to which a subsidiary of El Paso will
be merged into Tenneco (the "Merger"). The Merger is part of a larger Tenneco
reorganization (the "Transaction") which includes the distribution of the
common stock of the Company (the "Shipbuilding Distribution") and New Tenneco
Inc. ("New Tenneco"), a newly formed subsidiary of Tenneco which will hold
substantially all of the assets, liabilities and operations of Tenneco's
current automotive and packaging businesses and its administrative services
business (the "Industrial Distribution") (collectively the "Distributions"),
to the holders of Tenneco common stock. Upon completion of the Transaction,
holders of Tenneco common stock will receive equity securities of the Company,
New Tenneco and El Paso.
Prior to the Transaction, Tenneco intends to initiate a realignment of its
existing indebtedness. As part of the debt realignment, certain New Tenneco
debt will be offered in exchange for certain issues of Tenneco debt. Tenneco
will initiate tender offers for other Tenneco debt, and certain debt issues
may be defeased. These tender offers and defeasances will be financed by a
combination of new lines of credit of Tenneco, New Tenneco (which may declare
and pay a dividend to Tenneco) and the Company (which will declare and pay a
dividend of approximately $600 million to Tenneco). Upon completion of the
debt realignment, Tenneco will have responsibility for $2.65 billion of debt,
subject to certain adjustments, the Company will have responsibility for the
borrowings under its credit lines, and New Tenneco will have responsibility
for the remaining debt.
F-7
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
Distributions and certain internal spin-off transactions will be tax-free for
federal income tax purposes and approval by Tenneco stockholders.
In order to assist in the orderly transition of the Company into a separate,
publicly held company, Tenneco intends to modify, amend or enter into certain
contractual agreements with the Company. Such agreements include a tax sharing
agreement between Tenneco and its subsidiaries (see "Income taxes" in Note 3),
an employee benefits agreement, an insurance agreement, an administrative
services agreement and other ancillary agreements. These agreements will
provide, among other things, that (i) New Tenneco will become the sole sponsor
of the Tenneco Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various
Tenneco welfare plans, while the Company will establish new plans for its
employees subsequent to the Shipbuilding Distribution, (ii) the Company will
retain specific insurance policies which relate to its businesses and will
retain continuing rights and obligations for certain parent-company insurance
policies of Tenneco, and (iii) the Company will receive certain corporate
services, such as mainframe data processing and product purchasing services,
from New Tenneco for a specified period of time.
3. SUMMARY OF ACCOUNTING POLICIES
Control
All of the outstanding common stock of the Company is owned directly or
indirectly by Tenneco. Thus, the Company is under the control of Tenneco.
Unaudited Interim Information
The unaudited interim combined financial statements as of June 30, 1996 and
for each of the six month periods ended June 30, 1996 and 1995, included
herein, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim combined financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The interim financial results are not necessarily
indicative of operating results for an entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of the Company's assets,
liabilities, revenues and expenses. Reference is made to the "Revenue
Recognition" section of this footnote and Notes 11, 12 and 13 for additional
information on certain estimates included in the Company's combined financial
statements.
Revenue Recognition
The Company reports profits on its long-term contracts using the percentage-
of-completion method of accounting, determined on the basis of total costs
incurred to date to estimated final total costs. Losses on contracts,
including allocable general and administrative expenses, are reported when
first estimated. The performance of contracts usually extends over several
years, requiring periodic reviews and revisions of estimated final contract
prices and costs during the term of the contracts. The effect of these
revisions to estimates is included in earnings in the period the revisions are
made. Revenue arising from the claims process is not recognized either as
income or as an offset against a potential loss until it can be reliably
estimated and its realization is probable.
General and Administrative Expenses
General and administrative expenses of $254 million, $271 million and $249
million in 1995, 1994, and 1993, respectively, are included in the "Operating
Costs and Expenses" caption in the Combined Statements of
F-8
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Earnings. Of the total general and administrative expenses for 1995, 1994, and
1993, $12 million, $13 million and $13 million, respectively, represent the
Company's share of Tenneco's corporate general and administrative costs for
legal, financial, communication and other administrative services. The
allocation of Tenneco's corporate general and administrative expenses to the
Company has been based on estimated levels of effort devoted to the Company's
operations and the relative size of the Company based on revenues, gross
property and payroll. The Company's management believes the method for
allocating corporate general and administrative expenses is reasonable and
that the general and administrative expenses reflected in the accompanying
combined financial statements are generally representative of the total
general and administrative costs the Company would have incurred as a separate
public entity.
Income Taxes
The Company utilizes the liability method of accounting for income taxes
whereby it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the combined financial statements.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized in a future period. No deferred tax
valuation allowances were recorded by the Company as of December 31, 1995 and
1994.
The Company and Tenneco, together with certain of their respective
subsidiaries which are owned 80% or more, have entered into an agreement to
file a consolidated U.S. federal income tax return. Such agreement provides,
among other things, that (i) each company in a taxable income position will be
currently charged with an amount equivalent to its federal income tax computed
on a separate return basis and (ii) each company in a tax loss position will
be reimbursed currently to the extent its deductions, including general
business credits, are utilized in the consolidated return. The income tax
amounts reflected in the combined financial statements of the Company under
the provisions of the tax sharing arrangement are not materially different
from the income taxes which would have been provided had the Company filed a
separate tax return. Under the tax sharing agreement, Tenneco pays all federal
taxes directly and bills or refunds, as applicable, its subsidiaries,
including the Company, for the applicable portion of the total tax payments.
Thus, the majority of payments made by the Company for taxes included in the
Combined Statements of Cash Flows represent payments to Tenneco.
In connection with the Distributions the current tax sharing agreement will
be cancelled and the Company will enter into a new tax sharing agreement with
Tenneco, New Tenneco and El Paso. The new tax sharing agreement will provide,
among other things, for the allocation of tax liabilities arising prior to, as
a result of, and subsequent to the Distributions. Generally, the Company will
be liable for taxes imposed on the Company and its affiliates engaged in the
shipbuilding business. In the case of federal income taxes imposed on the
combined activities of the Tenneco consolidated group, the Company and New
Tenneco will be liable to Tenneco for federal income taxes attributable to
their activities, and each will be allocated an agreed-upon share of estimated
tax payments made by the Tenneco consolidated group.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Accounts Receivable, net and Contracts In Process
Only amounts billed and currently due from customers are included in the
"Accounts Receivable, net" caption in the accompanying Combined Balance
Sheets. Recoverable costs and accrued earnings related to long-term contracts
on which revenue has been recognized, but billings have not been made to the
customer, are included in the "Contracts in Process" caption (See Note 6).
Accounts receivable are presented net of an allowance for doubtful accounts.
As of December 31, 1995 and 1994, the allowance for doubtful accounts
receivable was none and $8 million, respectively.
F-9
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Inventory
Inventory principally consists of raw materials and supplies which have not
been allocated to specific contracts. Inventory is stated at the lower of cost
or market. Substantially all inventory is costed using the "last-in, first-
out" method. If the first-in, first-out or average cost method of inventory
accounting had been used by the Company for all inventory, inventory would
have been approximately $8 million higher at both December 31, 1995 and 1994.
Property, Plant and Equipment, net
Property, plant and equipment is carried at cost, net of accumulated
depreciation. The Company provides for depreciation on a straight-line basis
in amounts which, in the opinion of management, are adequate to allocate the
cost of depreciable assets over their estimated useful lives. Estimated useful
lives for significant classes of assets are as follows.
<TABLE>
<S> <C>
Buildings................................................ 30 to 60 years
Machinery and equipment.................................. 8 to 45 years
</TABLE>
Total depreciation expense was $67 million, $70 million and $72 million, for
1995, 1994 and 1993, respectively. Depreciation expense is included as a
component of "Operating Costs and Expenses" in the Combined Statements of
Earnings.
Interest capitalized on constructed assets during the years ended December
31, 1995, 1994 and 1993 was $2 million, $1 million and $1 million,
respectively.
Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121
establishes new accounting standards for measuring the impairment of long-
lived assets. The adoption of this new standard did not have any impact on the
Company's combined financial position or results of operations.
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees, after employment but before retirement, on the accrual versus cash
basis of accounting. The Company recorded an after-tax charge of $4 million,
which was reported as a cumulative effect of change in accounting principle.
Research and Development Costs
Research and development costs are charged to "Operating Costs and Expenses"
as incurred. The amounts charged to operations during the years ended December
31, 1995, 1994 and 1993 were $20 million, $14 million and $15 million,
respectively.
Risk Management Activities
The Company periodically utilizes foreign currency contracts to hedge its
exposure to changes in foreign currency exchange rates for firm purchase
commitments. Net gains and losses on these contracts are deferred and
recognized when the offsetting gains or losses are recognized on the hedged
items. In the Combined Statements of Cash Flows, cash receipts or payments
related to these financial instruments are classified consistent with the cash
flows from the transactions being hedged.
F-10
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency Translation
Financial statements of equity investments in international entities 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 amounts included in the Combined Statements of
Earnings. The amount of cumulative translation adjustments is not significant
and is included in the balance sheet caption "Combined Equity."
Classification
The Company's contracts range in duration up to a period of 8 years from the
signing of the contract until delivery. Because of the varying nature of the
Company's operating cycle, and consistent with industry practice, assets and
liabilities relating to long-term contracts are classified as current,
although a portion of these amounts is not expected to be realized or paid
within one year (see Note 6).
4. TRANSACTIONS WITH TENNECO
Combined Equity
The "Combined Equity" caption in the accompanying combined financial
statements represents Tenneco's cumulative net investment in the combined
businesses of the Company. Changes in the "Combined Equity" caption represent
the net earnings of the Company, net cash transfers (to) from Tenneco,
cumulative translation adjustments, changes in allocated corporate debt, and
allocated corporate interest, net of tax. Reference is made to the Statements
of Changes in Combined Equity for an analysis of the activity in the "Combined
Equity" caption for the three years ended December 31, 1995 and six months
ended June 30, 1996 and 1995.
Corporate Debt and Interest Allocation
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense have been allocated to the Company based on the
portion of Tenneco's investment in the Company which is deemed to be debt,
generally based upon the ratio of the Company's net assets to Tenneco
consolidated net assets plus debt. Interest expense was allocated at a rate
equivalent to the weighted-average cost of all corporate debt, which was 7.7%,
8.3% and 7.4% for 1995, 1994, and 1993, respectively. Total pre-tax interest
expense allocated to the Company in 1995, 1994 and 1993 was $28 million, $26
million and $34 million, respectively. The Company has also been allocated tax
benefits approximating 35% of the allocated pre-tax interest expense. Although
interest expense, and the related tax effects, have been allocated to the
Company for financial reporting on a historical basis, the Company has not
been billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest have been included as a component of the
Company's Combined Equity. Although management believes that the historical
allocation of corporate debt and interest is reasonable, it is not necessarily
indicative of the Company's debt upon completion of the Debt Realignment nor
debt and interest that will be incurred by the Company as a separate public
entity.
Notes and Advances Receivable from Tenneco
"Cash transfers (to) from Tenneco" in the Statements of Changes in Combined
Equity consist of net cash changes in notes and advances receivable with
Tenneco which have been included in Combined Equity. Historically, Tenneco has
utilized notes and advances to centrally manage cash funding requirements for
its consolidated group.
F-11
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the Company had a non-interest bearing note
receivable from Tenneco totaling $965 million and $991 million, respectively,
which is payable on demand and is included as a component of the Company's
Combined Equity.
Accounts Payable to Tenneco
Certain costs are incurred by Tenneco and allocated to the Company. The
Accounts Payable to Tenneco balance consists of unpaid billings for these
allocated costs and other services. Reference is made to Note 3 for a
discussion of the types of such costs allocated to the Company.
Employee Benefits
Certain employees of the Company participate in the Tenneco employee stock
option and employee stock purchase plans. The Tenneco employee stock option
plan provides for the grant of Tenneco common stock options and other stock
awards at a price not greater than market value at the date of grant. The
Tenneco employee stock purchase plan allows employees to purchase Tenneco
common stock at a 15% discount subject to certain thresholds. The Company
expects to establish similar plans for its employees after the Shipbuilding
Distribution. In connection with the Shipbuilding Distribution, outstanding
options on Tenneco common stock held by Company employees will be converted
into options of the Company so as to preserve the aggregate value of the
options held prior to the Shipbuilding Distribution.
Employees of the Company also participate in certain Tenneco postretirement
and pension plans. Reference is made in Notes 11 and 12 for a further
discussion of these plans.
5. DISPOSITION OF SPERRY MARINE BUSINESS
During November 1993, the Company disposed of its Sperry Marine business
("Sperry"), which was part of its shipbuilding segment. Sperry was involved in
the domestic and international design and manufacture of advanced electronics
for maritime and other applications. The financial amounts related to Sperry
are included in the accompanying Combined Financial Statements through the
date of disposition. The accompanying Combined Financial Statements for the
year ended December 31, 1993, also include $56 million of the total cash
proceeds of $61 million from the sale of Sperry. The remaining portion of the
cash proceeds was realized by other Tenneco entities. In addition to the cash
proceeds from the sale of Sperry, the Company received $17 million in
preferred stock of the purchaser and recognized a pre-tax gain on the total
sale of $15 million. The preferred stock of the purchaser received in the
Sperry sale was subsequently sold in late 1995 for proceeds of $18 million,
which was reflected as a short-term note receivable at December 31, 1995. The
short-term note receivable was collected in 1996.
6. CONTRACTS IN PROCESS
Contracts in process include production costs and related overhead,
including allocable general and administrative expenses, net of progress
payments of $3,023 million and $5,053 million as of December 31, 1995 and
1994, respectively. Approximately $24 million and $79 million of retainages
included in contracts in process, as of December 31, 1995 and 1994,
respectively, are not expected to be billed and collected within one year.
Under the contractual arrangements by which progress payments are received,
the U.S. Government asserts that it has a security interest in the contracts
in process identified with the related contracts.
F-12
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment (at cost) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 (MILLIONS) 1995 1994
---------------------- ------ ------
<S> <C> <C>
Land and improvements..................................... $ 26 $ 26
Buildings and improvements................................ 1,150 1,081
Machinery and equipment................................... 376 387
------ ------
1,552 1,494
Less accumulated depreciation............................. (732) (698)
------ ------
$ 820 $ 796
====== ======
</TABLE>
8. DETAIL OF OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
DECEMBER 31 (MILLIONS)
----------------------
<S> <C> <C>
Accrued vacation............................................... $ 43 $ 48
Employee payroll and benefits.................................. 40 34
Current postretirement benefits................................ 16 13
Current postemployment benefits................................ 7 7
Accrued taxes.................................................. 18 26
Other.......................................................... 41 29
---- ----
$165 $157
==== ====
</TABLE>
9. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of the Company's financial
instruments by class are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
DECEMBER 31 (MILLIONS) ASSETS (LIABILITIES)
----------------------
<S> <C> <C> <C> <C>
Asset and liability instruments
Accounts receivable, net................. $ 67 $ 67 $ 89 $ 89
Notes receivable......................... 18 18 -- --
Preferred stock investment............... -- -- 17 18
Accounts payable (trade and to Tenneco).. (166) (166) (180) (180)
Instruments with off-balance sheet risk....
Foreign currency contracts............... -- -- -- --
</TABLE>
The fair value of accounts receivable, notes receivable, and accounts
payable in the above table was considered to be the same as or was not
determined to be materially different from the carrying amount. The short-term
and long-term debt reflected in the Combined Balance Sheets represents
corporate debt allocated to the Company for financial reporting purposes by
Tenneco. As such, an estimate of fair value has not been provided.
Preferred stock investment--The fair value of the preferred stock received
as part of the Sperry sale (see Note 5) was determined based on the proceeds
from the sale of such stock that were received in 1996.
F-13
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Foreign currency contracts--The Company periodically utilizes foreign
currency contracts to hedge certain specific foreign currency transactions,
principally the purchase of raw materials and machinery denominated in a
foreign currency. Such contracts generally mature in one year or less and the
cost of replacing these contracts in the event of nonperformance by
counterparties is not significant. At December 31, 1995 and 1994, the Company
had no significant foreign currency contracts outstanding.
10. INCOME TAXES
The Company's income before income taxes was principally domestic for all
years presented in the accompanying Combined Financial Statements. Following
is a comparative analysis of the components of the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Current--
Federal................................................ $51 $101 $40
State.................................................. 9 20 8
--- ---- ---
60 121 48
--- ---- ---
Deferred--
Federal................................................ (2) (46) 30
--- ---- ---
$58 $ 75 $78
=== ==== ===
</TABLE>
Current Federal tax expense for the years ended December 31, 1995, 1994 and
1993, include tax benefits of $10 million, $9 million and $12 million,
respectively, related to the allocation of corporate interest expense to the
Company from Tenneco. See Note 4.
The following is a reconciliation of income taxes computed using the
statutory U.S. federal income tax rate (35% for all years presented) to the
provision for income taxes reflected in the Combined Statements of Earnings:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. Federal income
tax rate................................................. $46 $60 $66
State and local taxes on income, net of Federal benefit... 6 14 5
U.S. Federal income tax rate change....................... -- -- 5
Other..................................................... 6 1 2
--- --- ---
$58 $75 $78
=== === ===
</TABLE>
F-14
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 (MILLIONS) 1995 1994
---------------------- ---- ----
<S> <C> <C>
Deferred tax assets--
Postretirement benefits...................................... $ 36 $ 36
Postemployment benefits...................................... 14 15
Accrued vacation............................................. 13 14
Other........................................................ 13 7
---- ----
Total deferred tax assets.................................. 76 72
---- ----
Deferred tax liabilities--
Tax over book depreciation................................... 179 183
Long-term shipbuilding contracts............................. 62 55
Other........................................................ 12 13
---- ----
Total deferred tax liabilities............................. 253 251
---- ----
$177 $179
==== ====
</TABLE>
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
The Company has postretirement health care and life insurance plans which
cover its employees who meet certain eligibility requirements. For salaried
employees, the plans cover employees retiring from the Company on or after
attaining age 55 who have had at least 10 years service with the Company after
attaining age 45. For hourly employees, the postretirement benefit plans
generally cover employees who retire pursuant to one of the Company's hourly
employee retirement plans. All of these benefits may be subject to
deductibles, copayment provisions and other limitations, and the Company has
reserved the right to modify these benefits. The Company's postretirement
benefit plans are funded on a pay-as-you-go basis.
Generally, the Company, will retain liabilities with respect to the welfare
benefits of its current and former employees and their dependents.
The funded status of the postretirement benefit plans reconciles with
amounts recognized in the accompanying Combined Balance Sheets as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- ----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 109 $ 112
Fully eligible active plan participants........................ 24 22
Other active plan participants................................. 28 30
----- -----
Total accumulated postretirement benefit obligation.............. 161 164
Plan assets at fair value at September 30........................ -- --
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (161) (164)
Claims paid during the fourth quarter............................ 4 3
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (20) (11)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 60 55
----- -----
Accrued postretirement benefit cost at December 31............... $(117) $(117)
===== =====
</TABLE>
F-15
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The accrued postretirement benefit cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
The net periodic postretirement benefit cost consists of the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year.......... $ 3 $ 3 $ 3
Interest cost on accumulated postretirement benefit
obligation............................................... 13 11 12
Net amortization of unrecognized amounts.................. 1 -- --
--- --- ---
Net periodic postretirement benefit cost.................. $17 $14 $15
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligation was 7%, 8% and 9%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1995, 1994 and 1993 accumulated postretirement
benefit obligations by approximately $10 million each year and would increase
the aggregate of the service cost and interest cost components of the net
postretirement benefit cost for 1995, 1994 and 1993 by approximately $1
million, $1 million, and $2 million, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligations were 7.75%, 8.25% and 7.50%, respectively.
Postemployment Benefits
The Company adopted FAS No. 112 "Employers' Accounting for Postemployment
Benefits," in the first quarter of 1994. This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual versus cash
basis of accounting. The postemployment benefit liability, which is based on
actuarial estimates, is recorded at its discounted present value, using
discount rates similar to those used for postretirement liabilities.
Implementation of this new rule
reduced 1994 net income by $4 million, net of tax benefits of $2 million,
which was reported as the cumulative effect of a change in accounting
principle.
12. PENSION PLANS
The Company has various defined benefit plans which cover substantially all
of its employees. Benefits are based on years of service and, for most
salaried employees, on final average compensation. The Company's funding
policies are to contribute to the plans amounts necessary to satisfy the
funding requirements of federal laws and regulations. Plan assets consist
principally of listed equity and fixed income securities. Certain employees of
the Company participate in the Tenneco Inc. Retirement Plan ("TRP").
New Tenneco will become the sole sponsor of the TRP after the Distributions,
and the Company will establish benefit plans for its employees. The benefits
accrued by Company employees in the TRP will be frozen as of the last day of
the calendar month including the Distributions, and New Tenneco will amend the
TRP to provide that all benefits accrued through that day by Company employees
are fully vested and non-forfeitable.
F-16
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconcile with amounts recognized on the
Combined Balance Sheet at December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
ALL PLANS
----------
(MILLIONS) 1995 1994
- ---------- ---- ----
<S> <C> <C>
Actuarial present value of benefits based on service to date and
present pay levels at September 30:
Vested benefit obligation....................................... $570 $514
Non-vested benefit obligation................................... 43 44
---- ----
Accumulated benefit obligation.................................. 613 558
Additional amounts related to projected salary increases.......... 104 92
---- ----
Total projected benefit obligation at September 30................ 717 650
Plan assets at fair value at September 30......................... 767 666
---- ----
Plan assets in excess of total projected benefit obligation at
September 30..................................................... 50 16
Contributions during the fourth quarter........................... -- --
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions......................................... 4 45
Unrecognized prior service obligations resulting from plan
amendments....................................................... 7 7
Remaining unrecognized net asset at initial application........... (49) (55)
---- ----
Prepaid pension cost at December 31............................... $ 12 $ 13
==== ====
</TABLE>
Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid pension cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
The Company measures pension cost according to independent actuarial
valuations. The projected unit credit actuarial cost method is used to
determine pension cost for financial accounting purposes consistent with the
provisions of FAS No. 87, "Employers' Accounting for Pensions." Net periodic
pension costs for the years ended December 31, 1995, 1994 and 1993 consist of
the following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the year... $23 $27 $27
Interest on prior year's projected benefit
obligation..................................... 52 50 48
Expected return on plan assets--
Actual (return) loss.......................... (132) 9 (95)
Unrecognized excess (deficiency) of actual
return over expected return.................. 65 (76) 32
---- --- ---
(67) (67) (63)
Net amortization of unrecognized amounts........ (6) (5) (6)
--- --- ---
Net pension costs............................... $ 2 $ 5 $ 6
=== === ===
</TABLE>
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1995, 1994 and 1993 actuarial present value of
the benefit obligations were 7.75%, 8.25% and 7.50%. The rate of increase in
future compensation was 4.9% in 1995, 1994, and 1993. The weighted average
expected long-term
F-17
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
rate of return on plan assets was 10.0% in 1995, 1994 and 1993. Unrecognized
prior service obligations are being amortized on a straight-line basis over
the average remaining estimated service period of employees expected to
receive benefits under the plans.
13. COMMITMENTS AND CONTINGENCIES
Government Contracting
More than 90% of the Company's business involves contracting with the U.S.
Government. These contracts are subject to possible termination for the
convenience of the U.S. Government, to audit and to possible adjustments
affecting both cost-type and fixed price type contracts. Like many government
contractors, the Company has received audit reports which recommend that
certain contract prices be reduced, or costs allocated to government contracts
be disallowed, to comply with various government regulations. Some of these
audit reports involve substantial amounts. The Company has made adjustments to
its contract prices and the costs allocated to government contracts in those
cases it believes such adjustments are appropriate.
Tenneco and the Company 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 the Company and other Tenneco
divisions. The DCAA has been advised that (i) the TRP will retain the
liability for all benefits accrued by the Company's employees through the date
of the Distributions (the "Distribution Date"), (ii) the Company's employees
will not accrue additional benefits under the TRP after the Distribution Date
and (iii) no liabilities or assets of the TRP will be transferred from the TRP
to any plan maintained by the Company. A determination of the ratio of assets
to liabilities of the TRP attributable to the Company will be based on facts,
assumptions and legal issues which are complicated and uncertain; however, it
is likely that the Government will assert a claim against the Company with
respect to the amount, if any, by which the assets of the TRP attributable to
the Company's employees are alleged to exceed the liabilities. New Tenneco,
with the full cooperation of the Company, will defend against any claim by the
Government, and in the event there is a determination that an amount is due to
the Government, New Tenneco and the Company will share its obligation for such
amount plus the amount of related defense expenses, in the ratio of 80% and
20%, respectively. Pending a final determination of any such claim, the
Government may, absent an agreement with the Company to defer the payment of
the amounts claimed, withhold all or a portion of all future progress payments
due the Company under its government contracts until it has recovered its
alleged share of the claimed amount plus interest. In the event of a claim by
the Government, the Company will diligently seek a deferral agreement with the
Government; however, there can be no assurance that the Company will be able
to arrange such an agreement and thus avoid an offset against future progress
payments pending a final determination. At this preliminary stage it is
impossible to predict with certainty any eventual outcome regarding this
matter, however, the Company does not believe that this matter will have a
material adverse effect on its financial condition or results of operations.
In March 1995, the DCAA informed the Company that it would conduct a post-
award audit of the contract to build the aircraft carrier Reagan (CVN-76). The
audit concerns the Company's submission to the U.S. Navy of current, accurate
and complete data relating to labor and overhead costs submitted in connection
with the proposals and negotiations relating to the CVN-76 contract. The audit
is ongoing and the DCAA has not issued its audit report. In discussions with
the DCAA auditors, however, the DCAA auditors have indicated to Company
management that the $2.5 billion CVN-76 contract should be reduced by
approximately $122 million based on an alleged submission of defective cost
and pricing data. In addition, in May 1996, the Company received a subpoena
from the Inspector General of the Department of Defense requesting documents
in connection with a joint inquiry being conducted by the Department of
Defense, the Department of Justice, the U.S. Attorney's Office for the Eastern
District of Virginia, and the Naval Criminal Investigative Service. Like the
DCAA audit,
F-18
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
the investigation appears to focus on whether data relating to labor and
overhead costs that the Company supplied in connection with the proposals and
negotiations relating to the CVN-76 contract were current, accurate and
complete. The Government has not asserted any formal claims against the
Company related to these CVN-76 contract matters. Based on the Company's
present understanding of the focus of the inquiries, it is the Company's
opinion that it has substantial defenses to claims that the government might
potentially assert that the Company submitted cost or pricing data that was
not current, accurate and complete for the CVN-76 contract. It is the
Company's intention to vigorously assert these defenses in the event that the
Government should assert such claims. Although the ultimate outcome cannot be
predicted, based on the Company's present understanding of the claims the
Government might assert, together with defenses the Company believes are
available to it, management is of the opinion that the ultimate resolution of
this matter will not have a material adverse effect on the financial condition
or results of operations of the Company.
In addition, various government agencies may at any time be conducting other
various investigations or making specific inquiries concerning the Company.
The Company believes that the outcome of such other investigations and
inquiries will not have a material adverse effect on the Company's financial
condition or results of operations.
Significant Estimates
In 1994 and 1995, the Company entered into fixed price contracts (which
shift the risks of construction costs that exceed the contract price to the
Company) to construct four Double Eagle product tankers for affiliates of
Eletson Corporation at a price of $36 million per ship. Construction of the
first tanker is substantially complete; construction has begun on the second
tanker; and a substantial portion of the materials needed for the construction
of the three uncompleted tankers has been ordered. The Company presently
estimates that these ships will be constructed over the period ending in
February, 1998. In connection with the construction of these four tankers, the
Company has incurred or estimates it will incur costs of approximately $90
million in excess of the fixed contract prices. As of September 30, 1996, the
full amount of these excess costs has been reserved for by a charge against
income; $56.6 million in 1996 ($26.2 million through June 30), $29.7 million
in 1995 and $5.0 million in 1994. Disagreements have arisen with the
purchasers during the course of construction as to whether the first and
second ships were and are being constructed in compliance with the
specifications set forth in the contracts, and the purchasers sent letters to
the Company purporting to invoke the procedures set forth in the contracts for
resolution of this situation and requested that the Company in the interim
stop construction on the ships. The Company saw no reason to stop construction
on the ships because of its confidence that the ships will be in compliance
with all contract and classification society requirements. The purchasers have
withdrawn both their invocation of the dispute resolution procedures under the
contracts and their request that the Company cease further construction of the
ships. Discussions between the Company and the purchasers to date have
resulted in the resolution of a significant number of these disagreements,
although some remain unresolved and are the subject of further discussions. No
assurances can be given as to the effect the resolution of these remaining
disagreements will have on the Company (although the Company does not believe
such resolution will materially and adversely affect it) or the extent to
which the remaining work on these contracts can be completed without further
disagreements with the purchasers or the incurrence of additional losses in
excess of current estimates, although the Company currently believes it can
complete the four ships within the current estimate of cost.
In 1995, the Company entered into fixed price contracts with limited
liability companies comprised principally of Hvide Partners, L.P. and an
affiliate of Van Ommeren International BV to construct an additional five
Double Eagle product tankers having a somewhat different design for the
domestic Jones Act market at a current average price of $43.4 million per
ship. The Company is in the process of completing its design work on these
ships and expects to begin construction in the first half of 1997. These ships
are scheduled for delivery in 1998. The Company presently estimates that it
will break even on these ships on a aggregate basis, but there can be no
assurance that the costs incurred in constructing these ships will not exceed
the contract prices for them.
F-19
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Contracting with the U.S. Government can also result in the Company filing a
Request for Equitable Adjustment ("REA") in connection with a contract. REAs
represent claims against the U.S. Government for changes in the original
contract specifications and resulting delays and disruption in contract
performance. All major REAs filed by the Company in connection with its
contracts, have been settled as of June 1996 for approximately the same amount
recorded previously by the Company. Through 1995, costs of $18 million had
been recognized on the Sealift REA in excess of the adjudicated REA price.
Cost growth of $36 million that was not recoverable through that REA has been
recognized in the first half of 1996. Due to uncertainties inherent in the
estimation process these contract completion costs could be increased in the
future by $0 to $10 million. The first of two Sealift ships was delivered in
August 1996. Management expects this contract to be substantially complete by
the end of the first quarter of 1997.
Litigation
The Company is also a defendant in other matters of varying nature. In the
opinion of management, the outcome of these proceedings should not have a
material adverse effect on the financial position or results of operations of
the Company.
Capital Commitments
The Company estimates that expenditures aggregating approximately $90
million will be required after December 31, 1995, to complete facilities and
projects authorized at such date, and substantial commitments have been made
in connection therewith.
Lease Commitments
The Company holds certain equipment under long-term operating leases. Future
minimum lease payments under existing operating leases as of December 31,
1995, are $1 million for 1996.
Rent expense recognized for the years ended December 31, 1995, 1994 and
1993, was $14 million, $14 million and $16 million, respectively.
F-20
<PAGE>
THE BUSINESSES OF NEWPORT NEWS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS
BEFORE
INCOME EARNINGS
TAXES & BEFORE
CUMULATIVE CUMULATIVE
EFFECT OF EFFECT OF
CHANGE IN CHANGE IN
NET OPERATING ACCOUNTING ACCOUNTING NET
(MILLIONS) SALES EARNINGS PRINCIPLE PRINCIPLE EARNINGS
- ---------- ------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1996
1st Quarter..................... $ 476 $ 41 $ 32 $19 $19
2nd Quarter..................... 439 40 32 18 18
------ ---- ---- --- ---
$ 915 $ 81 $ 64 $37 $37
====== ==== ==== === ===
1995
1st Quarter..................... $ 421 $ 44 $ 37 $20 $20
2nd Quarter..................... 424 46 33 21 21
3rd Quarter..................... 445 35 29 17 17
4th Quarter..................... 466 32 32 15 15
------ ---- ---- --- ---
$1,756 $157 $131 $73 $73
====== ==== ==== === ===
1994
1st Quarter..................... $ 403 $ 48 $ 41 $23 $19
2nd Quarter..................... 464 53 46 28 28
3rd Quarter..................... 424 52 44 25 25
4th Quarter..................... 462 48 39 19 19
------ ---- ---- --- ---
$1,753 $201 $170 $95 $91
====== ==== ==== === ===
</TABLE>
Reference is made to the Notes 1, 2 and 3 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Information Statement for items affecting quarterly results.
F-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Newport News Shipbuilding Inc.
/s/ David J. Anderson
By: _________________________________
David J. Anderson
Senior Vice President and
Chief Financial Officer
Dated: October 30, 1996
<PAGE>
SCHEDULE II
THE BUSINESSES OF NEWPORT NEWS
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS (NOTE) OF YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Deducted from
Assets to Which it
Applies:
Year Ended December 31,
1995.................. $8 $-- $-- $ 8 $--
=== === === === ===
Year Ended December 31,
1994.................. $2 $ 6 $-- $-- $ 8
=== === === === ===
Year Ended December 31,
1993.................. $3 $ 2 $-- $ 3 $ 2
=== === === === ===
</TABLE>
Note: Includes uncollectible accounts, net of recoveries, on accounts
previously written-off.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Form of Distribution Agreement by and among Tenneco Inc., New Tenneco,
Inc. and the Company
3.1 Certificate of Incorporation as currently in effect
3.2 Form of Restated Certificate of Incorporation
3.3 By-laws as currently in effect
3.4 Form of Amended and Restated By-laws
4.1 Form of Specimen Stock Certificate of NNS Common Stock
4.2 Form of Rights Agreement by and between First Chicago Trust Company of
New York and the Company
10.1 Form of Debt and Cash Allocation Agreement by and among Tenneco Inc.,
New Tenneco, Inc. and the Company
10.2 Form of Benefits Agreement by and among Tenneco Inc., New Tenneco Inc.
and the Company
10.3 Form of Insurance Agreement by and among Tenneco Inc., New Tenneco
Inc. and the Company
10.4 Form of Tax Sharing Agreement by and among Tenneco Inc., the Company
New Tenneco, Inc. and El Paso Natural Gas Company
10.5 Form of the Company's Trademark Transition License Agreement by and
between New Tenneco Inc. and the Company
10.6 Form of Newport News Shipbuilding Inc. Change-in-Control Severance
Benefit Plan for Key Executives
10.7 Form of Newport News Shipbuilding Inc. Stock Ownership Plan
10.8 Award/Contract N0024-95-C-2106, issued by Naval Sea Systems Command to
Newport News Shipbuilding for Aircraft Carrier CVN-76
12 Statement re computation of ratio of earnings to fixed charges
21 List of Subsidiaries of Newport News Shipbuilding Inc.
27(a) Financial Data Schedule
27(b) Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2
DISTRIBUTION AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.
AND
NEWPORT NEWS SHIPBUILDING INC.
(FORMERLY KNOWN AS TENNECO INTERAMERICA INC.)
DATED AS OF
, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS.................................................. 1
SECTION 1.01. General........................................ 1
SECTION 1.02. References..................................... 12
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. 13
SECTION 2.01. Corporate Restructuring Transactions........... 13
SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... 13
SECTION 2.03. Charters and Bylaws............................ 13
SECTION 2.04. Election of Directors of Industrial Company and
Shipbuilding Company............................. 13
SECTION 2.05. Transfer and Assignment of Certain Licenses and
Permits.......................................... 14
SECTION 2.06. Transfer and Assignment of Certain Agreements.. 14
SECTION 2.07. Consents....................................... 15
SECTION 2.08. Other Transactions............................. 15
SECTION 2.09. Election of Officers........................... 15
SECTION 2.10. Registration Statements........................ 16
SECTION 2.11. State Securities Laws.......................... 16
SECTION 2.12. Listing Application............................ 16
SECTION 2.13. Certain Financial and Other Arrangements....... 16
SECTION 2.14. Director, Officer and Employee Resignations.... 17
SECTION 2.15. Transfers Not Effected Prior to the
Distributions; Transfers Deemed Effective as of
the Distribution Date............................ 17
SECTION 2.16. Ancillary Agreements........................... 18
ARTICLE III THE DISTRIBUTIONS............................................ 18
SECTION 3.01. Tenneco Action Prior to the Distributions...... 18
SECTION 3.02. The Distributions.............................. 19
SECTION 3.03. Fractional Shares.............................. 19
ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. 20
SECTION 4.01. Conditions Precedent to the Distributions...... 20
SECTION 4.02. No Constraint.................................. 21
SECTION 4.03. Deferral of Distribution Date.................. 21
SECTION 4.04. Public Notice of Deferred Distribution Date.... 21
ARTICLE V COVENANTS.................................................... 22
SECTION 5.01. Further Assurances............................. 22
SECTION 5.02. Tenneco Name................................... 22
SECTION 5.03. Supplies and Documents......................... 22
SECTION 5.04. Assumption and Satisfaction of Liabilities..... 23
SECTION 5.05. No Representations or Warranties; Consents..... 23
SECTION 5.06. Removal of Certain Guarantees.................. 24
SECTION 5.07. Public Announcements........................... 24
SECTION 5.08. Intercompany Agreements........................ 25
SECTION 5.09. Tax Matters.................................... 25
ARTICLE VI ACCESS TO INFORMATION........................................ 25
SECTION 6.01. Provision, Transfer and Delivery of Applicable
Corporate Records........................................... 25
SECTION 6.02. Access to Information.......................... 26
SECTION 6.03. Reimbursement; Other Matters................... 26
SECTION 6.04. Confidentiality................................ 26
SECTION 6.05. Witness Services............................... 27
SECTION 6.06. Retention of Records........................... 27
SECTION 6.07. Privileged Matters............................. 27
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VII INDEMNIFICATION............................................ 28
SECTION 7.01. Indemnification by Tenneco................... 28
SECTION 7.02. Indemnification by Industrial Company........ 28
SECTION 7.03. Indemnification by Shipbuilding Company...... 28
SECTION 7.04. Limitations on Indemnification Obligations... 29
SECTION 7.05. Procedures for Indemnification............... 30
SECTION 7.06. Indemnification Payments..................... 31
SECTION 7.07. Other Adjustments............................ 31
SECTION 7.08. Obligations Absolute......................... 32
SECTION 7.09. Survival of Indemnities...................... 32
SECTION 7.10. Remedies Cumulative.......................... 32
SECTION 7.11. Cooperation of the Parties With Respect to
Actions and Third Party Claims................. 32
SECTION 7.12. Contribution................................. 33
ARTICLE VIII MISCELLANEOUS.............................................. 33
SECTION 8.01. Complete Agreement; Construction............. 33
SECTION 8.02. Ancillary Agreements......................... 33
SECTION 8.03. Counterparts................................. 33
SECTION 8.04. Survival of Agreements....................... 33
SECTION 8.05. Responsibility for Expenses.................. 34
SECTION 8.06. Notices...................................... 34
SECTION 8.07. Waivers...................................... 34
SECTION 8.08. Amendments................................... 34
SECTION 8.09. Assignment................................... 35
SECTION 8.10. Successors and Assigns....................... 35
SECTION 8.11. Termination.................................. 35
SECTION 8.12. Third Party Beneficiaries.................... 35
SECTION 8.13. Attorney Fees................................ 35
SECTION 8.14. Title and Headings........................... 35
SECTION 8.15. Exhibits and Schedules....................... 35
SECTION 8.16. Specific Performance......................... 35
SECTION 8.17. Governing Law................................ 35
SECTION 8.18. Severability................................. 36
SECTION 8.19. Subsidiaries................................. 36
</TABLE>
ii
<PAGE>
EXHIBITS
EXHIBIT ABenefits Agreement
EXHIBIT BCorporate Restructuring Transactions
EXHIBIT CDebt and Cash Allocation Agreement
EXHIBIT DEnergy Business Pro Forma Balance Sheet
EXHIBIT EEnergy Subsidiaries
EXHIBIT FIndustrial Business Pro Forma Balance Sheet
EXHIBIT GIndustrial Subsidiaries
EXHIBIT HInsurance Agreement
EXHIBIT IShipbuilding Business Pro Forma Balance Sheet
EXHIBIT JShipbuilding Subsidiaries
EXHIBIT KTax Sharing Agreement
EXHIBIT LTBS Services Agreement
EXHIBIT MTransition Services Agreement
EXHIBIT NForm of Restated Certificate of Incorporation
EXHIBIT OForm of Bylaws
EXHIBIT PTenneco Transition Trademark License
EXHIBIT QShipbuilding Transition Trademark License
iii
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made and entered into as of this day of
, 1996 by and among TENNECO INC., a Delaware corporation ("TENNECO"),
NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT
NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a
Delaware corporation ("SHIPBUILDING COMPANY").
R E C I T A L S
WHEREAS, Tenneco, El Paso Natural Gas Company, a Delaware corporation
("ACQUIROR"), and El Paso Merger Company, a Delaware corporation and an
indirect wholly owned subsidiary of Acquiror ("ACQUIROR SUBSIDIARY"), have
entered into an Amended and Restated Agreement and Plan of Merger, dated as of
October , 1996, but effective as of June 19, 1996, (as amended from time to
time, the "MERGER AGREEMENT"), providing for the merger of Acquiror Subsidiary
with and into Tenneco (the "MERGER"), with Tenneco continuing as the surviving
corporation of the Merger (the "SURVIVING CORPORATION"), upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, the Board of Directors of Tenneco has deemed it appropriate and
advisable, prior to the Merger and as contemplated by the Merger Agreement,
to:
(a) separate and divide the existing businesses of Tenneco so that (i)
the automotive, packaging and business services businesses shall be owned
directly and indirectly by Industrial Company, and (ii) the shipbuilding
business shall be owned directly and indirectly by Shipbuilding Company;
and
(b) distribute, following such separation and division and immediately
prior to the Merger, as a dividend to the holders of shares of Common
Stock, par value $5.00 per share, of Tenneco (the "TENNECO COMMON STOCK")
all of the outstanding shares of common stock, $.01 par value, of
Industrial Company (the "INDUSTRIAL COMMON STOCK") and all of the
outstanding shares of common stock, $.01 par value, of Shipbuilding Company
(the "SHIPBUILDING COMMON STOCK");
WHEREAS, following such separation, division and distributions, the
remaining businesses, operations, assets and liabilities of Tenneco and its
remaining direct and indirect subsidiaries shall be acquired by Acquiror
pursuant to the Merger; and
WHEREAS, each of Tenneco, Industrial Company and Shipbuilding Company has
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect such separation, division and
distributions and to set forth other agreements that will govern certain other
matters prior to and following such separation, division and distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL. Unless otherwise defined herein or unless the context
otherwise requires, the following terms will have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined).
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or any arbitration
tribunal.
"ACQUIROR SUBSIDIARY" has the meaning ascribed to such term in the
recitals to this Agreement.
"AFFILIATE" means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
<PAGE>
"AGENT" means First Chicago Trust Company of New York, or such other
trust company or bank designated by Tenneco, who shall act as agent for the
holders of Tenneco Common Stock in connection with the Distributions.
"AGREEMENT" means this Distribution Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, including any amendments
hereto and each Schedule and Exhibit attached hereto.
"ANCILLARY AGREEMENTS" means all of the written agreements, instruments,
understandings, assignments or other arrangements (other than this
Agreement or the Merger Agreement) entered into by the parties hereto or
any other member of their respective Group in connection with the Corporate
Restructuring Transactions, the Distributions and the other transactions
contemplated hereby or thereby, including, without limitation, the
following:
(i) the Debt and Cash Allocation Agreement;
(ii) the Insurance Agreement;
(iii) the Conveyancing and Assumption Instruments;
(iv) the Benefits Agreement;
(v) the Tax Sharing Agreement;
(vi) the Transition Services Agreement;
(vii) the TBS Services Agreement; and
(viii) the Transition Trademark License.
"BENEFITS AGREEMENT" means the Benefits Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT A, except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"BOOKS AND RECORDS" means all books, records, manuals, agreements and
other materials (in any form or medium), including without limitation, all
mortgages, licenses, indentures, contracts, financial data, customer lists,
marketing materials and studies, advertising materials, price lists,
correspondence, distribution lists, supplier lists, production data, sales
and promotional materials and records, purchasing materials and records,
personnel records, manufacturing and quality control records and
procedures, blue prints, research and development files, records, data and
laboratory books, accounts records, sales order files, litigation files,
computer files, microfiche, tape recordings and photographs.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor law.
"COMMISSION" means the United States Securities and Exchange Commission.
"CONSENTS" has the meaning ascribed to such term in SECTION 2.07 hereof.
"CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the
various written agreements, instruments and other documents to be entered
into to effect the Corporate Restructuring Transactions or to otherwise
effect the transfer of assets and the assumption of Liabilities in the
manner contemplated by this Agreement, the Ancillary Agreements and the
Corporate Restructuring Transactions.
"CORPORATE RESTRUCTURING TRANSACTIONS" means, collectively, (a) each of
the distributions, transfers, conveyances, contributions, assignments and
other transactions described and set forth on EXHIBIT B attached hereto,
and (b) such other distributions, transfers, conveyances, contributions,
assignments and other transactions (so long as such other distributions,
transfers, conveyances, contributions, assignments and other transactions
do not, individually or in the aggregate, adversely affect the Energy
Business (other than to a de minimis extent) or materially delay or prevent
the consummation of the Merger) that may be required to be accomplished,
effected or consummated by any of Tenneco, Industrial Company,
2
<PAGE>
1Shipbuilding Company or any of their respective Subsidiaries and
Affiliates in order to separate and divide, in a series of transactions
that, to the extent intended to qualify for tax-free transactions under the
Code, shall qualify for tax-free treatment under the Code, the existing
businesses of Tenneco so that, except as otherwise expressly set forth on
EXHIBIT B hereto:
(i) the Industrial Assets, Industrial Liabilities and Industrial
Business shall be owned, directly and indirectly, by Industrial
Company;
(ii) the Shipbuilding Assets, Shipbuilding Liabilities and
Shipbuilding Business shall be owned, directly and indirectly, by
Shipbuilding Company; and
(iii) the businesses, assets and liabilities of Tenneco that remain
after the separations and divisions described in clauses (i) and (ii)
above, including, without limitation, the Energy Assets, Energy
Liabilities and Energy Business, are, after giving effect to the
Distributions, owned, directly and indirectly, by Tenneco.
"DEBT AND CASH ALLOCATION AGREEMENT" means the Debt and Cash Allocation
Agreement by and among Tenneco, Industrial Company and Shipbuilding
Company, which agreement shall be entered into on or prior to the
Distribution Date in the form attached hereto as EXHIBIT C, except for such
changes or modifications thereto that do not, individually or in the
aggregate, adversely affect the Energy Business (other than to a de minimis
extent) or materially delay or prevent the consummation of the Merger.
"DEBT REALIGNMENT" has the meaning ascribed to such term in the Merger
Agreement.
"DEBT REALIGNMENT DOCUMENTS" means all documents furnished by Tenneco or
Industrial Company to any holders of indebtedness or debt securities of
Tenneco or any of its Subsidiaries or filed by Tenneco or Industrial
Company in connection therewith with any Governmental Authority or
securities exchange in connection with the Debt Realignment.
"DISTRIBUTIONS" means the Industrial Distribution and the Shipbuilding
Distribution.
"DISTRIBUTION DATE" means such date as may hereafter be determined by
Tenneco's Board of Directors as the date on which the Distributions shall
be effected.
"DISTRIBUTION RECORD DATE" means the close of business on the date
determined by the Board of Directors of Tenneco for the purpose of
determining the holders of record of Tenneco Common Stock entitled to
participate in the Distributions.
"DGCL" means the Delaware General Corporation Law, as amended.
"ENERGY ASSETS" means, collectively, all the rights and assets owned by
Tenneco or any of its Subsidiaries as of the close of business on the
Distribution Date other than the Industrial Assets, the Shipbuilding Assets
and the capital stock of Industrial Company and Shipbuilding Company,
including without limitation:
(i) the capital stock of the Energy Subsidiaries;
(ii) all of the assets included on the Energy Business Pro Forma
Balance Sheet which are owned by Tenneco and its Subsidiaries as of the
close of business on the Distribution Date and any other asset acquired
by Tenneco or any of its Subsidiaries from the date of the Energy
Business Pro Forma Balance Sheet to the close of business on the
Distribution Date that is owned by Tenneco and its Subsidiaries as of
the close of business on the Distribution Date and that is of a type or
nature that would have resulted in such asset being included as an
asset on the Energy Business Pro Forma Balance Sheet had it been
acquired on or prior to the date of the Energy Business Pro Forma
Balance Sheet, determined on a basis consistent with the determination
of assets included on the Energy Business Pro Forma Balance Sheet; and
(iii) all of the assets and rights expressly allocated to Tenneco or
any of the Energy Subsidiaries under this Agreement, any of the
Ancillary Agreements or the Merger Agreement.
"ENERGY BUSINESS" means the businesses (other than the Industrial
Business and the Shipbuilding Business) that, after giving effect to the
Corporate Restructuring Transactions, are or were conducted by:
(i) Tenneco, the Energy Subsidiaries or any of the other members of
the Energy Group;
(ii) any other division, Subsidiary or investment of Tenneco, or any
Energy Subsidiary or any of the other members of the Energy Group
managed or operated or in existence as of the date of this Agreement or
any prior time, unless such other division, Subsidiary or investment is
expressly included
3
<PAGE>
in either the Industrial Group or the Shipbuilding Group immediately
after giving effect to the Corporate Restructuring Transactions; and
(iii) any business entity acquired or established by or for Tenneco
or any of the Energy Subsidiaries between the date of this Agreement
and the close of business on the Distribution Date that is engaged in,
or intends to engage in, any business that is of a type or nature that
would have resulted in such business being included either as a
Subsidiary or an asset of Tenneco on the Energy Business Pro Forma
Balance Sheet had it been acquired or established on or prior to the
date of the Energy Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Energy Business Pro Forma Balance Sheet.
"ENERGY BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Tenneco and the Energy Subsidiaries as of
June 30, 1996 attached hereto as EXHIBIT D.
"ENERGY GROUP" means Tenneco, the Energy Subsidiaries and the
corporations, partnerships, joint ventures, investments and other entities
that represent equity investments of Tenneco or any of the Energy
Subsidiaries following consummation of the Corporate Restructuring
Transactions and the Distributions.
"ENERGY INDEMNITEES" means:
(i) Tenneco, the Energy Subsidiaries and each Affiliate thereof after
giving effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of such directors, officers, employees and
agents.
"ENERGY LIABILITIES" means, collectively, all of the Liabilities of
Tenneco and the Energy Subsidiaries and each of the other members of the
Energy Group remaining after giving effect to the Corporate Restructuring
Transactions, the Distributions and the transactions contemplated under the
Debt and Cash Allocation Agreement, including without limitation:
(i) all of the Liabilities included on the Energy Business Pro Forma
Balance Sheet which remain outstanding as of the close of business on
the Distribution Date;
(ii) all Liabilities which are incurred or which otherwise accrue or
are accrued at any time on, prior to or after the date of the Energy
Business Pro Forma Balance Sheet and which arise or arose out of, or in
connection with, the Energy Assets or the Energy Business, determined
on a basis consistent with the determination of Liabilities of Tenneco
included on the Energy Business Pro Forma Balance Sheet;
(iii) all of the Liabilities of Tenneco, the Energy Subsidiaries or
any of the other members of the Energy Group under, or to be retained
or assumed by Tenneco, any Energy Subsidiary or any of the other
members of the Energy Group pursuant to the Corporate Restructuring
Transactions, this Agreement, any of the Ancillary Agreements or the
Merger Agreement;
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Energy Business;
(v) all Securities Liabilities relating to or arising out of the
information and data (financial or otherwise and including pro forma
financial data) provided by or on behalf of Acquiror for inclusion in
the Registration Statement on Form S-4 of Industrial Company
registering certain debt securities of New Tenneco to be exchanged for
certain existing debt securities of Tenneco and certain of its
Subsidiaries in connection with the Debt Realignment, including,
without limitation, information, disclosures and data relating to or
concerning Acquiror, Acquiror Subsidiary, the business, operations and
management of the Energy Business and/or Energy Group following the
Merger and any refinancing or other transactions which Acquiror,
Acquiror Subsidiary and/or any member of the Energy Group anticipates
consummating following the Merger (collectively "ENERGY EXCHANGE
LIABILITIES"); and
4
<PAGE>
(vi) all other Liabilities of Tenneco, the Energy Subsidiaries or any
of the other members of the Energy Group (which do not constitute
Industrial Liabilities or Shipbuilding Liabilities), which other
Liabilities of Tenneco, the Energy Subsidiaries or any of the other
members of the Energy Group shall include, without limitation, any and
all Liabilities arising out of or relating to any Action or Third Party
Claim by any Governmental Authority or any other Person that is based
on (A) any violations or alleged violations by Tenneco, its
Subsidiaries (prior to giving effect to the Distributions) and/or any
of their respective directors, officers, employees, agents or
representatives of any of the provisions of the Exchange Act,
Securities Act, or the rules and regulations of the Commission
promulgated thereunder or any other securities or similar Law (other
than Liabilities (collectively "INFORMATION STATEMENT LIABILITIES") for
violations or alleged violations that arise out of, or in connection
with, the Industrial Information Statement, the Shipbuilding
Information Statement or information or data in the Joint Proxy
Statement or the Debt Realignment Documents concerning the Shipbuilding
Business or the Industrial Business), (B) any alleged breach of
fiduciary duty by the Board of Directors of Tenneco or any member
thereof, or (C) any stockholder derivative suit or other similar
Actions.
"ENERGY RECORDS" has the meaning ascribed to such term in SECTION 6.01(C)
hereof.
"ENERGY SUBSIDIARIES" means the Subsidiaries of Tenneco set forth on
EXHIBIT E hereto and all other Subsidiaries of Tenneco other than
Shipbuilding Company, Industrial Company, the Shipbuilding Subsidiaries and
the Industrial Subsidiaries.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et
seq.), whether now or hereafter in existence, relating to the environment,
natural resources or human health and safety or endangered or threatened
species of fish, wildlife and plants or to emissions, discharges or
releases of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE FILE MATERIAL" means the Registration Statements, as amended at
the times they were declared effective under the Exchange Act, the related
Information Statements or any amendment or supplement thereto, the related
letter of transmittal, any related stockholder communication, any other
exhibits to any of the foregoing and any amendment or supplement thereto,
in each case including all information incorporated by reference therein.
"GAAP" means United States generally accepted accounting principles and
practices, as in effect on the date of this Agreement, as promulgated by
the Financial Accounting Standards Board and its predecessors.
"GOVERNMENTAL AUTHORITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
"GROUP" means (i) with respect to Tenneco, the Energy Group, (ii) with
respect to Industrial Company, the Industrial Group, and (iii) with respect
to Shipbuilding Company, the Shipbuilding Group.
"INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all
losses, liabilities, penalties, claims, damages, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees,
investigation expenses and any and all other out-of-pocket expenses, but
excluding any punitive or consequential damages) or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by such Person either (a) in investigating, preparing for, defending
against or otherwise arising out of or in connection with any Actions, any
potential or threatened Actions or any Third Party
5
<PAGE>
Claims for which such Person would be entitled to indemnification under
ARTICLE VII hereof, or (b) in respect of any other event, occurrence or
matter for which such Person would be entitled to indemnification under
ARTICLE VII hereof, in each case whether accrued or incurred on, before or
after the date of this Agreement.
"INDEMNIFYING PARTY" has the meaning ascribed to such term in SECTION
7.04(A) hereof.
"INDEMNITEE" has the meaning ascribed to such term in SECTION 7.04(A)
hereof.
"INDUSTRIAL ASSETS" means, collectively, all of the following rights and
assets that are owned by Tenneco or any of its Subsidiaries as of the close
of business on the Distribution Date:
(i) the capital stock of the Industrial Subsidiaries;
(ii) all of the assets included on the Industrial Business Pro Forma
Balance Sheet that are owned by Tenneco or any of its Subsidiaries as
of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to Industrial
Company or any of the Industrial Subsidiaries under this Agreement or
any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Industrial Business Pro Forma Balance Sheet to the
close of business on the Distribution Date that is owned by Tenneco or
any of its Subsidiaries as of the close of business on the Distribution
Date and that is of a type or nature that would have resulted in such
asset being included as an asset on the Industrial Business Pro Forma
Balance Sheet had it been acquired on or prior to the date of the
Industrial Business Pro Forma Balance Sheet, determined on a basis
consistent with the determination of the assets included on the
Industrial Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Industrial Company, the Industrial Subsidiaries or any of the
other members of the Industrial Group; and
(ii) any business entity acquired or established by or for Tenneco,
Industrial Company or any of the Industrial Subsidiaries between the
date of this Agreement and the close of business on the Distribution
Date that is engaged in, or intends to engage in, any business that is
of a type or nature that would have resulted in such business being
included either as a Subsidiary or an asset of Industrial Company on
the Industrial Business Pro Forma Balance Sheet had it been acquired or
established on or prior to the date of the Industrial Business Pro
Forma Balance Sheet, determined on a basis consistent with the
determination of the Subsidiaries and assets included on the Industrial
Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Industrial Company and the Industrial
Subsidiaries as of June 30, 1996 attached hereto as EXHIBIT F.
"INDUSTRIAL COMMON SHARES" means the shares of Industrial Common Stock
owned by Tenneco after giving effect to the stock dividend provided for in
SECTION 2.02(A) hereof.
"INDUSTRIAL COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation.
"INDUSTRIAL DISTRIBUTION" means the distribution on the Distribution Date
as a dividend to holders of record of shares of Tenneco Common Stock as of
the Distribution Record Date of all of the outstanding Industrial Common
Shares owned by Tenneco on the basis provided in SECTION 3.02 hereof.
"INDUSTRIAL GROUP" means Industrial Company, the Industrial Subsidiaries
and the corporations, partnerships, joint ventures, investments and other
entities that represent equity investments of any of Industrial Company or
any of the Industrial Subsidiaries following the consummation of the
Corporate Restructuring Transactions and the Distributions.
"INDUSTRIAL INDEMNITEES" means:
(i) Industrial Company and each Affiliate thereof after giving effect
to the Corporate Restructuring Transactions and the Distributions; and
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(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"INDUSTRIAL INFORMATION STATEMENT" means the information statement or
registration statement relating to Industrial Company and the transactions
contemplated hereby to be distributed to holders of Tenneco Common Stock
pursuant to the terms of this Agreement.
"INDUSTRIAL LIABILITIES" means, collectively, all of the Liabilities of
Industrial Company, the Industrial Subsidiaries and each of the other
members of the Industrial Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated under the Debt and Cash Allocation Agreement, including,
without limitation:
(i) all of the Liabilities included on the Industrial Business Pro
Forma Balance Sheet which remain outstanding as of the close of
business on the Distribution Date;
(ii) all Liabilities (other than Energy Exchange Liabilities) which
are incurred or which otherwise accrue or are accrued at any time on,
prior to or after the date of the Industrial Business Pro Forma Balance
Sheet and which arise or arose out of, or in connection with (A) the
Industrial Assets, the Industrial Business or the Prior Industrial
Businesses, determined on a basis consistent with the determination of
Liabilities of Industrial Company on the Industrial Business Pro Forma
Balance Sheet, including Information Statement Liabilities which arise
or arose out of or in connection with, the Industrial Information
Statement or which arise or arose out of or in connection with
information or data in the Joint Proxy Statement or the Debt
Realignment Documents concerning the Industrial Business (except to the
extent such Liabilities constitute Shipbuilding Securities Liabilities
or are otherwise based on any of (i) the actions or inactions of
Shipbuilding Company, any other member of the Shipbuilding Group, or
any director, officer or employee of the Shipbuilding Company or any
other member of the Shipbuilding Group or any underwriter or investment
banking firm of any member of the Shipbuilding Group (or any of their
directors, officers, employees, advisors or representatives)
(collectively, the "SHIPBUILDING PARTIES," or individually, a
"SHIPBUILDING PARTY"), or (ii) the information or data provided in
writing by any Shipbuilding Party expressly for inclusion in the
Industrial Information Statement), or (B) the Shipbuilding Information
Statement to the extent such Information Statement Liabilities are
based on information or data concerning directly and solely the
Industrial Company or the Industrial Business that is provided in
writing by Industrial Company (or any other member of its Group or any
Affiliate thereof after giving effect to the Distributions) expressly
for inclusion in the Shipbuilding Information Statement;
(iii) all of the Liabilities of Industrial Company, the Industrial
Subsidiaries or any of the other members of the Industrial Group under,
or to be retained or assumed by Industrial Company, any Industrial
Subsidiary or any of the other members of the Industrial Group pursuant
to this Agreement or any of the Ancillary Agreements; and
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, at or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Industrial Business.
"INDUSTRIAL RECORDS" has the meaning ascribed to such term in SECTION
6.01(A) hereof.
"INDUSTRIAL REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations thereunder in
order to register the Industrial Common Stock under Section 12(b) of the
Exchange Act.
"INFORMATION STATEMENT LIABILITIES" has the meaning ascribed to such term
in CLAUSE (V) of the definitions herein of Energy Liabilities.
"INFORMATION STATEMENTS" means the Industrial Information Statement and
the Shipbuilding Information Statement.
"INDUSTRIAL SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT G
hereto.
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"INSURANCE AGREEMENT" means the Insurance Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered, into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT H except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"INSURANCE PROCEEDS" means, with respect to any insured party, those
monies, net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, or cost of reserve paid or held by or for
the benefit of such insured, which are either:
(i) received by an insured from an insurance carrier; or
(ii) paid by an insurance carrier on behalf of an insured.
"JOINT PROXY STATEMENT" has the meaning ascribed to such term in the
Merger Agreement.
"LAW" means all laws, statutes and ordinances and all regulations, rules
and other pronouncements of Governmental Authorities having the effect of
law of the United States, any foreign country, or any domestic or foreign
state, province, commonwealth, city, country, municipality, territory,
protectorate, possession or similar instrumentality, or any Governmental
Authority thereof.
"LIABILITIES" means any and all debts, liabilities, obligations,
responsibilities, response actions, losses, damages (whether compensatory,
punitive or treble), fines, penalties and sanctions, absolute or
contingent, matured or unmatured, liquidated or unliquidated, foreseen or
unforeseen, joint, several or individual, asserted or unasserted, accrued
or unaccrued, known or unknown, whenever arising, including, without
limitation, those arising under or in connection with any Law (including
any Environmental Law), Action, threatened Action, order or consent decree
of any Governmental Authority or any award of any arbitration tribunal, and
those arising under any contract, guarantee, commitment or undertaking,
whether sought to be imposed by a Governmental Authority, private party, or
party to this Agreement, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, or
otherwise, and including any costs, expenses, interest, attorneys' fees,
disbursements and expense of counsel, expert and consulting fees and costs
related thereto or to the investigation or defense thereof.
"MERGER" has the meaning ascribed to such term in the recitals to this
Agreement.
"MERGER AGREEMENT" has the meaning ascribed to such term in the recitals
to this Agreement.
"NYSE" means the New York Stock Exchange.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or
other entity, or any government, or any agency or political subdivision
thereof.
"PRIOR INDUSTRIAL BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Industrial
Business Pro Forma Balance Sheet, were included in the "automotive parts"
or "packaging" segments for purposes of segment reporting in any of
Tenneco's Annual Reports on Form 10-K, and were sold, transferred,
otherwise disposed of or discontinued prior to such date.
"PRIOR SHIPBUILDING BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Shipbuilding
Business Pro Forma Balance Sheet, were included in the "shipbuilding"
segment for purposes of segment reporting in any of Tenneco's Annual
Reports on Form 10-K, and were sold, transferred, otherwise disposed of or
discontinued prior to such date.
"PRIVILEGE" has the meaning ascribed to such term in SECTION 6.07(A)
hereof.
"PRIVILEGED INFORMATION" has the meaning ascribed to such term in SECTION
6.07(A) hereof.
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"REGISTRATION STATEMENTS" means the Industrial Registration Statement and
the Shipbuilding Registration Statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES LIABILITIES" means any and all losses, liabilities,
penalties, claims, damages, demands, costs or expenses or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by a Person arising out of or relating in whole or in part to any Action,
any potential or threatened Action or any Third Party Claim (or potential
or threatened Third Party Claim) by any Governmental Authority or any other
Person that is based on any violations or alleged violations of the
Securities Act, Exchange Act, any of the rules or regulations of the
Commission promulgated under the Securities Act or Exchange Act, or any
other securities or other similar Law.
"SHIPBUILDING ASSETS" means, collectively, all of the following rights
and assets that are owned by Tenneco and or any of its Subsidiaries as of
the close of business on the Distribution Date:
(i) the capital stock of the Shipbuilding Subsidiaries;
(ii) all of the assets included on the Shipbuilding Business Pro
Forma Balance Sheet that are owned by Tenneco or any of its
Subsidiaries as of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to
Shipbuilding Company or any of the Shipbuilding Subsidiaries under this
Agreement or any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Shipbuilding Business Pro Forma Balance Sheet to
the close of business on the Distribution Date that is owned by Tenneco
or any of its Subsidiaries as of the close of business on the
Distribution Date and that is of a nature or type that would have
resulted in such asset being included as an asset on the Shipbuilding
Business Pro Forma Balance Sheet had it been acquired on or prior to
the date of the Shipbuilding Business Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Shipbuilding Company, the Shipbuilding Subsidiaries or any of
the other members of the Shipbuilding Group; and
(ii) any business entity acquired or established by or for Tenneco,
Shipbuilding Company or any of the Shipbuilding Subsidiaries between
the date of this Agreement and the close of business on the
Distribution Date that is engaged in, or intends to engage in, any
business that is of a type or nature that would have resulted in such
business being included either as a Subsidiary or an asset of
Shipbuilding Company on the Shipbuilding Business Pro Forma Balance
Sheet had it been acquired or established on or prior to the date of
the Shipbuilding Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Shipbuilding Company and the Shipbuilding
Subsidiaries (prepared in accordance with GAAP) as of June 30, 1996
attached hereto as EXHIBIT I.
"SHIPBUILDING COMMON SHARES" means the Shares of Shipbuilding Common
Stock owned by Tenneco after giving effect to the stock dividend provided
for in SECTION 2.02(B) hereof.
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"SHIPBUILDING COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly
known as Tenneco InterAmerica Inc.), a Delaware corporation.
"SHIPBUILDING DISTRIBUTION" means the distribution on the Distribution
Date as a dividend to holders of record of shares of Tenneco Common Stock
as of the Distribution Record Date, of all of the outstanding Shipbuilding
Common Shares owned by Tenneco on the basis provided in SECTION 3.02
hereof.
"SHIPBUILDING FINANCING MATERIALS" means any registration statement,
private placement memorandum, offering circular, prospectus, information
memorandum and/or any other document or filing (with the Commission or any
Governmental Authority or the NYSE or other stock exchange) prepared by or
on behalf of Shipbuilding Company (or its Affiliates) and distributed to
prospective lenders or prospective purchasers of any debt or equity
securities of the Shipbuilding Company (or any other member of the
Shipbuilding Group) in connection with any of the transactions contemplated
under this Agreement, the Merger Agreement or any of the Ancillary
Agreements, including, without limitation, the Confidential Information
Memorandum dated September 1996 relating to the Senior Credit Facility (as
defined in the Shipbuilding Information Statement), the 144A Offering
Memorandum relating to the Senior Subordinated Notes and Senior Notes (as
such terms are defined in the Shipbuilding Information Statement), and the
registration statement on Form S-1 to be filed by Shipbuilding Company
after the Distribution Date to register the Senior Subordinated Notes and
Senior Notes under the Securities Act and all related documents.
"SHIPBUILDING GROUP" means Shipbuilding Company, the Shipbuilding
Subsidiaries and the corporations, partnerships, joint ventures,
investments and other entities that represent equity investments of
Shipbuilding Company or any of the Shipbuilding Subsidiaries following the
consummation of the Corporate Restructuring Transactions and the
Distributions.
"SHIPBUILDING INDEMNITEES" means:
(i) Shipbuilding Company and each Affiliate thereof after giving
effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"SHIPBUILDING INFORMATION STATEMENT" means the information statement or
registration statement relating to Shipbuilding Company and the
transactions contemplated hereby to be distributed to holders of Tenneco
Common Stock pursuant to the terms of this Agreement.
"SHIPBUILDING LIABILITIES" means, collectively, all of the Liabilities of
Shipbuilding Company, the Shipbuilding Subsidiaries and each of the other
members of the Shipbuilding Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated by the Debt and Cash Allocation Agreement, including, without
limitation:
(i) all of the Liabilities included on the Shipbuilding Business Pro
Forma Balance Sheet that remain outstanding as of the close of business
on the Distribution Date;
(ii) all other Liabilities that are incurred or which accrue or are
accrued at any time on, prior to or after the date of the Shipbuilding
Business Pro Forma Balance Sheet and that arise or arose out of, or in
connection with, the Shipbuilding Assets, the Shipbuilding Business or
the Prior Shipbuilding Businesses, determined on a basis consistent
with the determination of Liabilities of Shipbuilding Company on the
Shipbuilding Business Pro Forma Balance Sheet, including, without
limitation,
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Shipbuilding Securities Liabilities and Information Statement
Liabilities to the extent such Information Statement Liabilities (A)
arise or arose out of or in connection with the Shipbuilding
Information Statement or information or data in the Joint Proxy
statement or the Debt Realignment Documents concerning the Shipbuilding
Business or (B) are based on information or data provided in writing by
Shipbuilding Company (or any member of its Group or any Affiliate
(after giving effect to the Distributions) thereof) expressly for
inclusion in the Industrial Information Statement;
(iii) all of the Liabilities of Shipbuilding Company, the
Shipbuilding Subsidiaries or any of the other members of the
Shipbuilding Group under, or to be retained or assumed by Shipbuilding
Company, any Shipbuilding Subsidiary or any of the other members of the
Shipbuilding Group pursuant to, this Agreement or any of the Ancillary
Agreements; and
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Shipbuilding Business.
"SHIPBUILDING RECORDS" has the meaning ascribed to such term in SECTION
6.01(B) hereof.
"SHIPBUILDING REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations promulgated
thereunder in order to register the Shipbuilding Common Stock under Section
12(b) of the Exchange Act.
"SHIPBUILDING SECURITIES LIABILITIES" means any and all Securities
Liabilities arising out of, or in connection with, or relating in whole or
in part to any of the following: (i) the Shipbuilding Registration
Statement; (ii) the Shipbuilding Information Statement (whether in the form
as an Appendix to the Joint Proxy Statement or as the Information Statement
included in the Shipbuilding Registration Statement); (iii) the
Shipbuilding Financing Materials; (iv) any of the information, data
(financial or otherwise) or disclosures in (or any alleged failure to set
forth certain information, data or disclosures in) the Shipbuilding
Registration Statement, Shipbuilding Information Statement (whether in the
form as an Appendix to the Joint Proxy Statement or as the Information
Statement included in the Shipbuilding Registration Statement) or
Shipbuilding Financing Materials, irrespective of (A) who authored,
prepared or provided such information, data or disclosures (or, as the case
may be, the section or discussion in which certain information, data or
disclosure is alleged to have been omitted), or (B) the form in which, or
medium through which (e.g., verbally, in writing, etc.), such information,
data, disclosures, discussion or section were provided; or (v) any of the
information, data (financial or otherwise) or disclosures in (or any
alleged failure to set forth certain information, data or disclosures in)
the Joint Proxy Statement or the Debt Realignment Documents concerning any
matter relating to the business, operations, management, financial results
or potential risks of (or pending or threatened claims or investigations
relating to) the Shipbuilding Business, Prior Shipbuilding Businesses,
Shipbuilding Assets or Shipbuilding Liabilities, irrespective of (A) who
authored, prepared or provided such information data or disclosures (or, as
the case may be, the section or discussion in which certain information,
data or disclosure is alleged to have been omitted), or (B) the form in
which, or medium through which (e.g., verbally, in writing, etc.), such
information, data, disclosure, section or discussion were provided.
"SHIPBUILDING SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT J
hereto.
"SUBSIDIARY" means, with respect to any Person:
(i) any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of
such corporation, irrespective of whether or not at the time stock of
any other class or classes of such corporation shall have or might have
voting power by reason of the happening of a contingency) is at
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the time, directly or indirectly, owned or controlled by such Person or
by such Person and one or more of its Subsidiaries; or
(ii) any non-corporate entity in which such Person or such Person and
one or more Subsidiaries of such Person either (a) directly or
indirectly, at the date of determination thereof, has at least majority
ownership interest, or (b) at the date of determination is a general
partner or an entity performing similar functions (e.g., manager of a
Limited Liability Company or a trustee of a trust).
"SURVIVING CORPORATION" has the meaning ascribed to such term in the
recitals to this Agreement.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp,
excise, occupation, services, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment or other charge in the nature of or in lieu
of any tax) imposed by any governmental entity or political subdivision
thereof, and any interest, penalties, additions to tax, or additional
amounts in respect of the foregoing.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement by and among
Tenneco, Shipbuilding Company, Industrial Company and Acquiror, which
agreement shall be entered into on or prior to the Distribution Date in the
form attached hereto as EXHIBIT K, except for such changes or modifications
thereto that do not, individually or in the aggregate, adversely affect the
Energy Business other than to a de minimis extent.
"TENNECO" means Tenneco Inc., a Delaware corporation.
"TENNECO COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"TENNECO CORPORATE RECORDS" has the meaning ascribed to such term in
SECTION 6.01(A) hereof.
"TENNECO HOLDERS" means the holders of record of Tenneco Common Stock as
of the Distribution Record Date.
"TENNECO TRADEMARKS AND TRADENAMES" means all trademarks, service marks,
and tradenames containing "TENNECO", "TEN", or "TENN" or variations
thereof, along with their respective applications and registrations
wherever used or registered; provided, however, that the term shall not
include the word "Tennessee" to the extent such word is used in the
business and operations of Tennessee Gas Pipeline Company or otherwise in
the Energy Business.
"TERMINATION DATE" means the date on which this Agreement is terminated
pursuant to and in accordance with the provisions of SECTION 8.11 of this
Agreement.
"THIRD PARTY CLAIM" has the meaning as defined in SECTION 7.05(A) hereof.
"TBS SERVICES AGREEMENT" means the Services Agreement by and among
Industrial Company, Shipbuilding Company and Tenneco Business Services
Inc., which agreement shall be entered into on or prior to the Distribution
Date in substantially the form attached hereto as EXHIBIT L and which
agreement Tenneco and the Energy Business will not become a party to and
not be bound by without the consent of Acquiror, which Acquiror may
withhold in its sole discretion.
"TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement
by and between Tenneco and Tenneco Business Services Inc., which agreement
shall be entered into on or prior to the Distribution Date in the form
attached hereto as EXHIBIT M.
"TRANSITION TRADEMARK LICENSE" has the meaning ascribed to such term in
SECTION 5.02 hereof.
SECTION 1.02. REFERENCES. References to an "EXHIBIT" or to a "SCHEDULE" are,
unless otherwise specified, to one of the Exhibits or Schedules attached to
this Agreement, and references to a "SECTION" are, unless otherwise specified,
to one of the Sections of this Agreement.
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ARTICLE II
PRE-DISTRIBUTION TRANSACTIONS;
CERTAIN COVENANTS
SECTION 2.01. CORPORATE RESTRUCTURING TRANSACTIONS. On or prior to the
Distribution Date (but in all events prior to the Distributions) and otherwise
in accordance with the terms and provisions set forth in EXHIBIT B hereto,
each of Tenneco, Industrial Company and Shipbuilding Company shall, and shall
cause each of their respective Subsidiaries to, as applicable, take such
action or actions as is necessary to cause, effect and consummate the
Corporate Restructuring Transactions. Each of Tenneco, Shipbuilding Company
and Industrial Company hereby agrees that any one or more of the Corporate
Restructuring Transactions may be modified, supplemented or eliminated;
provided such modification, supplement or elimination (a) is determined to be
necessary or appropriate (i) to divide the existing businesses of Tenneco so
that the automotive, packaging and business services businesses shall be
owned, directly and indirectly, by Industrial Company and the shipbuilding
business shall be owned, directly and indirectly, by Shipbuilding Company, or
(ii) to obtain a ruling from the Internal Revenue Service as described in
Section 7.1(g) of the Merger Agreement, and (b) does not, individually or in
the aggregate, adversely affect the Energy Business (other than to a de
minimis extent) or materially delay or prevent the consummation of the Merger.
SECTION 2.02. PRE-DISTRIBUTION STOCK DIVIDENDS TO TENNECO. On or prior to
the Distribution Date (but in all events prior to the Distributions):
(a) INDUSTRIAL COMPANY STOCK DIVIDEND. Industrial Company shall issue to
Tenneco, as a stock dividend, the number of shares of Industrial Common
Stock as is required to effect the Industrial Distribution, as certified by
the Agent. In connection therewith, Tenneco shall deliver to Industrial
Company for cancellation the share certificate (or certificates) currently
held by it representing all Industrial Common Stock, and Industrial Company
shall issue a new certificate (or certificates) to Tenneco representing the
total number of Industrial Common Shares to be owned by Tenneco after
giving effect to such stock dividend.
(b) SHIPBUILDING COMPANY STOCK DIVIDEND. Shipbuilding Company shall issue
to Tenneco, as a stock dividend, the number of shares of Shipbuilding
Common Stock as is required to effect the Shipbuilding Distribution, as
certified by the Agent. In connection therewith, Tenneco shall deliver to
Shipbuilding Company for cancellation the share certificate (or
certificates) currently held by it representing all Shipbuilding Common
Stock, and Shipbuilding Company shall issue a new certificate (or
certificates) representing the total number of Shipbuilding Common Shares
to be owned by Tenneco after giving effect to such stock dividend.
SECTION 2.03. CHARTERS AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION AND BYLAWS OF INDUSTRIAL COMPANY. On or
prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Industrial Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Industrial Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
(b) CERTIFICATE OF INCORPORATION AND BYLAWS OF SHIPBUILDING COMPANY. On
or prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Shipbuilding Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Shipbuilding Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
SECTION 2.04. ELECTION OF DIRECTORS OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. On or prior to the Distribution Date, Tenneco, as the sole
stockholder of each of Industrial Company and Shipbuilding Company, shall take
all necessary action so that as of the Distribution Date the directors of
Industrial Company and of Shipbuilding Company will be as set forth in the
Industrial Information Statement and the Shipbuilding Information Statement,
respectively.
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SECTION 2.05. TRANSFER AND ASSIGNMENT OF CERTAIN LICENSES AND PERMITS.
(a) LICENSES AND PERMITS RELATING TO THE INDUSTRIAL BUSINESS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter,
each of Tenneco and Shipbuilding Company shall (and, if applicable, shall
cause any other Person over which it has legal or effective direct or
indirect control to), severally but not jointly, duly and validly transfer
or cause to be duly and validly transferred to the appropriate member of
the Industrial Group (as directed by Industrial Company) all transferrable
licenses, permits and authorizations issued by any Governmental Authority
that relate to the Industrial Business but which are held in the name of
any member of the Energy Group or the Shipbuilding Group, or any of their
respective employees, officers, directors, stockholders or agents.
(b) LICENSES AND PERMITS RELATING TO THE SHIPBUILDING BUSINESS. On or
prior to the Distribution Date, or as soon as reasonably practicable
thereafter, each of Tenneco and Industrial Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Shipbuilding Group (as directed by Shipbuilding
Company) all transferrable licenses, permits and authorizations issued by
any Governmental Authority that relate to the Shipbuilding Business but
which are held in the name of any member of the Energy Group or the
Industrial Group, or any of their respective employees, officers,
directors, stockholders or agents.
(c) LICENSES AND PERMITS RELATING TO THE ENERGY BUSINESS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter,
each of Industrial Company and Shipbuilding Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Energy Group (as directed by Tenneco) all
transferrable licenses, permits and authorizations issued by any
Governmental Authority that relate to the Energy Business but which are
held in the name of any member of the Industrial Group or the Shipbuilding
Group, or any of their respective employees, officers, directors,
stockholders or agents.
SECTION 2.06. TRANSFER AND ASSIGNMENT OF CERTAIN AGREEMENTS.
(a) TRANSFER AND ASSIGNMENT OF ENERGY BUSINESS AGREEMENTS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Industrial
Company and Shipbuilding Company shall (and, if applicable, shall cause any of
the other members of its Group over which it has legal or effective direct or
indirect control to), severally but not jointly, assign, transfer and convey
to Tenneco (or such other member of the Energy Group as Tenneco shall direct)
all of its (or such other member of its Group's) right, title and interest in
and to any and all agreements that relate exclusively to the Energy Business
or any member of the Energy Group.
(b) TRANSFER AND ASSIGNMENT OF INDUSTRIAL BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Shipbuilding Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Industrial Company (or such other member of the Industrial Group as Industrial
Company shall direct) all of its (or such other member of its Group's) right,
title and interest in and to any and all agreements that relate exclusively to
the Industrial Business or any member of the Industrial Group.
(c) TRANSFER AND ASSIGNMENT OF SHIPBUILDING BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Industrial Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Shipbuilding Company (or such other member of the Shipbuilding Group as
Shipbuilding Company shall direct) all of its (or such other member of its
Group's) right, title and interest in and to any and all agreements that
relate exclusively to the Shipbuilding Business or any member of the
Shipbuilding Group.
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(d) JOINT AGREEMENTS. Subject to the provisions of SECTION 2.06(F) below,
any agreement to which any party hereto (or any other member of such party's
Group) is a party that inures to the benefit of more than one of the Energy
Business, the Industrial Business and the Shipbuilding Business shall be
assigned in part, at the expense and risk of the assignee, on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, so that
each party (or such other member of such party's Group) shall be entitled to
the rights and benefits inuring to its business under such agreement.
(e) OBLIGATIONS OF ASSIGNEES. The assignee of any agreement assigned, in
whole or in part, hereunder (an "ASSIGNEE") shall, as a condition to such
assignment, assume and agree to pay, perform, and fully discharge all
obligations of the assignor under such agreement (whether such obligations
arose or were incurred prior to, on or subsequent to the Distribution Date and
irrespective of whether such obligations have been asserted as of the
Distribution Date) or, in the case of a partial assignment under SECTION
2.06(D) above, such Assignee's related portion of such obligations as
determined in accordance with the terms of the relevant agreement, where
determinable on the face thereof, and otherwise as determined in accordance
with the practice of the parties prior to the Distributions. Furthermore, the
Assignee shall use its commercially reasonable efforts to cause the assignor
of such agreement to be released from its obligations under the assigned
agreements.
(f) NO ASSIGNMENT OF CERTAIN AGREEMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any agreement, in whole or in part, or any rights thereunder if the
agreement to assign or attempt to assign, without the consent of a third
party, would constitute a breach thereof or in any way adversely affect the
rights of the Assignee thereof until such consent is obtained. If an attempted
assignment thereof would be ineffective or would adversely affect the rights
of any party hereto so that the Assignee would not, in fact, receive all such
rights, the parties hereto will cooperate with each other to effect any
arrangement designed reasonably to provide for the Assignee the benefits of,
and to permit the Assignee to assume liabilities under, any such agreement,
subject to the remaining sentences of this SECTION 2.06(F). There are certain
software license agreements held in the name of a member of the Industrial
Group that presently inure to the benefit of the Energy Business, the
Industrial Business and the Shipbuilding Business. Notwithstanding any other
provision of this Agreement, each such license agreement shall continue to be
held by that member of the Industrial Group without any obligation of any
party to cause the assignment or inurement to the benefit of such license
agreement, or to effect any arrangement to provide such benefit, to the Energy
Business or the Shipbuilding Business, except where the license agreement
expressly permits the benefits and obligations to be divided among the
Businesses or as may be negotiated with the licensor by that member of the
Industrial Group and such other parties and the Industrial Business shall use
commercially reasonable efforts to do so.
SECTION 2.07. CONSENTS. The parties hereto shall use their best efforts to
obtain any third-party consents or approvals that are required to consummate
the Corporate Restructuring Transactions, the Distributions and the other
transactions contemplated herein (the "CONSENTS").
SECTION 2.08. OTHER TRANSACTIONS. On or prior to the Distribution Date (but
in all events prior to the Distributions), each of Tenneco, Industrial Company
and Shipbuilding Company shall have consummated those other transactions in
connection with the Corporate Restructuring Transactions and the Distributions
that are contemplated by the Information Statements and the ruling request
submission by Tenneco to the Internal Revenue Service dated June 27, 1996 (as
subsequently supplemented), and not specifically referred to in SECTIONS 2.01
through 2.07 above, subject, however, to the limitations set forth in
SUBPARAGRAPH (B) of SECTION 2.01 above.
SECTION 2.09. ELECTION OF OFFICERS. On or prior to the Distribution Date,
each of Tenneco, Industrial Company and Shipbuilding Company shall, as
applicable, take all actions necessary and desirable so that as of the
Distribution Date the officers of each of Industrial Company and Shipbuilding
Company will be as set forth in the Industrial Information Statement and the
Shipbuilding Information Statement, respectively.
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SECTION 2.10. REGISTRATION STATEMENTS. Each of Tenneco, Industrial Company
and Shipbuilding Company shall prepare, and shall file with the Commission,
the Registration Statements in accordance with the terms of this SECTION 2.10.
(a) PREPARATION AND FILING OF INDUSTRIAL REGISTRATION STATEMENT. Tenneco,
Industrial Company and Shipbuilding Company shall prepare or cause to be
prepared, and Industrial Company shall file or cause to be filed with the
Commission, the Industrial Registration Statement. The Industrial
Registration Statement shall include or incorporate by reference the
Industrial Information Statement setting forth appropriate disclosure
concerning Tenneco, Industrial Company, Shipbuilding Company, the
Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Industrial Company shall take all such
actions as may be reasonably necessary or appropriate in order to cause the
Industrial Registration Statement to become effective by order of the
Commission pursuant to the Exchange Act.
(b) PREPARATION AND FILING OF SHIPBUILDING REGISTRATION STATEMENT.
Tenneco, Industrial Company and Shipbuilding Company shall prepare or cause
to be prepared, and Shipbuilding Company shall file or cause to be filed
with the Commission, the Shipbuilding Registration Statement. The
Shipbuilding Registration Statement shall include or incorporate by
reference the Shipbuilding Information Statement setting forth appropriate
disclosure concerning Tenneco, Shipbuilding Company, Industrial Company,
the Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Shipbuilding Company shall take all
such actions as may be reasonably necessary or appropriate in order to
cause the Shipbuilding Registration Statement to become effective by order
of the Commission pursuant to the Exchange Act.
SECTION 2.11. STATE SECURITIES LAWS. Prior to the Distribution Date,
Tenneco, Industrial Company and Shipbuilding Company shall take all such
action as may be necessary or appropriate under the securities or blue sky
laws of states or other political subdivisions of the United States in order
to effect the Distributions.
SECTION 2.12. LISTING APPLICATION. Prior to the Distribution Date, Tenneco,
Industrial Company and Shipbuilding Company shall prepare and file with the
NYSE listing applications and related documents and shall take all such other
actions with respect thereto as shall be necessary or desirable in order to
cause the NYSE to list on or prior to the Distribution Date, subject to
official notice of issuance, the Industrial Common Shares and the Shipbuilding
Common Shares.
SECTION 2.13. CERTAIN FINANCIAL AND OTHER ARRANGEMENTS.
(a) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND ENERGY
GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Energy Group, on the
other hand, shall, as of the close of business on the Distribution Date, be
settled, capitalized or converted into ordinary trade accounts, in each case
as may be agreed in writing prior to the Distribution Date by duly authorized
representatives of Tenneco, Industrial Company and the Acquiror.
(b) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN SHIPBUILDING GROUP AND
ENERGY GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Shipbuilding Group, on the one hand, and any member of the Energy Group, on
the other hand, shall, as of the close of business on the Distribution Date,
be settled, capitalized or converted into ordinary trade accounts, in each
case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Tenneco, Shipbuilding Company and the Acquiror.
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(c) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND
SHIPBUILDING GROUP. All intercompany receivables, payables and loans (other
than receivables, payables and loans otherwise specifically provided for in
any of the Ancillary Agreements or hereunder), including, without limitation,
in respect of any cash balances, any cash balances representing deposited
checks or drafts for which only a provisional credit has been allowed or any
cash held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Shipbuilding Group,
on the other hand, shall, as of the close of business on the Distribution
Date, be settled, capitalized or converted into ordinary trade accounts, in
each case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Industrial Company and Shipbuilding Company.
(d) OPERATIONS IN ORDINARY COURSE. Except as otherwise provided in this
Agreement, the Merger Agreement or any Ancillary Agreement, during the period
from the date of this Agreement through the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall, and shall cause
any entity that is a Subsidiary of such party at any time during such period
to, conduct its business in a manner substantially consistent with current and
past operating practices and in the ordinary course, including, without
limitation, with respect to the payment and administration of accounts payable
and the collection and administration of accounts receivable, the purchase of
capital assets and equipment and the management of inventories.
SECTION 2.14. DIRECTOR, OFFICER AND EMPLOYEE RESIGNATIONS. Subject to the
provisions of SECTION 2.04 and SECTION 2.09 above:
(a) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE ENERGY GROUP. Tenneco
shall cause all of its directors and all employees of the Energy Group to
resign, effective as of the close of business on the Distribution Date,
from all boards of directors or similar governing bodies of each member of
the Industrial Group or the Shipbuilding Group on which they serve, and
from all positions as officers or employees of any member of the Industrial
Group or the Shipbuilding Group, except as otherwise set forth in the
Information Statements or mutually agreed to in writing on or prior to the
Distribution Date by Tenneco, on the one hand, and, as applicable,
Industrial Company and/or Shipbuilding Company, on the other hand.
(b) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE INDUSTRIAL GROUP.
Industrial Company shall cause all of its directors and all employees of
the Industrial Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Shipbuilding Group on
which they serve, and from all positions as officers or employees of any
member of the Energy Group or the Shipbuilding Group, except as otherwise
set forth in the Information Statements or mutually agreed to in writing on
or prior to the Distribution Date by Industrial Company, on the one hand,
and, as applicable, Tenneco and/or Shipbuilding Company, on the other hand.
(c) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE SHIPBUILDING GROUP.
Shipbuilding Company shall cause all of its directors and all employees of
the Shipbuilding Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Industrial Group on which
they serve, and from all positions as officers or employees of any member
of the Energy Group or the Industrial Group, except as otherwise set forth
in the Information Statements or mutually agreed to in writing on or prior
to the Distribution Date by Shipbuilding Company, on the one hand, and, as
applicable, Industrial Company and/or Tenneco, on the other hand.
SECTION 2.15. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTIONS; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers
contemplated by this ARTICLE II shall not have been consummated on or prior to
the Distribution Date, the parties hereto shall cooperate (and shall cause
each of their respective Affiliates and each member of their respective Groups
over which they have legal or effective direct or indirect control to
cooperate) to effect such transfers as promptly following the Distribution
Date as shall be practicable. Nothing herein shall be deemed to require the
transfer of any assets or the assumption of any Liabilities which by their
terms or operation of Law cannot be transferred or assumed; provided, however,
that the parties hereto shall cooperate (and shall cause each of their
respective Affiliates and each member of their respective Groups over which
they have legal or effective direct or indirect control to cooperate) to seek
to
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obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this ARTICLE II. In the
event that any such transfer of assets or Liabilities has not been
consummated, from and after the Distribution Date the party retaining such
asset or Liability (or, as applicable, such other member or members of such
party's Group) shall hold such asset in trust for the use and benefit of the
party entitled thereto (at the expense of the party entitled thereto) or
retain such Liability for the account of the party by whom such Liability is
to be assumed pursuant hereto, as the case may be, and take such other action
as may be reasonably requested by the party to whom such asset is to be
transferred, or by whom such Liability is to be assumed, as the case may be,
in order to place such party, insofar as is reasonably possible, in the same
position as would have existed had such asset or Liability been transferred or
assumed as contemplated hereby. As and when any such asset or Liability
becomes transferable or assumable, such transfer shall be effected forthwith.
As of the Distribution Date, each party hereto (or, if applicable, such other
members of such party's Group) shall be deemed to have acquired (or, as
applicable, retained) complete and sole beneficial ownership over all of the
assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party (or any other member of such party's Group)
is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
SECTION 2.16. ANCILLARY AGREEMENTS. Prior to the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall enter into, and/or
where applicable shall cause such other members of their respective Groups to
enter into, (a) the Ancillary Agreements and (b) any other agreements in
respect of the Corporate Restructuring Transactions and the Distributions as
are reasonably necessary or appropriate in connection with the transactions
contemplated hereby and thereby so long as such agreements do not materially
delay or prevent consummation of the Merger or adversely affect the Energy
Business other than to a de minimis extent.
ARTICLE III
THE DISTRIBUTIONS
SECTION 3.01. TENNECO ACTION PRIOR TO THE DISTRIBUTIONS. Subject to the
terms and conditions set forth herein, Tenneco shall take, or cause to be
taken, the following acts or actions in connection with, and to otherwise
effect in accordance with the terms of this Agreement, the Distributions.
(a) DECLARATION OF DISTRIBUTIONS AND ESTABLISHMENT OF DISTRIBUTION DATE.
The Board of Directors of Tenneco shall, in its sole discretion and subject
to and in accordance with the applicable rules of the NYSE and provisions
of the DGCL, declare the Distributions and establish the Distribution
Record Date, the Distribution Date, the date on which Industrial Common
Shares, Shipbuilding Common Shares and any cash in lieu of fractional
shares shall be mailed to the Tenneco Holders and all appropriate
procedures in connection with the Distributions to the extent not provided
for herein; provided, however, that no such action shall create any
obligation on the part of Tenneco to effect the Distributions or in any way
limit Tenneco's power of termination as set forth in SECTION 8.11 hereof or
alter the consequences of any such termination from those specified in such
Section.
(b) NOTICE TO NYSE. Tenneco shall, to the extent possible, give the NYSE
not less than ten days advance notice of the Distribution Record Date in
compliance with Rule 10b-17 under the Exchange Act.
(c) MAILING OF INDUSTRIAL INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Industrial Registration Statement shall have been
declared effective under the Exchange Act, cause the Industrial Information
Statement to be mailed to the Tenneco Holders.
(d) MAILING OF SHIPBUILDING INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Shipbuilding Registration Statement shall have
been declared effective under the Exchange Act, cause the Shipbuilding
Information Statement to be mailed to the Tenneco Holders.
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SECTION 3.02. THE DISTRIBUTIONS.
(a) DUTIES AND OBLIGATIONS OF TENNECO. Subject to the conditions contained
herein, on the Distribution Date Tenneco shall:
(i) deliver to the Agent the share certificates representing the
Industrial Common Shares and Shipbuilding Common Shares issued to
Tenneco by Industrial Company and Shipbuilding Company, respectively,
pursuant to SECTION 2.02 hereof, endorsed by Tenneco in blank, for the
benefit of the Tenneco Holders; and
(ii) instruct the Agent to distribute, as soon as practicable
following consummation of the Distributions, to the Tenneco Holders the
following:
(A) one share of Industrial Common Stock for every one share of
Tenneco Common Stock;
(B) one share of Shipbuilding Common Stock for every five shares
of Tenneco Common Stock; and
(C) cash, if applicable, in lieu of fractional shares obtained in
the manner provided in SECTION 3.03 hereof.
(b) DUTIES AND RESPONSIBILITIES OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. Industrial Subsidiary and Shipbuilding Subsidiary shall provide, or
cause to be provided, to the Agent sufficient certificates representing
Industrial Common Stock and Shipbuilding Common Stock, respectively, in such
denominations as the Agent may request in order to effect the Distributions.
All shares of Industrial Common Stock issued pursuant to the Industrial
Distribution will be validly issued, fully paid and nonassessable and free of
any preemptive (or similar) rights. All shares of Shipbuilding Common Stock
issued pursuant to the Shipbuilding Distribution will be validly issued, fully
paid and nonassessable and free of any preemptive (or similar) rights.
SECTION 3.03. FRACTIONAL SHARES.
(a) NO FRACTIONAL SHARES. Notwithstanding anything herein to the contrary,
no certificate or scrip evidencing a fractional share of Industrial Common
Stock or Shipbuilding Common Stock shall be issued in connection with the
Distributions, and any such fractional share interests to which a Tenneco
Holder would otherwise be entitled will not entitle such Tenneco Holder to
vote or to any rights of a stockholder of Industrial Company or Shipbuilding
Company, as the case may be. In lieu of any such fractional shares, each
Tenneco Holder who, but for the provisions of this SECTION 3.03, would be
entitled to receive a fractional share interest of Industrial Common Stock or
Shipbuilding Common Stock pursuant to the Distributions shall be paid cash,
without any interest thereon, as hereinafter provided. Tenneco shall instruct
the Agent to determine the number of whole shares and fractional shares of
Industrial Common Stock and Shipbuilding Common Stock allocable to each
Tenneco Holder, to aggregate all such fractional shares into whole shares, to
sell the whole shares obtained thereby in the open market at the then
prevailing prices on behalf of Tenneco Holders who otherwise would be entitled
to receive fractional share interests and to distribute to each such Tenneco
Holder his, her or its ratable share of the total proceeds of such sale, after
making appropriate deductions of the amount required for federal income tax
withholding purposes and after deducting any applicable transfer taxes. All
brokers' fees and commissions incurred in connection with such sales shall be
paid by Tenneco.
(b) UNCLAIMED STOCK OR CASH. Any Industrial Common Stock, Shipbuilding
Common Stock or cash in lieu of fractional shares and dividends or
distributions with respect to Industrial Common Stock or Shipbuilding Common
Stock that remain unclaimed by any Tenneco Holder 180 days after the
Distribution Date shall be returned to Tenneco and any such Tenneco Holders
shall look only to Tenneco for the Industrial Common Stock, Shipbuilding
Common Stock, cash, if any, in lieu of fractional share interests and any such
dividends or distributions to which they are entitled, subject in each case to
applicable escheat or other abandoned property laws.
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(c) BENEFICIAL OWNERS. Solely for purposes of computing fractional share
interests pursuant to SECTION 3.03(A), the beneficial owner of shares of
Tenneco Common Stock held of record in the name of a nominee will be treated
as the holder of record of such shares.
ARTICLE IV
CONDITIONS TO THE DISTRIBUTIONS
SECTION 4.01. CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of
Tenneco to cause the Distributions to be consummated shall be subject, at the
option of Tenneco, to the fulfillment or waiver, on or prior to the
Termination Date, of each of the following conditions.
(a) TAX SHARING AGREEMENT. Tenneco, Industrial Company, Shipbuilding
Company and Acquiror shall have executed and delivered the Tax Sharing
Agreement and such agreement shall be in full force and effect.
(b) BENEFITS AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Benefits Agreement and such
agreement shall be in full force and effect.
(c) TRANSITION SERVICES AGREEMENT. Tenneco and Tenneco Business Services
Inc. shall have executed and delivered the Transition Services Agreement
and such agreement shall be in full force and effect.
(d) INSURANCE AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Insurance Agreement and such
agreement shall be in full force and effect.
(e) DEBT AND CASH ALLOCATION AGREEMENT. Tenneco, Industrial Company and
Shipbuilding Company shall have executed and delivered the Debt and Cash
Allocation Agreement and such agreement shall be in full force and effect.
(f) EFFECTIVE DATE OF REGISTRATION STATEMENT. Each of the Registration
Statements shall have been declared effective by order of the Commission
and no stop order shall have been entered, and no proceeding for that
purpose shall have been initiated or threatened by the Commission with
respect thereto.
(g) NYSE LISTING. The Industrial Common Shares and the Shipbuilding
Common Shares shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(i) TAX RULING. Tenneco shall have received rulings from the Internal
Revenue Service reasonably acceptable to Tenneco and Acquiror, which
rulings shall be in full force and effect as of the Distribution Date, to
the effect that:
(i) The Industrial Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under Section
355(c)(1) of the Code and to the stockholders of Tenneco under
Section 355(a) of the Code;
(ii) The Shipbuilding Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under
Section 355(c)(1) of the Code and to the stockholders of Tenneco
under Section 355(a) of the Code; and
(iii) The following distributions will be tax free to the respective
transferor corporations under Section 355(c)(1) of the Code and
to the respective stockholders of the transferor corporations
under Section 355(a) of the Code: (A) the distribution by the
Shipbuilding Company of the capital stock of Tenneco Packaging
Inc. to Tenneco Corporation contemplated under the Corporate
Restructuring Transactions; (B) the distribution by Tenneco
Corporation of the capital stock of the Shipbuilding Company
and the Industrial Company to Tennessee Gas Pipeline Company as
contemplated under the Corporate Restructuring Transactions;
and (C) the distribution by Tennessee Gas Pipeline Company of
the capital stock of the Shipbuilding Company and the
Industrial Company to Tenneco Inc. as contemplated under the
Corporate Restructuring Transactions.
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(i) PRE-DISTRIBUTION TRANSACTIONS. Each of the transactions and other
matters contemplated by ARTICLE II and SECTION 3.01 hereof (including,
without limitation, each of the distributions, transfers, conveyances,
contributions, assignments or other transactions included in, or otherwise
necessary to consummate, the Corporate Restructuring Transactions) shall
have been fully effected, consummated and accomplished.
(j) COVENANTS. The covenants contained in ARTICLE V of this Agreement
that are required to be performed on or before the Distribution Date shall
have been fully performed.
(k) NO PROHIBITIONS. Consummation of the transactions contemplated hereby
shall not be prohibited by Law and no Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation of the
Distributions, the Merger or any transaction contemplated by this Agreement
or the Merger Agreement, it being understood that the parties hereto hereby
agree to use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted as promptly as
possible.
(l) CONSENTS. Tenneco, Industrial Company, Shipbuilding Company and the
other members of their respective Groups shall have obtained all Consents
the failure of which to obtain would, in the determination of the Board of
Directors of Tenneco, have a material adverse effect on the Energy Group,
the Industrial Group or the Shipbuilding Group, each taken as a whole, and
such Consents shall be in full force and effect.
(m) STOCKHOLDER APPROVAL. The Distributions shall have been approved by
the requisite vote of the holders of the outstanding Tenneco Common Stock
and the holders of the outstanding $7.40 Cumulative Preferred Stock of
Tenneco, voting together as a class, by the requisite vote of the holders
of the outstanding $4.50 Cumulative Preferred Stock of Tenneco and the
holders of the outstanding $7.40 Cumulative Preferred Stock of Tenneco,
voting together as a class, and by any requisite vote of the holders of the
outstanding New Preferred Stock (as defined in the Merger Agreement),
voting separately as a class, in accordance with the DGCL and the
provisions of Tenneco's Certificate of Incorporation.
(n) HSR ACT. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the transactions
contemplated under the Merger Agreement shall have expired or been
terminated.
(o) DEBT REALIGNMENT. Each of the transactions and other matters
contemplated under the Debt Realignment (as defined under the Merger
Agreement) shall have been fully effected, consummated and accomplished.
SECTION 4.02. NO CONSTRAINT. Notwithstanding the provisions of SECTION 4.01
above (but subject to Tenneco's obligations under the Merger Agreement), the
fulfillment or waiver of any or all of the conditions precedent to the
Distributions set forth therein shall not:
(i) create any obligation on the part of Tenneco or any other party
hereto to effect the Distributions;
(ii) in any way limit Tenneco's right and power under SECTION 8.11 hereof
to terminate this Agreement and the process leading to the Distributions
and to abandon the Distributions; or
(iii) alter the consequences of any such termination under SECTION 8.11
hereof from those specified in such Section.
SECTION 4.03. DEFERRAL OF DISTRIBUTION DATE. If the Distribution Date shall
have been established by the Board of Directors of Tenneco but all the
conditions precedent to the Distributions set forth in this Agreement have not
theretofore been fulfilled or waived, or Tenneco does not reasonably
anticipate that they will be fulfilled or waived, on or prior to the date
established as the Distribution Date, Tenneco may, by resolution of its Board
of Directors (or a committee thereof, so authorized), defer the Distribution
Date to a later date.
SECTION 4.04. PUBLIC NOTICE OF DEFERRED DISTRIBUTION DATE. If the Board of
Directors (or a committee thereof, so authorized) of Tenneco shall defer the
Distribution Date in accordance with SECTION 4.03 above and public
announcement of the prior Distribution Date has theretofore been made, Tenneco
shall promptly thereafter
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issue, in accordance with the advice of legal counsel, a public announcement
with respect to such deferment and shall, with the advice of legal counsel,
take such other actions as may be deemed necessary or desirable with respect
to the dissemination of such information.
ARTICLE V
COVENANTS
SECTION 5.01. FURTHER ASSURANCES. Each of Tenneco, Industrial Company and
Shipbuilding Company shall use all reasonable efforts to:
(a) take or cause to be taken all actions, and to do or cause to be done
all things reasonably necessary, proper or advisable under applicable Law
and agreements or otherwise to consummate and make effective the
transactions contemplated hereby, including without limitation using
commercially reasonable efforts to obtain any consents and approvals from,
enter into any amendatory agreements with and make any applications,
registrations or filings with, any third Person or any Governmental
Authority necessary or desirable in order to consummate the transactions
contemplated hereby or to carry out the purposes of this Agreement; and
(b) execute and deliver such further instruments and documents and take
such other actions as the other party may reasonably request in order to
consummate the transactions contemplated hereby and effectuate the purposes
of this Agreement.
SECTION 5.02. TENNECO NAME. Industrial Company shall grant to each of
Tenneco and Shipbuilding Company transition licenses, in the forms of EXHIBIT
P and Q, respectively (the "Transition Trademark License"), to use the Tenneco
Trademarks and Tradenames for the limited use as more fully described below in
this SECTION 5.02 and in SECTION 5.03. Each of Tenneco and Shipbuilding
Company shall, and shall cause each of the other members of its Group over
which it has legal or effective direct or indirect control to, at its own
expense:
(a) Within 30 days following the Distribution Date, change, if necessary,
its corporate name to delete therefrom the word "Tenneco" or any other word
that is confusingly similar to the word "Tenneco" (except the word
"Tennessee"); and
(b) With respect to Tenneco, within two years following the Distribution
Date, and, with respect to Shipbuilding Company, within one year following
the Distribution Date, remove any and all references to the Tenneco
Trademark and Tradenames from any and all signs, displays or other
identification or advertising material (excluding any such material that is
the subject of SECTION 5.03 below). After the conclusion of such period,
each of Tenneco, Shipbuilding Company, and each other member of its
respective Group or over which it has legal or effective direct or indirect
control shall not use or display any of the Tenneco Trademarks and
Tradenames without the prior written consent of Industrial Company, which
consent may be withheld for any reason or no reason whatsoever. After the
Distribution Date, no party hereto shall represent or permit to be
represented to any third Person that it or any member of its Group has a
business affiliation with any other party hereto or any member of such
other party's Group, except as expressly permitted by any of the Ancillary
Agreements.
SECTION 5.03. SUPPLIES AND DOCUMENTS. Notwithstanding the provisions of
SECTION 5.02 above, for a period of six (6) months following the Distribution
Date, the Transition Trademark License shall license (on a nonexclusive basis)
to each of the members of the Energy Group and the Shipbuilding Group the
right to use existing supplies and documents which have imprinted thereon any
of the Tenneco Trademarks and Tradenames to the extent that such supplies and
documents were existing in the inventory of such member of the Energy Group or
Shipbuilding Group, as applicable, as of the Distribution Date.
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SECTION 5.04. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
otherwise specifically set forth in any Ancillary Agreement, from and after
the Distribution Date:
(a) Tenneco shall, and shall cause each of the other members of the
Energy Group over which it has legal or effective direct or indirect
control to, assume, pay, perform and discharge all Energy Liabilities in
accordance with their terms, when determinable, and otherwise as determined
in accordance with the practice of the parties prior to the Distributions;
(b) Industrial Company shall, and shall cause each of the other members
of the Industrial Group over which it has legal or effective direct or
indirect control to, assume, pay, perform and discharge all Industrial
Liabilities in accordance with their terms, when determinable, and
otherwise as determined in accordance with the practice of the parties
prior to the Distributions; and
(c) Shipbuilding Subsidiary shall, and shall cause each of the other
members of the Shipbuilding Group over which it has legal or effective
direct or indirect control to, assume, pay, perform and discharge all
Shipbuilding Liabilities in accordance with their terms, when determinable,
and otherwise as determined in accordance with the practice of the parties
prior to the Distributions.
SECTION 5.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) General. Each of the parties hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement (including the Ancillary Agreements) or
otherwise, making any representation or warranty whatsoever, including without
limitation, any representation or warranty:
(i) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets of such party; or
(ii) as to the legal sufficiency to convey title to any asset as of the
execution, delivery and filing of this Agreement or any Ancillary
Agreement, including, without limitation, any Conveyancing and Assumption
Instrument.
(b) DISCLAIMER OF MERCHANTABILITY OR FITNESS OF ASSETS. Each party hereto
further understands and agrees that there are no warranties, express or
implied, as to the merchantability or fitness of any of the assets either
transferred to or retained by the Energy Group, the Industrial Group or the
Shipbuilding Group, as the case may be, pursuant to Corporate Restructuring
Transactions and the other terms and provisions of this Agreement, any
Conveyancing and Assumption Agreement or any Ancillary Agreement, and all such
assets which are so transferred will be transferred on an "AS IS, WHERE IS"
basis, and the party to which any such assets are transferred hereunder, or
which retains assets hereunder, shall bear the economic and legal risk that
any conveyances of such assets shall prove to be insufficient or that the
title of such party or any other member of its respective Group to any such
assets shall be other than good and marketable and free from encumbrances.
(c) ACKNOWLEDGEMENT OF DISCLOSURE AND WAIVER. Each of Industrial Company and
Shipbuilding Company acknowledges, for itself and on behalf of each other
member of its respective Group, that:
(i) Tenneco and the other members of the Energy Group have disclosed, and
Industrial Company and Shipbuilding Company have knowledge of, all matters
pertaining to the assets and properties to be conveyed to Industrial
Company, Shipbuilding Company or any member of their respective Group
pursuant to the Corporate Restructuring Transactions or otherwise pursuant
to the other terms of this Agreement to the same extent that Tenneco and
the other members of the Energy Group have knowledge of such matters; and
(ii) such knowledge constitutes notice and disclosure of such matters.
Each of Industrial Company and Shipbuilding Company waives, to the fullest
extent permitted by law, for itself and for each other member of its
respective Group, any and all claims or causes of action which any of them may
have arising out of such matters or the failure of any Conveyancing and
Assumption Instrument to describe or refer to, or provide notice of, any such
matters.
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(d) NO REPRESENTATIONS OR WARRANTIES REGARDING CONSENTS. Each of the parties
hereto understands and agrees that no party hereto is, in this Agreement or
any Ancillary Agreement or in any other agreement or document contemplated by
this Agreement or any Ancillary Agreement or otherwise, representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or
all applicable Law. Each of the parties hereto further agrees and understands
that the party to which any assets are transferred as contemplated by the
Corporate Restructuring Transactions or the other provisions of this Agreement
shall bear the economic and legal risk that any necessary consents or
approvals are not obtained, that any necessary amendatory agreements are not
executed and delivered or that any requirements of Laws are not complied with.
(e) COVENANT TO USE REASONABLE EFFORTS TO OBTAIN CONSENTS. Notwithstanding
the provisions of SECTION 5.05(D) above, each of the parties hereto shall (and
shall cause each other member of its respective Group over which it has direct
or indirect legal or effective control to) use commercially reasonable efforts
to obtain all consents and approvals, to enter into all amendatory agreements
and to make all filings and applications which may be reasonably required for
the consummation of the transactions contemplated by this Agreement and shall
take all such further reasonable actions as shall be reasonably necessary to
preserve for each of the Energy Group, the Industrial Group and the
Shipbuilding Group, to the greatest extent feasible, the economic and
operational benefits of the allocation of assets and Liabilities contemplated
by this Agreement. In case at any time after the Distribution Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take
all such necessary or desirable action.
SECTION 5.06. REMOVAL OF CERTAIN GUARANTEES.
(a) REMOVAL OF ENERGY GROUP AS GUARANTOR OF INDUSTRIAL AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Tenneco and any other member of the
Energy Group removed as a guarantor of, or obligor under or for, any
Industrial Liability or Shipbuilding Liability.
(b) REMOVAL OF INDUSTRIAL GROUP AS GUARANTOR OF ENERGY AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Industrial Company and any other member
of the Industrial Group removed as a guarantor of, or obligor under or for,
any Energy Liability or Shipbuilding Liability.
(c) REMOVAL OF SHIPBUILDING GROUP AS GUARANTOR OF ENERGY AND INDUSTRIAL
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use their
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Shipbuilding Company and any other
member of the Shipbuilding Group removed as a guarantor of, or obligor under
or for, any Energy Liability or Industrial Liability.
SECTION 5.07. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with
each other before issuing any press release or otherwise issuing any other
similar written public statement with respect to this Agreement or the
Distributions and shall not issue any such press release or make any such
public statement without the prior consent of each other party, which shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of any other party, issue such press release or other similar
written public statement as may be required by law or any listing agreement
with a national securities exchange to which any party hereto (or any member
of such party's Group) is a party if it has used all reasonable efforts to
consult with such other party and to obtain such party's consent but has been
unable to do so in a timely manner.
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SECTION 5.08. INTERCOMPANY AGREEMENTS. Effective as of the consummation of
the Distributions, each of Industrial Company, Shipbuilding Company and
Tenneco shall (and shall cause each other member of its respective Group over
which it has legal or effective direct or indirect control) to terminate each
and every agreement between it and any member of any of the other Groups other
than this Agreement, any of the Ancillary Agreements and any of the license
agreements referred to in SECTION 2.06(F) above; provided, however, that such
termination shall not have any effect whatsoever on any of its rights and/or
obligations that accrued or were incurred prior to the Distribution Date
(subject to the terms of SECTION 2.13 above).
SECTION 5.09. TAX MATTERS. Each of Tenneco, the Industrial Company and the
Shipbuilding Company intend the Distributions to be treated as tax-free
distributions under Code Section 355 and each such party shall use its
reasonable best efforts to cause the Distributions to so qualify. Neither
Tenneco, on the one hand, nor the Industrial Company and Shipbuilding Company,
on the other hand, shall take any action (other than the Merger) which might
cause:
(i) the Distributions to fail to qualify as tax-free distributions under
Code Section 355;
(ii) any other transfer described in the Corporate Restructuring
Transactions that is intended (as described in Tenneco's request for
rulings from the Internal Revenue Service) to qualify as a tax free
transfer under Code Sections 332, 351, 355 or 368 to fail to so qualify; or
(iii) Tenneco or any Energy Subsidiary to recognize any gains relating to
deferred intercompany transactions or excess loss accounts between or among
any member of affiliated group of corporations of which Tenneco is the
common parent, other than those defined intercompany gains listed on
EXHIBIT H to the Merger Agreement.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01. PROVISION, TRANSFER AND DELIVERY OF APPLICABLE CORPORATE
RECORDS.
(a) PROVISION, TRANSFER AND DELIVERY OF INDUSTRIAL RECORDS. Each of Tenneco
and Shipbuilding Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Industrial Company's cost) to Industrial Company of the
Books and Records in its possession (i) that relate primarily to the
Industrial Business or are necessary to operate the Industrial Business
(collectively, the "INDUSTRIAL RECORDS"), and (ii) that consist of the
corporate minutes of the Board of Directors (or committees thereof) of Tenneco
or otherwise relate to the business, administrative and management operations
of Tenneco as the parent holding company of the Energy Business, Industrial
Business and Shipbuilding Business (collectively, the "TENNECO CORPORATE
RECORDS") except to the extent such items are already in the possession of any
member of the Industrial Group. The Industrial Records and the Tenneco
Corporate Records shall be the property of Industrial Company, but shall be
available to each of Tenneco and Shipbuilding Company for review and
duplication, at their cost, pursuant to the terms of this Agreement.
(b) PROVISION, TRANSFER AND DELIVERY OF SHIPBUILDING RECORDS. Each of
Tenneco and Industrial Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Shipbuilding Company's cost) to Shipbuilding Company of
the Books and Records in its possession that relate primarily to the
Shipbuilding Business or are necessary to operate the Shipbuilding Business
(collectively, the "SHIPBUILDING RECORDS"), except to the extent such items
are already in the possession of any member of the Shipbuilding Group. The
Shipbuilding Records shall be the property of Shipbuilding Company, but shall
be available to each of Tenneco and Industrial Company for review and
duplication , at their cost, pursuant to the terms of this Agreement.
(c) PROVISION, TRANSFER AND DELIVERY OF ENERGY RECORDS. Each of Industrial
Company and Shipbuilding Company shall (and shall cause each other member of
its respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Tenneco's cost) to Tenneco of the Books and Records in
its possession that relate primarily to the Energy
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Business or are necessary to operate the Energy Business (collectively, the
"ENERGY RECORDS"), except to the extent such items are already in the
possession of any member of the Energy Group. The Energy Records shall be the
property of Tenneco, but shall be available to each of Industrial Company and
Shipbuilding Company for review and duplication, at their cost, pursuant to
the terms of this Agreement.
SECTION 6.02. ACCESS TO INFORMATION.
(a) ACCESS TO BOOKS AND RECORDS. Unless otherwise contemplated by SECTION
6.06 hereof, from and after the Distribution Date, each of Tenneco, Industrial
Company and Shipbuilding Company shall (and shall cause each of the other
members of its respective Group over which it has legal or effective direct or
indirect control to) afford to each other party and its authorized
accountants, counsel and other designated representatives reasonable access
and duplicating rights (all such duplicating costs to be borne by the
requesting party) during normal business hours, subject to appropriate
restrictions for classified, privileged or confidential information, to the
personnel, properties, Books and Records and other data and information of
such party and each other member of such party's Group relating to operations
prior to the Distributions insofar as such access is reasonably required by
the other requesting party for the conduct of the requesting party's business
(but not for competitive purposes).
(b) PROVISION OF POST-DISTRIBUTION COMMISSION FILINGS. For a period of five
years following the Distribution Date, each of Tenneco, Industrial Company and
Shipbuilding Company shall (and shall cause each of the other members of its
respective Group over which it has legal or effective direct or indirect
control to) provide to the other, promptly following such time at which such
documents are filed with the Commission, all documents (other than documents
or portions thereof for which confidential treatment has been granted or a
request for confidential treatment is pending) filed by it and by each other
member of such party's Group with the Commission pursuant to the Securities
Act or the periodic and interim reporting requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder.
SECTION 6.03. REIMBURSEMENT: OTHER MATTERS. Except to the extent otherwise
contemplated hereby or by any Ancillary Agreement, a party providing Books and
Records or access to information to any other party (or such party's
representatives) under this ARTICLE VI shall be entitled to receive from such
other party, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such Books and Records or access to
information.
SECTION 6.04. CONFIDENTIALITY.
(a) GENERAL RESTRICTION ON DISCLOSURE. Each of Tenneco, Industrial Company
and Shipbuilding Company shall not (and shall not permit any other member of
its respective Group over which it has legal or effective direct or indirect
control to) use or permit the use of (without the prior written consent of the
other) and shall hold, and shall cause its consultants, advisors and other
representatives and any other member of its respective Group (over which it
has legal or effective direct or indirect control) to hold, in strict
confidence, all information concerning each other party hereto and the other
members of such other party's Group in its possession, custody or control to
the extent such information either
(i)relates to the period up to the Distribution Date,
(ii)relates to any Ancillary Agreement, or
(iii)is obtained in the course of performing services for the other party
pursuant to any Ancillary Agreement, and each party hereto shall not (and
shall cause each other member of its respective Group over which it has
legal or effective direct or indirect control not to) otherwise release or
disclose such information to any other Person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors,
without the prior written consent of the other affected party or parties,
unless compelled to disclose such information by judicial or administrative
process or unless such disclosure is required by Law and such party has
used commercially reasonable efforts to consult with the other affected
party or parties prior to such disclosure.
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(b) COMPELLED DISCLOSURE. To the extent that a party hereto is compelled by
judicial or administrative process to disclose such information under
circumstances in which any evidentiary privilege would be available, such
party agrees to assert such privilege in good faith prior to making such
disclosure. Each of the parties shall consult with each relevant other party
in connection with any such judicial or administrative process, including,
without limitation, in determining whether any privilege is available, and
shall not object to each such relevant party and its counsel participating in
any hearing or other proceeding (including, without limitation, any appeal of
an initial order to disclose) in respect of such disclosure and assertion of
privilege.
(c) EXCEPTIONS TO CONFIDENTIAL TREATMENT. Anything herein to the contrary
notwithstanding, no party hereto shall be prohibited from using or permitting
the use of, or required to hold in confidence, any information to the extent
that (i) such information has been or is in the public domain through no fault
of such party, (ii) such information is, after the Distribution Date, lawfully
acquired from other sources by such party, or (iii) this Agreement, any
Ancillary Agreement or any other agreement entered into pursuant hereto
permits the use or disclosure of such information by such party.
SECTION 6.05. WITNESS SERVICES. At all times from and after the Distribution
Date, each of Tenneco, Industrial Company and Shipbuilding Company shall use
its reasonable efforts to make available to each other party hereto, upon
reasonable written request, the officers, directors, employees and agents of
each member of its respective Group for fact finding, consultation or
interviews and as witnesses to the extent that:
(a) such persons may reasonably be required in connection with the
prosecution or defense of any Action in which the requesting party or any
member of its respective Group may from time to time be involved; and
(b) there is no conflict in the Action between the requesting party or
any member of its respective Group and the party to which a request is made
pursuant to this SECTION 6.05 or any member of such party's Group. Except
as otherwise agreed by the parties, a party providing witness services to
any other party under this Section shall be entitled to receive from the
recipient of such services, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses (but not salary expenses) and direct and indirect
costs of employees who participate in fact finding, consultation or
interviews or are witnesses, as are actually and reasonably incurred in
providing such fact finding, consulting, interviews or witness services by
the party providing such services.
SECTION 6.06. RETENTION OF RECORDS. Except when a longer period is required
by Law or is specifically provided for herein or in any Ancillary Agreement,
each party hereto shall cause the members of its Group over which it has legal
or effective direct or indirect control, to retain, for a period of at least
seven years following the Distribution Date, all material information
(including without limitation all material Books and Records) relating to such
Group and its operations prior to the Distribution Date. Notwithstanding the
foregoing, any party hereto may offer in writing to deliver to the other
parties all or a portion of such information as it relates to members of the
offering party's Group and, if such offer is accepted in writing within 90
days after receipt thereof, the offering party shall promptly arrange for the
delivery of such information (or copies thereof) to each accepting party (at
the expense of such accepting party). If such offer is not so accepted, the
offered information may be destroyed or otherwise disposed of by the offering
party at any time thereafter.
SECTION 6.07. PRIVILEGED MATTERS.
(a) PRIVILEGED INFORMATION. Each of the parties hereto shall, and shall
cause the members of its Group over which it has legal or effective direct
or indirect control to, use its reasonable efforts to maintain, preserve,
protect and assert all privileges including, without limitation, all
privileges arising under or relating to the attorney-client relationship
(including without limitation the attorney-client and attorney work product
privileges) that relate directly or indirectly to any member of any other
Group for any period prior to the Distribution Date ("PRIVILEGE" or
"PRIVILEGES"). Each of the parties hereto shall use its reasonable efforts
not to waive, or permit any member of its Group over which it has legal or
effective direct or indirect control to waive, any such Privilege that
could be asserted under applicable Law without the prior written consent of
the other parties. With respect to each party, the rights and obligations
created by this SECTION 6.07 shall apply to all information as to which a
member of any Group did assert or, but for the
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Distributions, would have been entitled to assert the protection of a
Privilege ("PRIVILEGED INFORMATION") including, but not limited to, any and
all information that either:
(i) was generated or received prior to the Distribution Date but
which, after the Distributions, is in the possession of a member of
another Group; or
(ii) is generated or received after the Distribution Date but refers
to or relates to Privileged Information that was generated or received
prior to the Distribution Date.
(b) PRODUCTION OF PRIVILEGED INFORMATION. Upon receipt by a party or any
member of its Group of any subpoena, discovery or other request that
arguably calls for the production or disclosure of Privileged Information,
or if a party or any member of its Group obtains knowledge that any current
or former employee of such party or any member of its Group has received
any subpoena, discovery or other request which arguably calls for the
production or disclosure of Privileged Information, such party shall
promptly notify the other parties of the existence of the request and shall
provide the other parties a reasonable opportunity to review the
information and to assert any rights it may have under this SECTION 6.07 or
otherwise to prevent the production or disclosure of Privileged
Information. No party will, or will permit any member of its Group over
which it has direct or indirect legal or effective control to, produce or
disclose any information arguably covered by a Privilege under this SECTION
6.07 unless:
(i) each other party has provided its express written consent to such
production or disclosure; or
(ii) a court of competent jurisdiction has entered an order which is
not then appealable or a final, nonappealable order finding that the
information is not entitled to protection under any applicable
privilege.
(c) NO WAIVER. The parties hereto understand and agree that the transfer
of any Books and Records or other information between any members of the
Energy Group, the Industrial Group, or the Shipbuilding Group shall be made
in reliance on the agreements of Tenneco, Industrial Company and
Shipbuilding Company, as set forth in SECTION 6.04 and SECTION 6.07 hereof,
to maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The Books and Records being transferred
pursuant to SECTION 6.01 hereof, the access to information being granted
pursuant to SECTION 6.02 hereof, the agreement to provide witnesses and
individuals pursuant to SECTION 6.05 hereof and the transfer of Privileged
Information to either party pursuant to this Agreement shall not be deemed
a waiver of any Privilege that has been or may be asserted under this
Section or otherwise.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY TENNECO. Except as otherwise specifically
set forth in any provision of this Agreement or of any Ancillary Agreement,
Tenneco shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless the Industrial Indemnitees and the Shipbuilding Indemnitees from
and against any and all Indemnifiable Losses of the Industrial Indemnitees and
the Shipbuilding Indemnitees, respectively, arising out of, by reason of or
otherwise in connection with either (i) the Energy Liabilities, or (ii) the
breach by Tenneco of any provision of this Agreement or any Ancillary
Agreement.
SECTION 7.02. INDEMNIFICATION BY INDUSTRIAL COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Industrial Company shall, to the fullest extent permitted by law,
indemnify, defend and hold harmless the Energy Indemnitees and the
Shipbuilding Indemnitees from and against any and all Indemnifiable Losses of
the Energy Indemnitees and the Shipbuilding Indemnitees, respectively, arising
out of, by reason of or otherwise in connection with either (i) the Industrial
Liabilities, or (ii) the breach by Industrial Company of any provision of this
Agreement or any Ancillary Agreement.
SECTION 7.03. INDEMNIFICATION BY SHIPBUILDING COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Shipbuilding Company shall, to the fullest
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entent permitted by law, indemnify, defend and hold harmless the Energy
Indemnitees and the Industrial Indemnitees from and against any and all
Indemnifiable Losses of the Energy Indemnitees and the Industrial Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with
either (i) the Shipbuilding Liabilities, or (ii) the breach by Shipbuilding
Company of any provision of this Agreement or any Ancillary Agreement. In
addition, and without limiting the generality of the foregoing indemnification
provisions of this SECTION 7.03, Shipbuilding Company shall, to the fullest
extent permitted by law, indemnify, defend and hold harmless the Industrial
Indemnitees and the Energy Indemnitees from and against any and all
Indemnifiable Losses of the Industrial Indemnitees and the Energy Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with any
matter, of whatever kind or nature, relating in any way to the commercial
ships commonly known as the "Double Eagle" product tankers, including without
limitation, (i) the design, engineering or construction of any of the Double
Eagle product tankers, (ii) the sale or other disposition of any of the Double
Eagle product tankers (or the sale or other disposition of any direct or
indirect equity interest in any of the Double Eagle product tankers), (iii)
the direct or indirect financing of the construction of any of the Double
Eagle product tankers or any other financing relating to any of the Double
Eagle product tankers, (iv) the direct or indirect equity investments in any
of the Double Eagle product tankers, (v) the purchase of raw materials and
other materials and services in connection with the design, construction or
engineering of any of the Double Eagle product tankers, (vi) the negotiation
of any contract for the construction of or financing for the construction of,
any of the Double Eagle product tankers, or (vii) the operation by any Person
whatsoever of any of the Double Eagle product tankers.
SECTION 7.04. LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that
any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other
Person (an "INDEMNITEE") pursuant to SECTION 7.01, SECTION 7.02 or SECTION
7.03 above, as applicable, shall be reduced (retroactively or prospectively)
by any Insurance Proceeds or other amounts actually recovered from third
parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses (except that nothing herein shall be construed as
requiring any Indemnitee in respect of any Shipbuilding Securities Liability
to file any claim for insurance). The existence of a claim by an Indemnitee
for insurance or against a third party in respect of any Indemnifiable Loss
shall not, however, delay any payment pursuant to the indemnification
provisions contained herein and otherwise determined to be due and owing by an
Indemnifying Party. Rather the Indemnifying Party shall make payment in full
of such amount so determined to be due and owing by it against an assignment
by the Indemnitee to the Indemnifying Party of the entire claim of the
Indemnitee for such insurance or against such third party. Notwithstanding any
other provisions of this Agreement, it is the intention of the parties hereto
that no insurer or any other third party shall be (i) entitled to a benefit it
would not be entitled to receive in the absence of the foregoing
indemnification provisions or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of
any Indemnifiable Losses and shall subsequently actually receive Insurance
Proceeds or other amounts in respect of such Indemnifiable Losses, then such
Indemnitee shall hold such Insurance Proceeds in trust for the benefit of such
Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received, up to
the aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
(b) FOREIGN CURRENCY ADJUSTMENTS. In the event that any indemnification
payment required to be made hereunder or under any Ancillary Agreement shall
be denominated in a currency other than U.S. Dollars, the amount of such
payment shall be translated into U.S. Dollars using the foreign exchange rate
for such currency determined in accordance with the following rules:
(i) with respect to any Indemnifiable Losses arising from the payment by
a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the foreign
exchange rate for such currency shall be determined as of the date on which
such financial institution shall have been reimbursed;
(ii) with respect to any Indemnifiable Losses covered by insurance, the
foreign exchange rate for such currency shall be the foreign exchange rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Losses with the Indemnifying Party; and
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(iii) with respect to any Indemnifiable Losses not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall
be determined as of the date that notice of the claim with respect to such
Indemnifiable Losses shall be given to the Indemnitee.
SECTION 7.05. PROCEDURES FOR INDEMNIFICATION. Except as otherwise
specifically provided in any Ancillary Agreement, including, without
limitation, the Tax Sharing Agreement and the Benefits Agreement:
(a) NOTICE OF THIRD PARTY CLAIMS. If a claim or demand is made against an
Indemnitee by any Person who is not a member of the Energy Group, Industrial
Group or Shipbuilding Group (a "THIRD PARTY CLAIM") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim promptly (and in any event within 15 business
days) after receipt by such Indemnitee of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the Indemnitee's right to indemnification hereunder except to the
extent the Indemnifying Party shall have been actually prejudiced as a result
of such failure (except that the Indemnifying Party shall not be liable for
any expenses incurred during the period in which the Indemnitee failed to give
such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within 15 business days) after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(b) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses, to assume the defense thereof
with counsel selected by the Indemnifying Party, which counsel shall be
reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so
elect to assume the defense of a Third Party Claim, the Indemnifying Party
shall not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof. If the
Indemnifying Party assumes such defense, the Indemnitee shall have the right
to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it
being understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Indemnitee for any period during which the
Indemnifying Party has failed to assume the defense of the Third Party Claim
(other than during the period prior to the time the Indemnitee shall have
given notice of the Third Party Claim as provided above). If the Indemnifying
Party so elects to assume the defense of any Third Party Claim, all of the
Indemnitees shall cooperate with the Indemnifying Party in the defense or
prosecution thereof. Notwithstanding the foregoing:
(i) the Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim either (A) seeks
an order, injunction or other equitable relief or relief for other than
money damages against the Indemnitee which the Indemnitee reasonably
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages; provided, however, that if such equitable
relief or other relief portion of the Third Party Claim can be so separated
from that for money damages, the Indemnifying Party shall be entitled to
assume the defense of the portion relating to money damages; or (B) relates
to or arises out of any Shipbuilding Securities Liability.
(ii) an Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the Indemnitee in defending such Third
Party Claim) if, in the Indemnitee's reasonable judgment, a conflict of
interest between such Indemnitee and such Indemnifying Party exists in
respect of such Third Party Claim; and
(iii) if at any time after assuming the defense of a Third Party Claim an
Indemnifying Party shall fail to prosecute or withdraw from the defense of
such Third Party Claim, the Indemnitee shall be entitled to resume the
defense thereof and the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel incurred by the Indemnitee in such
defense.
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(c) SETTLEMENT OF THIRD PARTY CLAIMS. Except as otherwise provided below in
this SECTION 7.05(C), or as otherwise specifically provided in any Ancillary
Agreement, including without limitation, the Tax Sharing Agreement and the
Benefits Agreement, if the Indemnifying Party has assumed the defense of any
Third Party Claim, then
(i) in no event will the Indemnitee admit any liability with respect to,
or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; provided, however, that the
Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
settlement, compromise or discharge would not otherwise adversely affect
the Indemnifying Party, and
(ii) the Indemnitee will agree to any settlement, compromise or discharge
of a Third Party Claim that the Indemnifying Party may recommend and that
by its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and releases the
Indemnitee completely in connection with such Third Party Claim and that
would not otherwise adversely affect the Indemnitee.
provided, however, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third
Party Claim shall not exceed the amount that would be required to be paid by
or on behalf of the Indemnifying Party in connection with such settlement,
compromise or discharge. If the Indemnifying Party has not assumed the defense
of a Third Party Claim then in no event shall the Indemnitee settle,
compromise or discharge such Third Party Claim without providing prior written
notice to the Indemnifying Party, which shall have the option within 15
business days following receipt of such notice to
(i) approve and agree to pay the settlement,
(ii) approve the amount of the settlement, reserving the right to contest
the Indemnitee's right to indemnity pursuant to this Agreement,
(iii) disapprove the settlement and assume in writing all past and future
responsibility for such Third Party Claim (including all of Indemnitee's
prior expenditures in connection therewith), or
(iv) disapprove the settlement and continue to refrain from participation
in the defense of such Third Party Claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness
of the settlement if the Indemnitee elects to proceed therewith.
In the event the Indemnifying Party does not respond to such written notice
from the Indemnitee within such 15 business-day period, the Indemnifying Party
shall be deemed to have elected option (i).
(d) OTHER CLAIMS. Any claim on account of an Indemnifiable Loss which does
not result from a Third Party Claim shall be asserted by written notice given
by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying
Party shall have a period of 15 business days after the receipt of such notice
within which to respond thereto. If such Indemnifying Party does not respond
within such 15 business-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 15 business-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party under applicable Law or under this
Agreement.
SECTION 7.06. INDEMNIFICATION PAYMENTS. Indemnification required by this
ARTICLE VII shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred.
SECTION 7.07. OTHER ADJUSTMENTS.
(a) ADJUSTMENTS FOR TAXES. The amount of any Indemnifiable Loss shall be:
(i) increased to take into account any net Tax cost actually incurred by
the Indemnitee arising from any payments received from the Indemnifying
Party (grossed up for such increase); and
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(ii) reduced to take account of any net Tax benefit actually realized by
the Indemnitee arising from the incurrence or payment of any such
Indemnifiable Loss.
In computing the amount of such Tax cost or Tax benefit, the Indemnitee shall
be deemed to recognize all other items of income, gain, loss, deduction or
credit before recognizing any item arising from the receipt of any payment
with respect to an Indemnifiable Loss or the incurrence or payment of any
Indemnifiable Loss.
(b) REDUCTIONS FOR SUBSEQUENT RECOVERIES OR OTHER EVENTS. In addition to any
adjustments required pursuant to SECTION 7.04 hereof or SECTION 7.07(A) above,
if the amount of any Indemnifiable Losses shall, at any time subsequent to any
indemnification payment made by the Indemnifying Party pursuant to this
ARTICLE VII, be reduced by recovery, settlement or otherwise, the amount of
such reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnifying Party, up to the
aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
SECTION 7.08. OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of
indemnification set forth in this ARTICLE VII shall:
(i) also apply to any and all Third Party Claims that allege that any
Indemnitee is independently, directly, vicariously or jointly and severally
liable to such third party;
(ii) to the extent permitted by applicable law, apply even if the
Indemnitee is partially negligent or otherwise partially culpable or at
fault, whether or not such liability arises under any doctrine of strict
liability; and
(iii) be in addition to any liability or obligation that an Indemnifying
Party may have other than pursuant to this Agreement.
SECTION 7.09. SURVIVAL OF INDEMNITIES. The obligations of Tenneco,
Industrial Company and Shipbuilding Company under this ARTICLE VII shall
survive the sale or other transfer by any of them of any assets or businesses
or the assignment by any of them of any Liabilities, with respect to any
Indemnifiable Loss of any Indemnitee related to such assets, businesses or
Liabilities.
SECTION 7.10. REMEDIES CUMULATIVE. The remedies provided in this ARTICLE VII
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
SECTION 7.11. COOPERATION OF THE PARTIES WITH RESPECT TO ACTIONS AND THIRD
PARTY CLAIMS.
(a) IDENTIFICATION OF PARTY IN INTEREST. Any party to this Agreement that
has responsibility for an Action or Third Party Claim shall identify itself as
the true party in interest with respect to such Action or Third Party Claim
and shall use its commercially reasonable efforts to obtain the dismissal of
any other party to this Agreement from such Action or Third Party Claim.
(b) DISPUTES REGARDING RESPONSIBILITY FOR ACTIONS AND THIRD PARTY CLAIMS. If
there is uncertainty or disagreement concerning which party to this Agreement
has responsibility for any Action or Third Party Claim, the following
procedure shall be followed in an effort to reach agreement concerning
responsibility for such Action or Third Party Claim:
(i) The parties in disagreement over the responsibility for an Action or
Third Party Claim shall exchange brief written statements setting forth
their position concerning which party has responsibility for the Action or
Third Party Claim in accordance with the provisions of this ARTICLE VII.
These statements shall be exchanged within 5 days of a party putting
another party on written notice that the other party is or may be
responsible for the Action or Third Party Claim.
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(ii) If within 5 days of the exchange of the written statement of each
party's position agreement is not reached on responsibility for the Action
or Third Party Claim, the General Counsel for each of the parties in
disagreement over responsibility for the Action or Third Party Claim shall
speak either by telephone or in person to attempt to reach agreement on
responsibility for the Action or Third Party Claim.
(c) EFFECT OF FAILURE TO FOLLOW PROCEDURE. Failure to follow the procedure
set forth in clause (b) above shall not affect the rights and responsibilities
of the parties as established by the other provisions of this ARTICLE VII.
(d) EXCHANGE OF INFORMATION. In connection with the handling of current or
future Actions or Third Party Claims, the parties may determine that it is in
their mutual interest to exchange privileged or confidential information. If
so, the parties agree to discuss whether it is in their mutual interest to
enter into a joint defense agreement or information exchange agreement to
maintain the confidentiality of their communications and to permit them to
maintain the confidentiality of proprietary information or information that is
otherwise confidential or subject to an applicable privilege, including but
not limited to the attorney-client, work product, executive, deliberative
process, or self-evaluation privileges.
SECTION 7.12. CONTRIBUTION. To the extent that any indemnification provided
for under SECTION 7.01, SECTION 7.02 or SECTION 7.03 is unavailable to an
Indemnified Party or is insufficient in respect of any the Indemnifiable
Lossess of such Indemnified Party then the Indemnifying Party under such
Section, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Indemnifiable Losses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Indemnifying Party on the one
hand and the Indemnified Party on the other hand from the transaction or other
matter which resulted in the Indemnifiable Losses or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the action, inaction, statements or omissions that
resulted in such Indemnifiable Losses as well as any other relevant equitable
considerations.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
the Exhibits and Schedules hereto, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. In the event of
any inconsistency between this Agreement and any Schedule or Exhibit hereto,
the Schedule or Exhibit, as the case may be, shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to
the extent that there shall be a conflict between the provisions of this
Agreement and the provisions of any Ancillary Agreement, such Ancillary
Agreement shall control.
SECTION 8.02. ANCILLARY AGREEMENTS. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically
and expressly covered by the Ancillary Agreements.
SECTION 8.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided
herein, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
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SECTION 8.05. RESPONSIBILITY FOR EXPENSES.
(a) EXPENSES INCURRED ON OR PRIOR TO DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, all costs and expenses incurred on or
prior to the Distribution Date (whether or not paid on or prior to the
Distribution Date) in connection with the preparation, execution, delivery and
implementation of this Agreement and any Ancillary Agreement, the Information
Statements and the Distribution, and the consummation of the transactions
contemplated hereby and thereby shall be charged to and paid by Tenneco;
provided, however, that (i) such amounts shall be included in the calculation
of the Actual Energy Debt Amount to the extent expressly provided in the Debt
and Cash Allocation Agreement, and (ii) each of Industrial Company and
Shipbuilding Company shall be solely responsible and liable for any expenses,
fees, or other costs that it separately and directly incurs in connection with
any of the transactions contemplated under this Agreement or any of the
Ancillary Agreements.
(b) EXPENSES INCURRED OR ACCRUED AFTER DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses first incurred or accrued after the Distribution Date.
(c) ENVIRONMENTAL EXPENSES. Notwithstanding the provisions of SECTION
8.05(A) and SECTION 8.05(B) above, expenses and other costs incurred in
connection with compliance with any Environmental Laws applicable to the
transactions contemplated hereby shall be paid by the party that after the
Distribution Date will, or that this Agreement contemplates will, own the
assets or operate the business subject to such Environmental Laws.
SECTION 8.06. NOTICES. All notices and other communications to a party
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to such
party (and will be deemed given on the date on which the notice is received by
such party) at the address for such party set forth below (or at such other
address for the party as the party shall, from time to time, specify by like
notice to the other parties):
If to Tenneco, at:1010 Milam Street
Houston, Texas 77002
Telecopier:
Attention: Corporate Secretary
If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Telecopier:
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Telecopier:
Attention: Corporate Secretary
SECTION 8.07. WAIVERS. The failure of any party hereto to require strict
performance by any other party of any provision in this Agreement will not
waive or diminish that party's right to demand strict performance thereafter
of that or any other provision hereof.
SECTION 8.08. AMENDMENTS. Subject to the terms of SECTION 8.11 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the parties hereto; provided, however, any such amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior consent of Acquiror unless such
modifications or amendments do not, individually or in the aggregate,
adversely affect the Energy Business (other than to a de minimis extent) or
materially delay or prevent the consummation of the Merger.
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SECTION 8.09. ASSIGNMENT. This Agreement shall be assignable in whole in
connection with a merger or consolidation or the sale of all or substantially
all the assets of a party hereto so long as the resulting, surviving or
transferee entity assumes all the obligations of the relevant party hereto by
operation of law or pursuant to an agreement in form and substance reasonably
satisfactory to the other parties to this Agreement. Otherwise this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the prior written consent of the others, and any attempt
to assign any rights or obligations arising under this Agreement without such
consent shall be void.
SECTION 8.10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
SECTION 8.11. TERMINATION. This Agreement may be terminated and the
Distributions may be amended, modified or abandoned at any time prior to the
Distributions by and in the sole discretion of Tenneco without the approval of
Industrial Company or Shipbuilding Company or the stockholders of Tenneco;
provided, however, any such termination, abandonment, amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior written consent of Acquiror
unless, in the case of a modification or amendment only, such modification or
amendment does not, individually or in the aggregate, adversely affect the
Energy Business (other than to a de minimis extent) or materially delay or
prevent the consummation of the Merger. In the event of such termination, no
party shall have any liability of any kind to any other party or any other
person. After the Distributions, this Agreement may not be terminated except
by an agreement in writing signed by all of the parties hereto; provided,
however, that ARTICLE VIII shall not be terminated or amended after the
Distributions in respect of the third party beneficiaries thereto without the
consent of such persons. Nothing in this SECTION 8.11 shall relieve Tenneco of
its obligations, under Section 6.13 of the Merger Agreement.
SECTION 8.12. THIRD PARTY BENEFICIARIES. Except as provided in ARTICLE VII
hereof (relating to Indemnitees), this Agreement is solely for the benefit of
the parties hereto, the members of their respective Groups and Affiliates and
the Acquiror, after giving effect to the Distributions, and should not be
deemed to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.13. ATTORNEY FEES. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other parties hereto for and against
all out-of-pocket expenses, including, without limitation, reasonable legal
fees, incurred by such other party by reason of the enforcement and protection
of its rights under this Agreement. The payment of such expenses is in
addition to any other relief to which such other party may be entitled
hereunder or otherwise.
SECTION 8.14. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION 8.15. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
that there is no adequate remedy at law for the failure by such parties to
comply with the provisions of this Agreement and that such failure would cause
immediate harm that would not be adequately compensable in damages.
Accordingly, each of the parties hereto agrees that their agreements contained
herein may be specifically enforced without the requirement of posting a bond
or other security, in addition to all other remedies available to the parties
hereto under this Agreement.
SECTION 8.17. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES
AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW
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OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO
THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE
STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH
PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND
(iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL
HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY
WITHIN THE STATE OF DELAWARE.
SECTION 8.18. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions, the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 8.19. SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantee the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
By __________________________________
Name:
Title:
NEW TENNECO INC.
By __________________________________
Name:
Title:
NEWPORT NEWS SHIPBUILDING INC.
By __________________________________
Name:
Title:
36
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TENNECO INTERAMERICA INC.", CHANGING ITS NAME FROM "TENNECO INTERAMERICA
INC." TO "NEWPORT NEWS SHIPBUILDING INC.", FILED IN THIS OFFICE ON THE SEVENTH
DAY OF OCTOBER, A.D. 1996, AT 1:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
-----------------------------------
[SEAL APPEARS HERE] Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENNECO INTERAMERICA INC.
Tenneco InterAmerica Inc., a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Certificate of Incorporation of the Corporation is hereby amended
by deleting Article FIRST thereof and inserting the following in lieu thereof:
"FIRST. The name of the Corporation is Newport News
Shipbuilding Inc."
2. That the foregoing amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 (by written consent of the sole stockholder
of the Corporation) of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Tenneco InterAmerica Inc. has caused this Certificate
to be executed by Robert G. Simpson, its Vice President, on this 1st day of
October, 1996.
TENNECO INTERAMERICA INC.
/s/ ROBERT G. SIMPSON
By:--------------------------
Robert G. Simpson
Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENNECO LIBYA, INC.
TENNECO LIBYA, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said Corporation by Unanimous
Written Consent dated April 21, 1977, adopted a resolution proposing and
declaring advisable the following Amendment to the Certificate of Incorporation:
"RESOLVED, that the Certificate of Incorporation
be amended by changing the paragraph thereof numbered
"FIRST." so that as amended, said paragraph shall be
and read as follows:
'FIRST. The name of the Corporation is
TENNECO INTERAMERICA INC.'"
SECOND: That the said Amendment has been consented to and authorized by
the holder of all the issued and outstanding stock, entitled to vote, by a
written Consent given in accordance with the provisions of Section 228 of The
General Corporation Law of the State of Delaware and filed with the Corporation
on the 22nd day of April, 1977.
THIRD: That the aforesaid Amendment was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of The General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said TENNECO LIBYA, INC., has caused its corporate seal
to be hereunto affixed and this Certificate to be signed by C. W. Rackley, Vice
President, and L. R. Spence, Secretary, this 22nd day of April, 1977.
TENNECO LIBYA, INC.
/s/ C.W. RACKLEY
By:-------------------------
Vice President
ATTEST:
/s/ L.R. SPENCE
By:--------------------------
Secretary
<PAGE>
[SEAL APPEARS HERE]
STATE
OF
DELAWARE
Office of SECRETARY OF STATE
I, Glenn C. Kenton Secretary of State of the State of Delaware, do
hereby certify that the above and foregoing is a true and correct copy of
Certificate of Amendment of the "TENNECO LIBYA, INC.", as received and filed in
this office the twenty-fifth day of April, A.D. 1977, at 10 o'clock A.M.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and official seal at Dover this twenty-fifth day
[SEAL APPEARS HERE] of April in the year of our Lord one thousand
nine hundred and seventy-seven.
/s/ GLENN C. KENTON
--------------------------------
Secretary of State
--------------------------------
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENNECO LIBYA, INC.
TENNECO LIBYA, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said Corporation, at a meeting duly
convened and held, adopted a Resolution proposing and declaring advisable the
following Amendment to the Certificate of Incorporation:
"RESOLVED, that the Certificate of Incorporation
of the Company be amended by changing the Article thereof
numbered "FOURTH" so that, as amended, said Article shall
be and read as follows:
'FOURTH. The total number of shares of stock
which the Company shall have authority to issue
is one thousand five hundred (1,500) and the par
value of each of such shares is one hundred dollars
($100) amounting in the aggregate to one hundred and
fifty thousand dollars ($150,000).'"
SECOND: That the said Amendment has been consented to and authorized by
the holder of all the issued and outstanding stock, entitled to vote, by a
written Consent given in accordance with
<PAGE>
the provisions of Section 228 of The General Corporation Law of the State of
Delaware and filed with the Corporation on the 4th day of February, 1969.
THIRD: That the aforesaid Amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said TENNECO LIBYA, INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by A. N. McDOWELL, its
President and attested by L. R. SPENCE, its Secretary, this 4th day of February,
1969.
TENNECO LIBYA, INC.
/s/ A.N. McDOWELL
By:---------------------------
President
[SEAL APPEARS HERE]
ATTEST:
/s/ L.R. SPENCE
By:--------------------------
Secretary
<PAGE>
THE STATE OF TEXAS)
) ss:
COUNTY OF HARRIS)
BE IT REMEMBERED that on this 4th day of February, 1969, personally came
before me, a Notary Public in and for the County and State aforesaid, A. N.
McDOWELL, President of TENNECO LIBYA, INC., a corporation of the State of
Delaware, and he duly executed said certificate before me and acknowledged the
said certificate to be his act and deed and the act and deed of said corporation
and the facts stated therein are true; and that the seal affixed to said
certificate and attested by the Secretary of said corporation is the common or
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
-------------------------
Notary Public in and for
Harris County, Texas
My Commission Expires June 1, 1969.
[SEAL APPEARS HERE]
<PAGE>
STATE OF DELAWARE
[SEAL APPEARS HERE]
OFFICE OF SECRETARY OF STATE
I, EUGENE BUNTING, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Amendment of the "TENNECO LIBYA, INC.", as received and filed in this office
the tenth day of February, A.D. 1969, at 10 o'clock A.M.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and official seal at Dover this tenth day of
February in the year of our Lord one thousand
nine hundred and sixty-nine.
/s/ EUGENE BUNTING
----------------------------
Secretary of State
/s/ R.A. CALDWELL
----------------------------
Assistant Secretary of State
[SEAL APPEARS HERE]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
TENNECO LIBYA, INC.
[CERTIFICATION APPEARS HERE]
<PAGE>
CERTIFICATE OF REDUCTION OF CAPITAL
OF
TENNECO LIBYA, INC.
TENNECO LIBYA, INC., a Corporation organized and existing under the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That on the 4th day of December, A. D. 1967, there was filed with
said Corporation the written consent of the holders of record of the total
number of shares of the Corporation outstanding and having voting power
authorizing reduction of the capital of the Corporation by the amount of One
Hundred Forty-Nine Thousand Dollars ($149,000.00) in the following manner:
By the exchange by the holder thereof of
all of the outstanding shares of the Corporation,
namely One Thousand Five Hundred (1,500) shares of
the Capital Stock of the Par Value of One Hundred
Dollars ($100.00) per share, for Two Hundred (200)
shares of the stock of the par value of Five Dollars
($5.00) per share, and providing that an amount not
exceeding that part of the capital of the Corporation
represented by the shares so retired may be charged
against the capital of the Corporation in respect of
such shares.
SECOND: That the assets of the Corporation remaining after such reduction
are sufficient to pay any debts, the payment of which has not been otherwise
provided for.
<PAGE>
IN WITNESS WHEREOF, said TENNECO LIBYA, INC. has caused its corporate seal
to be affixed and this Certificate to be signed by A. N. McDowell, its
President, and L.R. Spence, its Secretary, this 4th day of December, A.D. 1967.
TENNECO LIBYA, INC.
/s/ A.N. MCDOWELL
By:-----------------------
President
[SEAL APPEARS HERE]
/s/ L.R. SPENCE
By:-----------------------
Secretary
THE STATE OF TEXAS)
) ss:
COUNTY OF HARRIS )
BE IT REMEMBERED that on this 4th day of December, A. D., 1967, personally
came before me a Notary Public in and for the County and State aforesaid,
A. N. McDowell, President of TENNECO LIBYA, INC., a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
Certificate, known to me personally to be such, and he, the said A. N. McDowell
as such President, duly executed said Certificate before me and acknowledged the
said Certificate to be his act and deed and the act and deed of said
corporation; that the signatures of the said President and of the Secretary of
said corporation to said foregoing Certificate are in the handwriting of the
said President and Secretary of said corporation, respectively, and that the
seal affixed to said Certificate is the common or corporate seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ BEVERLY TURNER
--------------------------
Notary Public in and for
[SEAL APPEARS HERE] Harris County, Texas
BEVERLY TURNER
Notary Public in and for Harris County, Texas
My Commission Expires June 1, 1969
<PAGE>
STATE OF DELAWARE
[SEAL APPEARS HERE]
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Reduction of Capital of the "TENNECO LIBYA, INC.", as received and filed in
this office the twelfth day of December, A.D. 1967, at 10 o'clock A.M.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and official seal at Dover this twelfth day of
December in the year of our Lord one thousand
nine hundred and sixty-seven.
/s/ ELISHA C. DUKES
----------------------------
Secretary of State
/s/ G.F. DOWNS
[SEAL APPEARS HERE] ----------------------------
Assistant Secretary of State
REC'D FOR RECORD DEC 12TH 1967 LEO J. DUGAN, JR. RECORDER
<PAGE>
STATE OF DELAWARE )
) SS.
NEW CASTLE COUNTY )
Recorded in the Recorder's Office at
Wilmington, in INCORPORATION Record C Vol. 93 Page 135 &c.,
the 12th day of December A. D., 1967.
Witness my hand and official seal.
/s/ LEO J. DUGAN, JR.
----------------------------
Recorder
/s/ LOUIS GUBERMAN
----------------------------
Cheif Deputy
CERTIFIED COPY
CERTIFICATE OF REDUCTION
OF
TENNECO LIBYA, INC.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENNECO LIBYA, INC.
TENNECO LIBYA, INC., a corporation organized and existing under any by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said Corporation, at a meeting duly
convened and held, adopted a Resolution proposing and declaring advisable the
following Amendment to the Certificate of Incorporation:
"RESOLVED, that the Certificate of Incorporation
be amended by changing the Article thereof numbered
"FOURTH" so that, as amended, said Article shall be
and read as follows:
'FOURTH. The total number of
shares of stock which the Company shall
have authority to issue is two hundred
(200) and the par value of each of such
shares is five dollars ($5) amounting in
the aggregate to one thousand dollars ($1,000).'"
SECOND: That the said Amendment has been consented to and authorized by
the holder of all the issued and outstanding stock, entitled to vote, by a
written Consent given in accordance with
<PAGE>
the provisions of Section 228 of The General Corporation Law of the State of
Delaware and filed with the Corporation on the 4th day of December, 1967.
THIRD: That the aforesaid Amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of The General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said TENNECO LIBYA, INC., has caused its corporate seal
to be hereunto affixed and this Certificate to be signed by A. N. MC DOWELL, its
President, and L. R. SPENCE, its Secretary, this 4th day of December, 1967.
TENNECO LIBYA, INC.
/s/ A.N. McDOWELL
By:-----------------------
President
/s/ L.R. SPENCE
By:-----------------------
Secretary
<PAGE>
THE STATE OF TEXAS)
) ss:
COUNTY OF HARRIS )
BE IT REMEMBERED that on this 4th day of December, 1967, personally came
before me, a Notary Public in and for the County and State aforesaid,
A. N. MC DOWELL, President of TENNECO LIBYA, INC., a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, known to me personally to be such, and he, the said A. N. MC
DOWELL, as such President, duly executed said Certificate before me and
acknowledged the said Certificate to be his act and deed and the act and deed of
said Corporation; that the signatures of the said President and of the Secretary
of said Corporation to said foregoing Certificate are in the handwriting of the
President and Secretary of the said Corporation respectively, and that the seal
affixed to said Certificate is the common or corporate seal of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ BEVERLY TURNER
-----------------------------
Beverly Turner
Notary Public in and for
Harris County, Texas
My Commission Expires
June 1, 1969
<PAGE>
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
TENNECO LIBYA, INC.
FIRST. The name of the corporation is TENNECO LIBYA, INC.
SECOND. Its principal office in the State of Delaware is located at
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name and address of its resident agent is The Corporation Trust Company, No. 100
West Tenth Street, Wilmington 99, Delaware.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To carry on all phases of the oil, petroleum and natural gas
business, and to acquire, own, lease, hold, construct, maintain, operate and
sell or otherwise dispose of oil or natural gas leases, lands, rights, or other
interests, oil or natural gas wells, pipe lines, refineries, compressor and
pumping stations, storage facilities, and in general all other facilities
incidental to, necessary for, or useful in carrying out production, gathering,
transportation, refining, processing and sale and distribution of oil, gasoline,
naphtha, kerosene, natural gas and other petroleum products.
<PAGE>
To buy, exchange, construct, contract for, lease and in any and all other
ways acquire, take, hold and own refineries for the treatment of petroleum and
other mineral oils and gases; the tanks and other facilities for the storage
thereof; and the manufacturing plants, works and appurtenances for the
production, distribution and sale of petroleum, oil, gas and of any and all
refinements and by-products thereof; to prospect for oil; to drill oil wells and
to develop the same; to refine crude oil, to improve, maintain, operate and
develop, and to sell, mortgage, lease or otherwise dispose of the said
properties, and to sell or otherwise dispose of such petroleum, oil, and all
refinements and by-products thereof.
To engage in the business of developing, purchasing, selling,
manufacturing, compounding, refining, distributing, importing, exporting,
exploiting and using, and to develop, purchase, sell, manufacture, compound,
refine, distill, treat, prepare, analyze, synthetize, produce and in every way
deal in and with, chemicals of every kind, chemical materials, substances and
products, including without limitation pharmaceuticals, biologicals, viruses and
serums of all kinds, acids, alkalis and salts, their compounds and derivatives,
and also derivatives, materials, products, substances and combinations produced
or manufactured therefrom, including solids, liquids and gases of all kinds; to
engage in the
2
<PAGE>
separation or reduction and treatment of solids, liquids and gases into their
constituents; to develop, produce and utilize and deal in and with chemical
combinations of all kinds.
To acquire by lease, purchase, contract, concession or otherwise, and to
own, develop, explore, exploit, improve, operate, lease, enjoy, control, manage
or otherwise turn to account, mortgage, grant, sell, exchange, convey or
otherwise dispose of any and all real estate, lands, options, concessions,
leases, grants, land patents, franchises, deposits, mines, mining rights,
quarries, locations, claims, rights, privileges and easements, tenements,
appurtenances and hereditaments, interests and properties of every description
and nature whatsoever which this Corporation may deem wise and proper in
connection with the conduct of any business or businesses enumerated in this
Certificate of Incorporation or in any other business in which this Corporation
may lawfully engage.
To carry on and conduct research work upon any and all problems arising in
connection with the development of its properties for the production and
transportation of oil, gas, sulphur and other minerals and the refining and
extraction therefrom and the reforming of any mineral or petroleum product or
by-product or derivative thereof or in connection with any of the other objects
and purposes of the Corporation.
3
<PAGE>
To manufacture, purchase or otherwise acquire, invest in, own, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and
deal with goods, wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To enter into, make and perform contracts of every kind and description
with any person, firm, association, corporation, municipality, county, state,
body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the Corporation and,
from time to time, without limit as to amount to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance or assignment in trust of the
whole or any part of the property of the Corporation, whether at the time owned
or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds
or other obliga-
4
<PAGE>
tions of the Corporation for its corporate purposes.
To loan to any person, firm or corporation any of its funds, either with or
without security.
To have one or more offices, to carry on all or any of its operations and
business and without restriction or limit as to amount to purchase or otherwise
acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and
personal property of every class and description in any of the States,
Districts, Territories or Colonies of the United States, and in any and all
foreign countries, subject to the laws of such State, District, Territory,
Colony or Country.
To conduct and carry on any of the objects and purposes herein enumerated
through or by means of investment in subsidiaries or in the stock, securities,
or other evidences of interest in corporations, associations, partnerships, or
trust estates engaged in carrying on or conducting any one or more of the
businesses or enterprises which the Corporation is authorized to conduct and
carry on hereunder.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the State
of Delaware, and to do any or all of the things hereinbefore set forth to the
same extent as natural persons might or could do.
5
<PAGE>
The objects and purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clause in this Certificate of
Incorporation, but the objects and purposes specified in each of the foregoing
clauses of this Article shall be regarded as independent objects and purposes.
FOURTH. The total number of shares of stock which the Company shall have
authority to issue is one thousand five hundred (1,500) and the par value of
each of such shares is One Hundred Dollars ($100) amounting in the aggregate to
One Hundred Fifty Thousand Dollars ($150,000).
FIFTH. The minimum amount of capital with which the Corporation will
commence business is One Hundred Fifty Thousand Dollars ($150,000).
SIXTH. The names and places of residence of the Incorporators are as
follows:
NAMES RESIDENCES
----- ----------
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
SEVENTH. The Corporation is to have perpetual existence.
6
<PAGE>
EIGHTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
NINTH. Ownership of shares of any class of the capital stock of the
Corporation shall not entitle the holders thereof to any pre-emptive right to
subscribe for or purchase or to have offered to them for subscription or
purchase any additional shares of capital stock of any class of the Corporation
or any securities convertible into any class of capital stock of the
Corporation, whether now or hereafter authorized, however acquired, issued or
sold by the Corporation, it being the purpose and intent hereof that the Board
of Directors shall have full right, power and authority to offer for
subscription or sell or to make any disposal of any of all unissued shares of
the capital stock of the Corporation or any securities convertible into stock or
any or all shares of stock or convertible securities issued and thereafter
acquired by the Corporation, for such consideration, in money or property, as
the Board of Directors in its sole discretion shall determine.
TENTH. All corporate powers shall be exercised by the Board of Directors
except as otherwise provided by statute.
The number of Directors of the Corporation shall be fixed from time to time
by the By-Laws and may be
7
<PAGE>
altered as the By-Laws may provide.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) To make, amend, alter, change, add to or repeal the By-Laws of the
Corporation.
(b) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
(c) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(d) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
(e) By resolution passed by a majority of the whole Board, to designate
one or more committees, each committee to consist of two or more of the
Directors of the Corporation, which, to the extent provided in the Resolution or
in the By-Laws of the Corporation, shall have and may exercise the powers of the
Board of Directors in the
8
<PAGE>
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all paper which may reacquire it. Such
committee or committees shall have such name or names as may be stated in the
By-Laws of the Corporation or as may be determined from time to time by
Resolution adopted by the Board of Directors.
(f) When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient for the best
interests of the Corporation.
9
<PAGE>
(g) Without the assent or vote of the stockholders, to authorize and issue
obligations of the Corporation in such amounts and having such terms and
provisions as the Board of Directors in its sole discretion shall determine and
to authorize and cause to be executed mortgages and liens, without limit as to
amount, upon the real and personal property of the Corporation.
(h) From time to time to determine whether and to what extent, at what
time and place, and under what conditions and regulations the accounts and books
of the Corporation or any of them, shall be open to the inspection of any
stockholder, and no stockholder shall have any right to inspect any account or
book or document of the Corporation except as conferred by statute or the
By-Laws or as authorized by a Resolution of the stockholders or the Board of
Directors.
(i) To authorize the payment of compensation to the Directors for services
to the Corporation, including fees for special services to the Corporation and
for attendance at meetings of the Board of Directors and of any committees of
the Board of Directors and to determine the amount of such compensation and
fees.
10
<PAGE>
(j) At any time or from time to time (without any action by the
stockholders of the Corporation) to create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes or
of any series of any class or classes, such rights or options to be evidenced by
or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times, which may be limited or
unlimited in duration, at or within which, and the price or prices at which any
such shares may be purchased from the Corporation upon the exercise of any such
right or option shall be such as shall be fixed and stated in the Resolution or
Resolutions adopted by the Board of Directors providing for the creation and
issue of such rights or options, and, in every case, set forth or incorporated
by reference in the instrument or instruments evidencing such rights or options.
No contract or other transaction between the Corporation or any other
corporation shall be affected or
11
<PAGE>
invalidated by the fact that one or more of the Directors of this Corporation
are interested in, or is a Director or Directors or Officer or Officers of such
other corporation, and no contract or other transaction between the Corporation
and any other person or firm shall be affected or invalidated by the fact that
one or more of the Directors of this Corporation is a party to, or are parties
to, or interested in, such contract or transaction; provided that in each such
case the nature and extent of the interest of such Director or Directors in such
contract or other transaction and/or the fact that such Director or Directors is
or are a Director or Directors or Officer or Officers of such other corporation
is known to the Board of Directors or is disclosed at the meeting of the Board
of Directors at which such contract or other transaction is authorized.
A Director shall be fully protected in relying in good faith upon the
books of account of the Corporation or statements prepared by any of its
officials as to the value and amount of the assets, liabilities and/or net
profits of the Corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid.
The Corporation may in its By-Laws confer powers upon its Board of
Directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon it by statute.
12
<PAGE>
ELEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
13
<PAGE>
TWELFTH. Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elections of Directors
need not be by ballot unless the By-Laws of the Corporation shall so provide.
THIRTEENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the Incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the Sate of Delaware, do make this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set our hands and seals this 16th day of June, A. D., 1965.
/s/ A. D. ATWELL
------------------------(SEAL)
/s/ F. J. OBARA, JR.
------------------------(SEAL)
/s/ A. D. GRIER
------------------------(SEAL)
14
<PAGE>
STATE OF DELAWARE )
) ss:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 16th day of June, A.D. 1965, personally came
before me, a Notary Public for the State of Delaware, A.D. Atwell,
F.J. Obara, Jr. and A.D. Grier, all of the parties to the foregoing Certificate
of Incorporation, known to me personally to be such, and severally acknowledged
the said Certificate to be the act and deed of the signers respectively and that
the facts therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ HOWARD K. WEBB
------------------------
Notary Public
[SEAL APPEARS HERE]
<PAGE>
STATE OF DELAWARE
[SEAL APPEARS HERE]
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing corresponds with and includes all of the
provisions of the Certificate of Incorporation of the "TENNECO LIBYA, INC.", as
received and filed in this office the sixteenth day of June, A.D. 1965, at
10 o'clock A.M., as amended and in effect August 11, 1965.
IN TESTIMONY WHEREOF, I have hereunto set my
hand and official seal at Dover this eleventh
day of August in the year of our Lord one
thousand nine hundred and sixty-five.
/s/ ELISHA C. DUKES
---------------------------
Secretary of State
/s/ G.F. DOWNS
[SEAL APPEARS HERE] ---------------------------
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DIXEMER PETROLEUM CORPORATION
DEXEMER PETROLEUM CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Laws of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST. That the Board of Directors of said Corporation, at a meeting duly
convened and held, adopted Resolutions proposing and declaring advisable the
following Amendments to the Certificate of Incorporation:
RESOLVED, that the Board of Directors does hereby
declare it advisable and in the best interest of the
Company that ARTICLE FIRST of the Certificate of Incorporation
be amended so that it shall be and read as follows:
"FIRST. The name of the Corporation is TENNECO LIBYA, INC."
and further
RESOLVED, that the authorized capital stock of the
Company be, and hereby is, increased from $100,000 represented
by 1,000 shares of capital stock, par value $100 per share, to
$150,000, represented by 1,500 shares of capital stock, par value
$100 per share; and further
RESOLVED, that the minimum amount of capital with which
the Corporation will commence business be increased to
$150,000; and further
<PAGE>
RESOLVED, that the Certificate of Incorporation of the
Company be and hereby is, amended so that ARTICLE FOURTH
and ARTICLE FIFTH be, and they hereby are amended to be
and read as follows:
"FOURTH. The total number of shares of stock which
the Company shall have authority to issue is one thousand
five hundred (1,500) and the par value of each of such shares
is One Hundred Dollars ($100) amounting in the aggregate to
One Hundred Fifty Thousand Dollars ($150,000).
"FIFTH. The minimum amount of capital with which the
Corporation will commence business is One Hundred Fifty
Thousand Dollars ($150,000)."
SECOND. That the said Amendments have been consented to and authorized by
the holder of all the issued and outstanding stock, entitled to vote, by a
written consent given in accordance with the provisions of Section 228 of Title
8 of The Delaware Code of 1963, and filed with the Corporation on the 9th day of
August, 1965.
THIRD. That the aforesaid Amendments were duly adopted in accordance with
the applicable provisions of Section 242 and 228 of Title 8 of The Delaware Code
of 1963.
FOURTH. That the capital of the Corporation will not be reduced under or
by reason of the Amendments.
IN WITNESS WHEREOF, said DIXEMER PETROLEUM CORPORATION has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
CHARLES S. TAYLOR, Jr., its President, and L. R. SPENCE, its Secretary, this 9th
day of August, 1965.
DIXEMER PETROLEUM CORPORATION
/s/ CHARLES S. TAYLOR, JR.
-----------------------------
President
/s/ L.R. SPENCE
-----------------------------
Secretary
<PAGE>
THE STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
BE IT REMEMBERED that on this 9th day of August, 1965, personally came
before me, a Notary Public in and for the County and State aforesaid,
CHARLES S. TAYLOR, JR., President of DIXEMER PETROLEUM CORPORATION, a
corporation of the State of Delaware, the corporation described in and which
executed the foregoing certificate, known to me personally to be such, and he,
the said CHARLES S. TAYLOR, JR., as such President, duly executed said
Certificate before me and acknowledged the said Certificate to be his act and
deed and the act and deed of said corporation; that the signatures of the said
President of the Secretary of said corporation to said foregoing Certificate are
in the handwriting of the said President and Secretary of said corporation
respectively, and that the seal affixed to said Certificate is the common or
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ BILLIE F. BROOKS
--------------------------
Billie F. Brooks, Notary
Public in and for
Harris County, Texas
My Commission expires June 1, 1967
<PAGE>
DIXEMER PETROLEUM CORPORATION
C O R P O R A T E R E C O R D S
REGISTERED
WITH
THE CORPORATION TRUST COMPANY
WILMINGTON, DELAWARE
<PAGE>
CERTIFICATE OF INCORPORATION
OF
DIXEMER PETROLEUM CORPORATION
FIRST. The name of the corporation is DIXEMER PETROLEUM CORPORATION.
SECOND. Its principal office in the State of Delaware is located at
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle.
The name and address of its resident agent is The Corporation Trust Company,
No. 100 West Tenth Street, Wilmington 99, Delaware.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To carry on all phases of the oil, petroleum and natural gas business, and
to acquire, own, lease, hold, construct, maintain, operate and sell or otherwise
dispose of oil or natural gas leases, lands, rights, or other interests, oil or
natural gas wells, pipe lines, refineries,
<PAGE>
compressor and pumping stations, storage facilities, and in general all other
facilities incidental to, necessary for, or useful in carrying out production,
gathering, transportation, refining, processing and sale and distribution of
oil, gasoline, naphtha, kerosene, natural gas and other petroleum products.
To buy, exchange, construct, contract for, lease and in any and all other
ways acquire, take, hold and own refineries for the treatment of petroleum and
other mineral oils and gases; the tanks and other facilities for the storage
thereof; and the manufacturing plants, works and appurtenances for the
production, distribution and sale of petroleum, oil, gas and of any and all
refinements and by-products thereof; to prospect for oil; to drill oil wells and
to develop the same; to refine crude oil, to improve, maintain, operate and
develop, and to sell, mortgage, lease or otherwise dispose of the said
properties, and to sell or otherwise dispose of such petroleum, oil, and all
refinements and by-products thereof.
To engage in the business of developing, purchasing, selling,
manufacturing, compounding, refining, distributing, importing, exporting,
exploiting and using, and to develop, purchase, sell, manufacture, compound,
refine, distill, treat, prepare, analyze, synthetize,
<PAGE>
produce and in every way deal in and with, chemicals of every kind, chemical
materials, substances and products, including without limitation
pharmaceuticals, biologicals, viruses and serums of all kinds, acids, alkalis
and salts, their compounds and derivatives, and also derivatives, materials,
products, substances and combinations produced or manufactured therefrom,
including solids, liquids and gases of all kinds; to engage in the separation
or reduction and treatment of solids, liquids and gases into their constituents;
to develop, produce and utilize and deal in and with chemical combinations of
all kinds.
To acquire by lease, purchase, contract, concession or otherwise, and to
own, develop, explore, exploit, improve, operate, lease, enjoy, control, manage
or otherwise turn to account, mortgage, grant, sell, exchange, convey or
otherwise dispose of any and all real estate, lands, options, concessions,
leases, grants, land patents, franchises, deposits, mines, mining rights,
quarries, locations, claims, rights, privileges and easements, tenements,
appurtenances and hereditaments, interests and properties of every description
and nature whatsoever which this Corporation may deem wise and proper in
connection with the conduct of any business or businesses enumerated in this
Certificate of Incorporation or in any other busi-
<PAGE>
ness in which this Corporation may lawfully engage.
To carry on and conduct research work upon any and all problems arising in
connection with the development of its properties for the production and
transportation of oil, gas, sulphur and other minerals and the refining and
extraction therefrom and the reforming of any mineral or petroleum product or
by-product or derivative thereof or in connection with any of the other objects
and purposes of the Corporation.
To manufacture, purchase or otherwise acquire, invest in, own, mortgage,
pledge, sell, assign and transfer or otherwise dispose of , trade, deal in and
deal with goods, wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To enter into, make and perform contracts of every kind and description
with any person, firm, association, corporation, municipality, county, state,
body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the Corporation and,
from time to time, without
<PAGE>
limit as to amount to draw, make, accept, endorse, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or non-negotiable instruments and evidences of indebtedness, and to
secure the payment of any thereof and of the interest thereon by mortgage upon
or pledge, conveyance or assignment in trust of the whole or any part of the
property of the Corporation, whether at the time owned or thereafter acquired,
and to sell, pledge or otherwise dispose of such bonds or other obligations of
the Corporation for its corporate purposes.
To loan to any person, firm or corporation any of its funds, either with or
without security.
To have one or more offices, to carry on all or any of its operations and
business and without restriction or limit as to amount to purchase or otherwise
acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and
personal property of every class and description in any of the States,
Districts, Territories or Colonies of the United States, and in any and all
foreign countries, subject to the laws of such State, District, Territory,
Colony or Country.
To conduct and carry on any of the objects and purposes herein enumerated
through or by means of investment in subsidiaries or in the stock, securities,
or other
<PAGE>
evidences of interest in corporations, associations, partnerships, or trust
estates engaged in carrying on or conducting any one or more of the businesses
or enterprises which the Corporation is authorized to conduct and carry on
hereunder.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the State
of Delaware, and to do any or all of the things hereinbefore set forth to the
same extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clause in this Certificate of
Incorporation, but the objects and purposes specified in each of the foregoing
clauses of this Article shall be regarded as independent objects and purposes.
FOURTH. The total number of shares which the Corporation shall have
authority to issue is one thousand (1,000) and the Par Value of each of said
shares is One Hundred Dollars ($100.00), amounting in the aggregate to One
Hundred Thousand Dollars ($100,000.00).
<PAGE>
FIFTH. The minimum amount of capital with which the Corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH. The names and places of residence of the Incorporators are as
follows:
NAMES RESIDENCES
----- ----------
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
SEVENTH. The Corporation is to have perpetual existence.
EIGHTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
NINTH. Ownership of shares of any class of the capital stock of the
Corporation shall not entitle the holders thereof to any pre-emptive right to
subscribe for or purchase or to have offered to them for subscription or
purchase any additional shares of capital stock of any class of the Corporation
or any securities convertible into any class of capital stock of the
Corporation, whether now or hereafter authorized, however acquired, issued or
sold by the Corporation, it being the purpose and intent hereof
<PAGE>
that the Board of Directors shall have full right, power and authority to offer
for subscription or sell or to make any disposal of any or all unissued shares
of the capital stock of the Corporation or any securities convertible into stock
or any or all shares of stock or convertible securities issued and thereafter
acquired by the Corporation, for such consideration, in money or property, as
the Board of Directors in its sole discretion shall determine.
TENTH. All corporate powers shall be exercised by the Board of Directors
except as otherwise provided by statute.
The number of Directors of the Corporation shall be fixed from time to time
by the By-Laws and may be altered as the By-Laws may provide.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) To make, amend, alter, change, add to or repeal the By-Laws of the
Corporation.
(b) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
<PAGE>
(c) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(d) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
(e) By resolution passed by a majority of the whole Board, to designate
one or more committees, each committee to consist of two or more of the
Directors of the Corporation, which, to the extent provided in the Resolution or
in the By-Laws of the Corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be stated in the By-Laws of the Corporation or as may be
determined from time to time by Resolution adopted by the Board of Directors.
(f) When and as authorized by the affirmative vote of the holders of a
majority of the
<PAGE>
stock issued and outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or when authorized by the written consent
of the holders of a majority of the voting stock issued and outstanding, to
sell, lease or exchange all of the property and assets of the Corporation,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part shares
of stock in, and/or other securities of, any other corporation or corporations,
as its Board of Directors shall deem expedient for the best interests of the
Corporation.
(g) Without the assent or vote of the stockholders, to authorize and issue
obligations of the Corporation in such amounts and having such terms and
provisions as the Board of Directors in its sole discretion shall determine and
to authorize and cause to be executed mortgages and liens, without limit as to
amount, upon the real and personal property of the Corporation.
(h) From time to time to determine whether and to what extent, at what
time and place, and under what conditions and regulations the accounts and books
of the Corporation or any of them, shall be
<PAGE>
open to the inspection of any stockholder, and no stockholder shall have any
right to inspect any account or book or document of the Corporation except as
conferred by statute or the By-Laws or as authorized by a Resolution of the
stockholders or the Board of Directors.
(i) To authorize the payment of compensation to the Directors for services
to the Corporation, including fees for special services to the Corporation and
for attendance at meetings of the Board of Directors and of any committees of
the Board of Directors and to determine the amount of such compensation and
fees.
(j) At any time or from time to time (without any action by the
stockholders of the Corporation) to create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes or
of any series of any class or classes, such rights or options to be evidenced by
or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times, which may
<PAGE>
be limited or unlimited in duration, at or within which, and the
price or prices at which any such shares may be purchased from the
Corporation upon the exercise of any such right or option shall be
such as shall be fixed and stated in the Resolution or Resolutions
adopted by the Board of Directors providing for the creation and
issue of such rights or options, and, in every case, set forth or
incorporated by reference in the instrument or instruments evidencing
such rights or options.
No contract or other transaction between the Corporation or any other
corporation shall be affected or invalidated by the fact that one or more of the
Directors of this Corporation are interested in, or is a Director or Directors
or Officer or Officers of such other corporation, and no contract or other
transaction between the Corporation and any other person or firm shall be
affected or invalidated by the fact that one or more of the Directors of this
Corporation is a party to, or are parties to, or interested in, such contract or
transaction; provided that in each such case the nature and extent of the
interest of such Director or Directors in such contract of other transaction
and/or the fact that such Director or Directors is or are a Director or
Directors or Officer or Officers of such other corporation is known to the Board
of Directors or is dis-
<PAGE>
closed at the meeting of the Board of Directors at which such contract or other
transaction is authorized.
A Director shall be fully protected in relying in good faith upon the
books of account of the Corporation or statements prepared by any of its
officials as to the value and amount of the assets, liabilities and/or net
profits of the Corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid.
The Corporation may in its By-Laws confer powers upon its Board of
Directors in addition to the foregoing, and in addition the powers and
authorities expressly conferred upon it by statute.
ELEVENTH. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation
<PAGE>
under the provisions of section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, and/or the stockholders or class
of stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
TWELFTH. Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elections of Directors
need not be by ballot unless the By-Laws of the Corporation shall so provide.
<PAGE>
THIRTEENTH. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the Incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hands and seals this 16th day June, A. D. 1965
A. D. ATWELL (SEAL)
F. J. OBARA, JR. (SEAL)
A. D. GRIER (SEAL)
<PAGE>
STATE OF DELAWARE )
) ss:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 16th day of June, A. D. 1965, personally came
before me, a Notary Public for the State of Delaware, A. D. Atwell,
F. J. Obara, Jr. and A. D. Grier, all of the parties to the foregoing
Certificate of Incorporation, known to me personally to be such, and severally
acknowledged the said Certificate to be the act and deed of the signers
respectively and that the facts therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
HOWARD K. WEBB
Notary Public
[SEAL APPEARS HERE]
HOWARD K. WEBB
NOTARY PUBLIC
APPOINTED JUNE 27, 1964
STATE OF DELAWARE
TERM 2 YEARS
<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware,
DO HEREBY CERTIFY that the above and foregoing is a true and correct copy of
Certificate of Incorporation of the "DIXEMER PETROLEUM CORPORATION", as received
and filed in this office the sixteenth day of June, A. D. 1965, at 10 o'clock
A. M.
IN TESTIMONY WHEREOF, I have hereunto
set my hand and official seal at Dover this
sixteenth day of June in the year of our
Lord one thousand nine hundred and sixty-five.
ELISHA C. DUKES
Secretary of State
G. F. DOWNS
Ass't. Secretary of State
Secretary's Office
1855 Delaware 1793
<PAGE>
Received for Record
June 16th, A. D. 1965.
Leo J. Dugan, Jr., Recorder.
STATE OF DELAWARE :
: SS.:
NEW CASTLE COUNTY :
Recorded in the Recorder's Office
at Wilmington, in Incorporation Record
Vol. Page &c., the 16th day of
June, A. D. 1965.
Witness my hand and official seal.
Leo J. Dugan, Jr.
Recorder.
Recorder of Deeds Office
New Castle Co. Del.
Mercy - Justice
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
NEWPORT NEWS SHIPBUILDING INC.
* * * * *
The present name of the corporation is Newport News Shipbuilding Inc. The
corporation was incorporated under the name "Dixemer Petroleum Corporation" by
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware on June 16, 1965. This Restated Certificate of
Incorporation of the corporation, which both restates and further amends the
provisions of the corporation's Certificate of Incorporation, was duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and by the written consent of its
sole stockholder in accordance with Section 228 of the General Corporation Law
of the State of Delaware. The Certificate of Incorporation of the corporation
is hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is Newport News Shipbuilding Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
corporation shall be authorized to issue is 80,000,000 shares, divided into
70,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors") is
hereby expressly authorized, by resolution or resolutions thereof, to provide,
out of the unissued shares of Preferred Stock, for series of Preferred Stock
and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share
of Common Stock held of record by such holder on all matters on which
stockholders generally are entitled to vote, and no holder of any series of
Preferred Stock, as such, shall be entitled to any voting powers in respect
thereof.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors
in its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
<PAGE>
F. The corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than
three nor more than sixteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes, Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of
Directors. Class I directors shall be initially elected for a term expiring at
the first succeeding annual meeting of stockholders, Class II directors shall
be initially elected for a term expiring at the second succeeding annual
meeting of stockholders, and Class III directors shall be initially elected
for a term expiring at the third succeeding annual meeting of stockholders. At
each annual meeting of the stockholders following 1996, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting of stockholders. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, provided that a quorum is present, and any other vacancy occurring
in the Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such director's successor shall
have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation shall
so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect
any right or protection of a director of the corporation hereunder in respect
of any act or omission occurring prior to the time of such amendment,
modification or repeal.
2
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SEVENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article SEVENTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this day of , 1996.
Newport News Shipbuilding Inc.
By: _________________________________
Name:
Office:
3
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EXHIBIT 3.3
NEWPORT NEWS SHIPBUILDING INC.
(a Delaware corporation)
BY-LAWS
AMENDED: March 1, 1987
<PAGE>
BY-LAWS
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the state of incorporation as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Houston, State of Texas, at such place as
may be fixed from time to time by the Board of Directors. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the state of incorporation, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, shall be held on such
date and at such times as may be fixed by the
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Board for the purpose of electing a Board of Directors and for the transaction
of other business as may properly be brought before the meeting.
Section 3. Written notice of the Annual Meeting shall be given to
each stockholder entitled to vote thereat not less than ten nor more than fifty
days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, during ordinary business hours, for a
period of at least ten days prior to the election, either at a place within the
city, town or village where the election is to be held and which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute
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or by the certificate of incorporation, may be called by the president and shall
be called by the president or secretary at the request in writing of a majority
of the Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders,
stating the time, place and object thereof, shall be given to each stockholder
entitled to vote thereat, not less than ten nor more than fifty days before the
date fixed for the meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat,
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present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after eleven months from its date, unless the proxy provides for a
longer period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote.
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Section 11. Whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the certificate of incorporation, the
notice of meeting, the meeting and vote of stockholders may be dispensed with,
if the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted shall sign a
consent in writing, setting forth the action so taken. Prompt notice of such
action by written consent shall be given to those stockholders who have not
consented in writing to such corporate action.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than one nor more than nine. Within the limits above
specified, the term "whole Board" as used in these By-Laws shall mean the number
of directors elected and holding office at any time. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
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Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the state of
incorporation.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of
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the failure of the stockholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the Directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 7. The Secretary shall give notice of any special meeting
by mailing the same at least three days, or by telegraphing, telexing,
telecopying, telephoning or personally delivering the same at least one day,
before the meeting to each director; but such notice may be waived by any
director. When notice is given to a director by telephone, it shall be
effective in accordance with Article IV, Section 1 of these By-Laws.
Section 8. The number of Directors that shall constitute a quorum
shall be not less than one-third of the whole Board of Directors nor less than
two Directors and the act of a majority of the directors present at any meeting
at
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which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation; provided, however, that when the whole Board is comprised of only
one director, then one director shall constitute a quorum and the vote of such
director shall constitute the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors, the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board or of such committee as the case may be, and such written consent is filed
with the Minutes of proceeding of the Board or Committee.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation, which, to the extent
provided in
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the resolution, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the corporation and may
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the
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books of the corporation. Notice by mail shall be deemed to be given at the
time when the same shall be mailed. Notice to directors may also be given by
telegram, telex, telecopy or telephone; provided, that when telephone notice is
given, such notice shall be effective substantially concurrently with one other
method of giving notice.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The corporate officers of the Company may consist of a
Chairman of the Board, and may include a Vice Chairman of the Board (both the
Chairman and the Vice Chairman shall be chosen from the Board of Directors), a
President, one or more Vice Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, and
such other officers as the Board of Directors may from time to time appoint. In
so far as permitted by law, any two offices may be held by the same person. The
foregoing officers shall be elected by the Board of Directors at the
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first meeting after the stockholders' Annual Meeting in each year.
Notwithstanding any of the provisions of this Article V, the holders of
a majority of the outstanding shares of capital stock of the corporation
entitled to vote for the election of Directors, may (i) by written consent at
any time, or (ii) by vote at any special or annual meeting of stockholders,
elect, replace, remove (or consent to such election, replacement or removal) of
any one or more officers of the corporation.
Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the whole Board of
Directors.
Section 2. The Board of Directors at its first meeting after each
Annual Meeting of Stockholders may choose a Chairman of the Board and a Vice
Chairman from among the directors and may choose a President, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller, none of whom need be a
member of the Board.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
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Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officers elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board may be elected by the Board of
Directors at the first meeting after the Annual Meeting of Stockholders in each
year. The Chairman of the Board shall be the chief executive officer of the
corporation, shall preside at all meetings of stockholders and of the Board of
Directors, shall be ex-officio a member of all standing committees, and shall
perform such other duties as may from time to time be requested of him by the
Board of Directors.
VICE CHAIRMAN OF THE BOARD
Section 6a. The Vice Chairman of the Board shall preside at meetings
of the Board of Directors in the absence of the Chairman of the Board, and shall
perform such other duties as may from time to time be requested of him by the
Board of Directors.
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THE PRESIDENT
Section 7. The president shall have the powers and perform the
duties usually incidental to the office of the president. He shall have the
general and actual management of the business of the corporation under the
Chairman of the Board, and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
Section 8. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 9. The vice president, or if there shall be more than one,
the vice presidents in the order determined by the Board of Directors, shall, in
the absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
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THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the corporation and, when authorized by the Board of Directors,
affix the same to any instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of an assistant secretary.
Section 11. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors,
shall in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation in such depositories as may
be designated by the Board of Directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
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Section 15. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE CONTROLLER
Section 16. The controller, following his appointment 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 of Directors, the
President or designated Vice President.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17. Each person who is or was a director or officer of the
corporation, or who serves or may have served at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person) and who was or is a party or is threatened to be made a
party to any threatened, pending or completed claim, action, suit or proceeding,
whether criminal, civil, administrative or investigative, including appeals,
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shall be indemnified by the corporation as a matter of right to the full extent
permitted or authorized by the Corporation Law of the state of incorporation of
the corporation, as it may from time to time be amended, against any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in his capacity as a director or
officer, or arising out of his status as a director or officer. Each person who
is or was an employee or agent of the corporation, or who serves or may have
served at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
the heirs, executors, administrators or estate of such person) may, at the
discretion of the Board, be indemnified by the corporation to the same extent as
provided herein with respect to directors and officers of the corporation.
The corporation may, but shall not be obligated to, maintain insurance
at its expense, to protect itself and any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such.
The corporation may, but shall not be obligated to, pay expenses incurred in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding.
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The indemnification provided by this Section 17 shall not be exclusive
of any other rights to which those seeking indemnification may be entitled as a
matter of law or under any agreement, vote of stockholders or disinterested
directors or otherwise.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the president or a vice president and the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or
an assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such president, vice
president, treasurer, assistant treasurer, secretary or assistant secretary may
be facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the
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corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the corporation.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
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TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue the old certificate and record the
transaction upon its books.
FIXING THE DATE FOR DETERMINATION OF
STOCKHOLDERS OF RECORD
Section 5. The Board of Directors may close the stock transfer
books of the corporation for a period not more than forty nor less than ten days
preceding the date of any meeting of stockholders, nor more than forty days
prior to the date of any other action, such as the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or for a period of
not exceeding forty days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the Board of Directors may fix in advance a date, not more than forty
nor less than ten days preceding the date of any meeting of stockholders, nor
more than forty days prior to the date of any other action, such as the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection
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with obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
state of incorporation.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual
meeting, and at any special meeting of stockholders when called for by vote of
the stockholders, a full and clear statement of the business and condition of
the corporation.
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CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal"
and the state of incorporation. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the Board of Directors if notice of such
alteration or repeal be contained in the notice of such special meeting. No
change of the time or place of the meeting for the election of directors shall
be
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made within sixty days next before the day on which such meeting is to be held,
and in case of any change of such time or place, notice thereof shall be given
to each stockholder in person or by letter mailed to his last known postoffice
address at least twenty days before the meeting is held.
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EXHIBIT 3.4
BY-LAWS
OF
NEWPORT NEWS SHIPBUILDING INC.
AMENDED AND RESTATED AS OF _____ __, 1996
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS
Section 1. All meetings of the stockholders of the corporation shall be held
at such place or places, within or without the State of Delaware, as may from
time to time be fixed by the Board of Directors of the corporation (the
"Board"), or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
ANNUAL MEETING
Section 2. The Annual Meeting of Stockholders shall be held on such date and
at such time as may be fixed by the Board and stated in the notice thereof,
for the purpose of electing directors and for the transaction of only such
other business as is properly brought before the meeting in accordance with
these By-Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting
by or at the direction of the Board, or (c) otherwise properly brought before
the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before the Annual Meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 50 days nor more than 75 days prior
to the meeting; provided, however, that in the event that less than 65 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 15th day following the day on
which such notice of the date of the Annual Meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the Annual Meeting (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall
be transacted at the Annual Meeting except in accordance with the procedures
set forth in this Section, provided, however, that nothing in this Section
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the Annual Meeting.
The Chairman of the Annual Meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SPECIAL MEETING
Section 3. Subject to the rights of the holders of any series of preferred
stock, par value $.01 per share, of the corporation (the "Preferred Stock") to
elect additional directors under specified circumstances, special 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.
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NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof,
shall be mailed not less than ten nor more than sixty days before the date of
such meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares of
stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary
of the corporation or in his absence an Assistant Secretary or an appointee of
the presiding officer of the meeting, shall act as the Secretary of the
meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated Certificate
of Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person or by written proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
By-Laws for determining the stockholders entitled to vote at such meeting.
Except as otherwise provided by law, the Restated Certificate of Incorporation
or these By-Laws, the vote of a majority of any quorum shall be sufficient to
elect directors and to pass any resolution within the power of the holders of
all the outstanding shares.
Elections of directors need not be by written ballot; provided, however,
that by resolution duly adopted, a vote by written ballot may be required.
PROXIES
Section 7. Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting
in person or by filing an instrument revoking the proxy or by delivering a
proxy in accordance with applicable law bearing a later date to the Secretary
of the corporation. In order to be exercised at a meeting of stockholders,
proxies shall be delivered to the Secretary of the corporation or his
representative at or before the time of such meeting.
INSPECTORS
Section 8. At each meeting of the stockholders the polls shall be opened and
closed; the proxies and ballots shall be received and be taken in charge, and
all questions touching the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by three Inspectors,
two of whom shall have power to make a decision. Such Inspectors shall be
appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful
performance of their duties. If 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.
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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 three nor more than sixteen
and shall be determined from time to time by resolution adopted by a majority
of the entire Board.
Nominations of persons for election to the Board of the corporation at the
Annual Meeting of Stockholders may be made at a meeting of stockholders by or
at the direction of the Board of Directors by any nominating committee or
person appointed by the Board or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies
with the notice procedures set forth in this Article II. Such nominations,
other than those made by or at the direction of the Board, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To
be timely, a stockholder's notice shall be delivered to or mailed and received
at the principal executive offices of the corporation not less than 50 days
nor more than 75 days prior to the meeting; provided, however, that in the
event that less than 65 days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the person and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14A under the Securities Exchange Act of 1934 as
amended; and (b) as to the stockholder giving the notice (i) the name and
record address of the stockholder and (ii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as director of the
corporation. No person shall be eligible for election as a director of the
corporation at the Annual Meeting of Stockholders unless nominated in
accordance with the procedures set forth herein. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
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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,
except that the foregoing qualification shall not apply to any director who,
at the time of the adoption of these By-Laws, is then in office and has
attained such age.
MEETINGS
Section 2. The Board may hold its meetings and have an office in such place
or places within or without the State of Delaware as the Board by resolution
from time to time may determine.
The Board may in its discretion provide for regular or stated meetings of
the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other
electronic communication or transmission. If mailed, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least three days before such
meeting. If by telegram, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph corporation at least twenty-four
hours before such meeting. If by facsimile, telephone or other electronic
communication or transmission, such notice shall be transmitted at least
twenty-four hours before such meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may
be transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or by
statute, a majority of the directors then in office (but not less than one-
third of the total number of directors constituting the entire Board) shall be
present at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of the
directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
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.
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ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Executive Committee,
an Audit Committee, a Compensation Committee and any other Committee which the
Board may by resolution prescribe. Any such other Committee shall be comprised
of such persons and shall possess such authority as shall be set forth in such
resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and shall
meet where and as provided by such rules. Unless otherwise stated in these By-
Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Fees in connection with such appointments shall
be established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Executive, Audit and Compensation
Committees shall be reported to the Board at the next succeeding Board meeting
and shall be subject to revision or alteration by the Board, provided, that no
acts or rights of third parties shall be affected by any such revision or
alteration.
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.
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NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE
Section 7. The Board shall elect from among its members a Nominating and
Management Development Committee consisting of at least three members. The
Board shall appoint a chairman of said Committee who shall be one of its
members. The Nominating and Management Development Committee shall have such
authority and duties as the Board by resolution shall prescribe. In no event
shall a director who is also an officer or employee of the corporation or any
of its subsidiary companies serve as a member of such Committee. The Chief
Executive Officer shall have the right to attend (but not vote at) each
meeting of such Committee.
ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of the
following: a Chairman and/or a President, one of whom shall be designated
Chief Executive Officer and each of whom shall be chosen from the Board; one
or more Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one
or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers,
a Controller, and such other officers as the Board may from time to time
designate. Insofar as permitted by statute, the same person may hold two or
more offices. All officers chosen by the Board shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV.
The Chairman and/or President, each Vice Chairman, Executive Vice President,
Senior Vice President and Vice President, the Secretary and the Treasurer
shall be elected by the Board. Each such officer shall hold office until his
successor is elected or appointed and qualified or until his earlier death,
resignation or removal.
Any officer may be removed, with or without cause, at any time by the Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject
to the Board, the Executive Committee and the provisions of these By-Laws. The
Chief Executive Officer or in his absence such other individual as the Board
may select, shall preside at all meetings of the stockholders. He shall also
preside at meetings of the Board and the Executive Committee, and in his
absence the Board or the Executive Committee, as the case may be, shall
appoint one of their number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to
him by the Board. He shall have the power to appoint and remove, with or
without cause, such officers, other than those elected by the Board as
provided for in these By-Laws, as in his judgment may be necessary or proper
for the transaction of the business of the corporation, and shall determine
their duties, all subject to ratification by the Board.
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.
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Section 4. Each Vice Chairman shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 5. The President shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 6. Each Executive Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 7. Each Senior Vice President shall perform such duties as may from
time to time be assigned to him by the Board, the Executive Committee or the
Chief Executive Officer.
Section 8. Each Vice President and Assistant Vice President shall perform
such duties as may from time to time be assigned to him by the Board, the
Executive Committee, the Chief Executive Officer or an Executive Vice
President.
Section 9. The General Counsel shall have general supervision and control of
all of the corporation's legal business. He shall perform such other duties as
may be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 10. The Secretary or an Assistant Secretary shall record the
proceedings of all meetings of the Board, the Executive Committee of the Board
and the stockholders, in books kept for that purpose. The Secretary shall be
the custodian of the corporate seal, and he or an Assistant Secretary shall
affix the same to and countersign papers requiring such acts; and he and the
Assistant Secretaries shall perform such other duties as may be required by
the Board, the Executive Committee or the Chief Executive Officer.
Section 11. The Treasurer and Assistant Treasurers shall have care and
custody of all funds of the corporation and disburse and administer the same
under the direction of the Board, the Executive Committee or the Chief
Executive Officer and shall perform such other duties as the Board, the
Executive Committee or the Chief Executive Officer shall assign to them.
Section 12. The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation and see that audits thereof
are currently and regularly made; and he shall perform such other duties as
may be required by the Board, the Executive Committee or the Chief Executive
Officer.
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,
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employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in
paragraph (3) of this Section 14, the corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Indemnitee to repay
all amounts advanced if it should be ultimately determined that the Indemnitee
is not entitled to be indemnified under this Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this Section
14 is not paid in full within thirty days after a written claim therefor by
the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 14 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Restated Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(6) Any repeal or modification of the foregoing provisions of this Section
14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of
such repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned shall
be issued to each stockholder in such form not inconsistent with the Restated
Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary. Any and all the signatures on the certificates may be
a facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed
and filed with the Secretary of the corporation, and on the surrender of
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the certificate or certificates of such shares, properly assigned. The
corporation may, if and whenever the Board shall so determine, maintain one or
more offices or agencies, each in charge of an agent designated by the Board,
where the shares of the capital stock of the corporation shall be transferred
and/or registered. The Board may also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock of
the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the
corporation may, but shall not be obligated to, require the owner of the
alleged lost, stolen or destroyed certificate, or his legal representatives,
to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate,
as the officers of the corporation may, in their discretion, require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board; and
(3) in the case of any other action, shall not be more than sixty days prior
to such other action. If no record date is fixed by the Board: (1) the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall be determined
in accordance with Article VI of these By-Laws; and (3) the record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to 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
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the corporation in the manner described in Section 2 below unless prior action
by the Board is required under the General Corporation Law of Delaware, in
which event the record date shall be at the close of business on the day on
which the Board adopts the resolution taking such prior action.
PROCEDURES
Section 2. Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written
consent and related revocation is referred to in this Article VI as a
"Consent") shall bear the date of signature of each stockholder who signs the
Consent, and no Consent shall be effective to take the corporate action
referred to therein unless, within 60 days of the earliest dated Consent
delivered in the manner required by this Section 2, Consents signed by a
sufficient number of stockholders to take such action are delivered to the
corporation.
A Consent shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery to the corporation of a Consent, the Secretary
of the corporation shall provide for the safe-keeping of such Consent and
shall promptly conduct such ministerial review of the sufficiency of the
Consents and of the validity of the action to be taken by shareholder consent
as he deems necessary or appropriate, including, without limitation, whether
the holders of a number of shares having the requisite voting power to
authorize or take the action specified in the Consent have given consent;
provided, however, that if the corporate action to which the Consent relates
is the removal or replacement of one or more members of the Board, the
Secretary of the corporation shall promptly designate two persons, who shall
not be members of the Board, to serve as Inspectors with respect to such
Consent and such Inspectors shall discharge the functions of the Secretary of
the corporation under this Section 2. If after such investigation the
Secretary or the Inspectors (as the case may be) shall determine that the
Consent is valid and that the action therein specified has been validly
authorized, that fact shall forthwith be certified on the records of the
corporation kept for the purpose of recording the proceedings of meetings of
stockholders, and the Consent shall be filed in such records, at which time
the Consent shall become effective as stockholder action. In conducting the
investigation required by this Section 2, the Secretary or the Inspectors (as
the case may be) may, at the expense of the corporation, retain special legal
counsel and any other necessary or appropriate professional advisors, and such
other personnel as they may deem necessary or appropriate to assist them, and
shall be fully protected in relying in good faith upon the opinion of such
counsel or advisors.
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.
10
<PAGE>
Neither the business to be transacted at, nor the purpose of, any annual or
special meeting of the stockholders or the Board, as the case may be, need be
specified in any waiver of notice of such meeting.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January first
and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Restated Certificate of
Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by
such officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the corporation. Subject to any
restrictions imposed by the Board, the Chairman of the Board, the President or
any Vice President of the corporation may delegate contractual powers to
others under his jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by the Board, the
Chairman of the Board, the President or any Vice President may from time to
time appoint an attorney or attorneys or agent or agents of the corporation,
in the name and on behalf of the corporation, to cast the votes which the
corporation may be entitled to cast as the holder of stock or other securities
in any other corporation or other entity, any of whose stock or other
securities may be held by the corporation, at meetings of the holders of the
stock or other securities of such other corporation or other entity, or to
consent in writing, in the name of the corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person
or persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make, alter,
amend or repeal any and all of these By-Laws, but any By-Laws so made, altered
or repealed by the Board may be amended, altered or repealed by the
stockholders.
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Newport News Shipbuilding Inc., a Delaware
corporation, and the keeper of its corporate records and minutes. The
undersigned further hereby certifies that the above and foregoing is a true
and correct copy of the By-Laws of said corporation, as in force at the date
hereof.
WITNESS the hand of the undersigned and the seal of said corporation, this
day of , 19 .
_____________________________________
Secretary
_____________________________________
11
<PAGE>
Exhibit 4.1
CERTIFICATE OMITTED: THE FACE OF THE CERTIFICATE HAS A COLORED BORDER DESIGN
APPROXIMATELY ONE INCH IN WIDTH ON THE LEFT AND RIGHT MARGINS. THE CERTIFICATE
NUMBER AND THE NUMBER OF SHARES ALSO HAVE A BORDER DESIGN.
TEMPORARY CERTIFICATE:
EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN AVAILABLE FOR DELIVERY
Newport News Shipbuilding Inc.
INCORPORATED UNDER LAWS OF
THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
Par Value $.01 CUSIP 65228 10 7
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Newport News Shipbuilding Inc.
transferable on the records of the corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by a Transfer Agent and registered by a
Registrar.
WITNESS the facsimile corporate seal and the facsimile signatures of its duly
authorized officers.
/s/ William P. Fricks
President and Chief Executive Officer
/s/ Stephen B. Clarkson
Secretary
DATED:
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
(NEW YORK, N.Y.)
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entirities
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -____________Custodian______________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_________________
Additional abbreviations may also be used though not in the above list.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE
TRANSFER AGENT.
For value received,_____________________hereby sell, assign and transfer
unto
Please insert social security or other identifying number of Assignee
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS FOLLOWING ZIP CODE OF ASSIGNEE.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ____________________________________
NOTICE:
THE SIGNATURES(S) TO THE ASSIGNMENT MUST CORRESPOND
WITH THE NAMES(S) AS WRITTEN UPON THE FACE OF THE .
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
X
--------------------------------------------
(Signature)
X
--------------------------------------------
(Signature)
This Certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Newport News Shipbuilding
Inc. (the "Company") and First Chicago Trust Company of New York (the "Rights
Agent") dated as of December , 1996, as amended (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of which
is on file at the principal offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this Certificate. The
Company will mail to the holder of the Certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances set forth in
the Rights Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person, an Adverse Person or any Affiliate or Associates
thereof (as such terms are defined in the Rights Agreement) whether currently
held by or on behalf of such Person or by any subsequent holder, may become null
or void.
_______________________________
_______________________________
SIGNATURE(S) GUARANTEED BY:
_______________________________
<PAGE>
EXHIBIT 4.2
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of ______ __, 1996 (the "Agreement"),
between Newport News Shipbuilding Inc., a Delaware corporation (the "Company"),
and First Chicago Trust Company of New York (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on ______ __, 1996 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one preferred share purchase right (a "Right") for each share of
common stock, par value $.01 per share, of the Company outstanding immediately
prior to the Shipbuilding Distribution (as hereinafter defined) (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for
each share of Common Stock (as hereinafter defined) of the Company issued
between the Record Date (whether originally issued or delivered from the
Company's treasury) and the Distribution Date (as hereinafter defined), each
Right initially representing the right to purchase one one-hundredth of a share
of Series A Participating Junior Preferred Stock of the Company having the
rights, powers and preferences set forth in the form of Certificate of
Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding, but shall not
include (i) the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan or (ii) until immediately following the Shipbuilding
Distribution, the corporation known as of the date hereof as Tenneco Inc., a
Delaware corporation ("Old Tenneco"), or any subsidiary of Old Tenneco.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Adverse Person" shall mean any Person declared to be an Adverse
Person by the Board of Directors upon a determination that the criteria set
forth in Section 11(a)(ii)(B) apply to such Person.
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<PAGE>
(d) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the dates of
this Agreement (the "Exchange Act").
(e) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (A) securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase or
exchange, or (B) securities issuable upon exercise of Rights at any time prior
to the occurrence of a Triggering Event, or (C) securities issuable upon
exercise of Rights from and after the occurrence of a Triggering Event which
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or Section
22 hereof (the "Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in writing; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding to vote such security if such agreement,
arrangement or understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the
proviso to subparagraph (ii) of this paragraph (e)) or disposing of any voting
securities of the
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<PAGE>
Company; provided, however, that nothing in this paragraph (e) shall cause a
person engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
person's participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
(f) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(g) "Close of business" on any given date shall mean 5:00 P.M.,
Newport News, Virginia time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 P.M., Newport News, Virginia time, on
the next succeeding Business Day.
(h) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company, except that "Common Stock" when used with reference to
any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(i) "Common stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(j) "Current market price" shall have the meaning set forth in Section
11(d)(i) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section 1(d)
hereof.
(n) "Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
(o) "Final Expiration Date" shall mean the close of business on June
10, 1998.
(p) "Person" shall mean any individual, firm, corporation, partnership
or other entity.
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<PAGE>
(q) "Preferred Stock" shall mean shares of Series A Participating
Junior Preferred Stock, par value $.01 per share, of the Company, and, to the
extent that there are not a sufficient number of shares of Series A
Participating Junior Preferred Stock authorized to permit the full exercise of
the Rights, any other series of preferred stock, par value $.01 per share, of
the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Participating Junior Preferred Stock.
(r) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(s) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
(t) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of this Agreement.
(u) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(v) "Rights" shall have the meaning set forth in the WHEREAS clause at
the beginning of the Agreement.
(w) "Rights Agent" shall have the meaning set forth in the parties
clause at the beginning of this Agreement.
(x) "Rights Certificates" shall have the meaning set forth in Section
3(a) hereof.
(y) "Rights Dividend Declaration Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(z) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) (A) or (B) hereof.
(aa) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(bb) "Section 13 Event" shall mean any event described in clauses (x),
(y) or (z) of Section 13(a) hereof.
(cc) "Shipbuilding Distribution" shall have the meaning set forth in
the Distribution Agreement among Old Tenneco, the Company and New Tenneco Inc.,
a Delaware corporation, dated as of ______ __, 1996.
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<PAGE>
(dd) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(ee) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or any Acquiring Person that an Acquiring Person has become such.
(ff) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(gg) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(hh) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(ii) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of
(i) the close of business on the tenth business day after the Stock
Acquisition Date,
(ii) the close of business on the tenth business day (or such later
date as may be determined by the Board of Directors) after the date that a
tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the
-5-
<PAGE>
terms of any such plan) is first published or sent or given within the meaning
of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if
upon consummation thereof, such Person would be the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding; or
(ii) the close of business on the tenth business day after the Board
of Directors of the Company determines, pursuant to the criteria set forth in
Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the earliest of
(i), (ii) or (iii) being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of paragraph (b) of
this Section 3) by the certificates for the Common Stock registered in the names
of the holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be certificates for Rights) and not by separate certificates, and
(y) the Rights will be transferable only in connection with the transfer of the
underlying shares of Common Stock (including a transfer to the Company). As soon
as practicable after the Distribution Date, the Rights Agent will send by first-
class, insured, postage prepaid mail, to each record holder of the Common Stock
as of the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more right certificates, in
substantially the form of Exhibit B hereto (the "Rights Certificates"),
evidencing one Rights for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(p) hereof,
at the time of distribution of the Right Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) The Company will deliver a copy of the Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
to the record holder of the Common Stock as of the Record Date. With respect to
outstanding certificates for the Common Stock as of the Record Date, until the
Distribution Date the Rights will be evidenced by such certificates together
with the Summary of Rights, and, until the earlier of the Distribution Date or
the Expiration Date (as such term is defined in Section 7 hereof), the transfer
of any such certificate (with or without the Summary of Rights) shall also
constitute the transfer of the Rights associated with the shares of Common Stock
represented thereby.
(c) Rights shall be issued in respect of all shares of Common Stock
that are issued (whether originally issued or from the Company's treasury) after
the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Certificates issued for Common Stock (including, without
limitation, upon transfer of outstanding Common Stock, disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date or the Expiration Date (including, without limitation,
all such certificates
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<PAGE>
issued pursuant to the Shipbuilding Distribution) shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Newport News
Shipbuilding Inc. (the "Company") and First Chicago Trust Company of New
York (the "Rights Agent") dated as of ______ __, 1996 as amended from time
to time (the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal offices
of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Company will mail to the
holder of this certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge promptly after receipt of a written
request therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or becomes
an Acquiring Person, an Adverse Person or any Affiliate or Associates
thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent holder,
may become null and void.
With respect to such certificates bearing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one one-hundredths
of a share of Preferred Stock as shall be set forth therein at the price set
forth therein (such exercise price per one one-hundredth of a share, the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
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<PAGE>
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or an Adverse Person or any Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person
(or of any such Associate or Affiliate) who becomes a transferee after such
Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an
Acquiring Person or an Adverse Person (or of any such Associate or Affiliate)
who becomes a transferee prior to or concurrently with the Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person or Adverse
Person to holders of equity interests in such Acquiring Person or Adverse Person
or to any Person with whom such Acquiring Person or Adverse Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend
modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an [Acquiring Person] [Adverse Person]
or an Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby may become null and void in the circumstances specified
in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof, which shall be attested by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned (or by facsimile if permitted by law) by the Rights Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before counter- signature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be counter- signed by the Rights Agent and issued and
delivered by the Company with the same force and effect as though the person who
signed such Rights Certificates had not ceased to be such officer of the
Company; and any Rights Certificates may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
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<PAGE>
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the close of business on the Distribution Date, and at or
prior to the close of business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of one one-hundredths of a share of Preferred Stock (or, following
a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Certificates surrendered then entitled
such holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights
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Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the principal office
or offices of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-hundredths of a share (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, at or
prior to the earlier of (i) the close of business on June 10, 1998 (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as
the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $___, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-hundredths of a share of Preferred Stock to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected to deposit the total
number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by check
(certified bank check or money order) payable to the order of the Company. In
the event that the Company is obligated to issue other securities (including
Common Stock) of the Company, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements necessary so
that such other securities, cash and/or other property are available for
distribution by the Rights Agent, if and when appropriate. The Company reserves
the right to require prior to the occurrence of a Triggering Event that, upon
exercise of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock would be issued.
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(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person, an Adverse Person, or an
Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a
transferee of an Acquiring Person or an Adverse Person (or of any such Associate
or Affiliate) who becomes a transferee after the Acquiring Person or Adverse
Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person or Adverse Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person to holders of equity
interests in such Acquiring Person or Adverse Person or to any Person with whom
the Acquiring Person or Adverse Person has any continuing agreement, arrangement
of understanding regarding the transferred Rights or (B) a transfer which the
Board of Directors of the Company has determined is part of a plan, arrangement
or understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or an Adverse Person
or any of their respective Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
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written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the date
of the expiration of the Rights. The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
has been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
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(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for a number of one one-hundredths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
the outstanding Preferred Stock into a smaller number of shares, or (D) issue
any shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number
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and kind of shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, shall be proportionately adjusted so that the holder of
any Right exercised after such time shall be entitled to receive, upon payment
of the Purchase Price then in effect, the aggregate number and kind of shares of
Preferred Stock or capital stock, as the case may be, which, if such Right had
been exercised immediately prior to such date and at a time when the Preferred
Stock transfer books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.
(ii) In the event:
(A) any Person, alone or together with its Affiliates and Associates,
shall, at any time after the Rights Dividend Declaration Date, become an
Acquiring Person, unless the event causing such Person to become an Acquiring
Person is a transaction set forth in Section 13(a) hereof, or is an acquisition
of shares of Common Stock pursuant to a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not officers
of the Company and who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person, after receiving advice from one or more
investment banking firms, to be (a) at a price that is fair to stockholders
(taking into account all factors that the members of the Board deem relevant
including, without limitation, prices that could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to realize maximum
value) and (b) otherwise in the best interests of the Company and its
stockholders, or
(B) the Board of Directors of the Company shall declare any Person to
be an Adverse Person, upon a determination that such Person, alone or together
with its Affiliates and Associates, has, at any time after the Rights Dividend
Declaration Date, become the Beneficial Owner of an amount of Common Stock that
the Board of Directors determines to be substantial (which amount shall in no
event be less than 10% of the shares of Common Stock then outstanding) and a
determination by at least a majority of the members of the Board of Directors
who are not officers of the Company, after reasonable inquiry and investigation,
including consultation with such persons as the directors shall deem
appropriate, that (a) such Beneficial Ownership by such Person is intended to
cause the Company to repurchase the Common Stock beneficially owned by such
Person or to cause pressure on the Company to take action or enter into a
transaction or series of transactions intended to provide such Person with
short-term financial gain under circumstances where the Board of Directors
determines that the best long-term interests of the Company and its stockholders
would not be
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served by taking such action or entering into such transactions or series of
transactions at that time or (b) such Beneficial Ownership is causing or
reasonably likely to cause a material adverse impact (including, but not limited
to, impairment of relationships with customers or impairment of the Company's
ability to maintain its competitive position) on the business or prospects of
the Company,
then, promptly following the first occurrence of any Section 11(a)(ii) Event,
proper provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have the right to
receive, upon exercise thereof at the then current Purchase Price in accordance
with the terms of this Agreement, in lieu of a number of one one-hundredths of a
share of Preferred Stock, such number of shares of Common Stock of the Company
as shall equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, shall thereafter be referred to as the "Purchase Price" for
each Right and for all purposes of this Agreement) by 50% of the current market
price (determined pursuant to Section 11(d) hereof) per share of Common Stock on
the date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock that are
authorized by the Company's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A)
determine the excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value") over (2) the Purchase Price (such
excess, the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Stock or other equity securities of the Company (including, without
limitation, shares, or units of shares, of the Preferred Stock that the Board of
Directors of the Company has deemed to have the same value as shares of Common
Stock (such shares of Preferred Stock, "common stock equivalents")), (4) debt
securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company; provided, however, if the
Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's
right of redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board of
Directors
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of the Company shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon exercise
in full of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder
approval for the authorization of such additional shares (such period, as it may
be extended, the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the first and/or second
sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of the Common Stock
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date and
the value of any "common stock equivalent" shall be deemed to have the same
value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock that the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price
may be paid by delivery of consideration part or all of which may be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any
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such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price that would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price that would have
been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current market
price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date, and for purposes of computations made pursuant to Section
11(a)(iii) hereof, the "current market price" per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices per share of
such Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the current
market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day or ten (10)
Trading Day Period, as set forth above, after the ex-dividend date for such
divided or distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price" shall
be properly adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with
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respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the shares of Common Stock are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not listed or admitted
to trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by The Nasdaq Stock Market ("NASDAQ") or such other
system then in use, or, if on any such date the shares of Common Stock are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Company. If on any such date no market
maker is making a market in the Common Stock, the fair value of such shares on
such date as determined in good faith by the Board of Directors of the Company
shall be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading is open for the transaction of business or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Stock is not publicly held or not so
listed or traded, "current market price" per share shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current market
price" per share of Preferred Stock shall be determined in the same manner as
set forth above for the Common Stock in clause (i) of this Section 11(d) (other
than the last sentence thereof). If the current market price per share of
Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner described
in clause (i) of this Section 11(d), the "current market price" per share of
Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as
such number may be appropriately adjusted for such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock occurring after
the Record Date) multiplied by the current market price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held or
so listed or traded, "current market price" per share of the Preferred Stock
shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes. For all
purposes of this Agreement, the "current market price" of one one-hundredth of a
share of Preferred Stock shall be equal to the "current market price" of one
share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried
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forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share of Common Stock or other share or one-millionth of a share
of Preferred Stock, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three (3) years from the date of the transaction
that mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one-hundredths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, the
Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10)
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days later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of one one-hundredths of a share that were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one one-
hundredths of a share of Preferred Stock issuable upon exercise of the Rights,
the Company shall take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such number of one one-hundredths of a share of
Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities that by their terms are
convertible into or exchangeable for
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shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Record Date and prior to the
Distribution Date (i) declare a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
(q) The failure by Board of Directors to declare a Person to be an
Adverse Person following such Person becoming the Beneficial Owner of 10% or
more of the outstanding Common Stock shall not imply that such Person is not an
Adverse Person or limit
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the Board of Directors' right at any time in the future to declare such Person
to be an Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof, then, and in each such case (except as may be contemplated by
Section 13(d) hereof), proper provision shall be made so that: (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, non-assessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event multiplying the number of such one one-
hundredths of a share for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and (2) dividing that product
(which, following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price"
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for each Right and for all purposes of this Agreement) by 50% of the current
market price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted in
such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock that have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
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<PAGE>
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the Rights
on an appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that comply in all
respects with the requirements for registration on Form 10 under the Exchange
Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights that have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a tender or
exchange offer for all outstanding shares of Common Stock which complies with
the provisions of Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of
any such Person or Persons) (ii) the price per share of Common Stock offered in
such transaction is not less than the price per share of Common Stock paid to
all holders of shares of Common Stock whose shares were purchased pursuant to
such tender or exchange offer and (iii) the form of consideration being offered
to the remaining holders of shares of Common Stock pursuant to such transaction
is the same as the form of consideration paid pursuant to such tender or
exchange offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Date immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
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exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than, except as provided in Section 7(c) hereof,
fractions that are integral multiples of one one-hundredth of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates that
evidence fractional shares of Preferred Stock (other than fractions that are
integral multiples of one one-hundredth of a share of Preferred Stock). In lieu
of fractional shares of Preferred Stock that are not integral multiples of one
one-hundredth of a share of Preferred Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one one-hundredth of a share of Preferred Stock. For purposes of
this Section 14(b), the current market value of one one-hundredth of a share of
Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate
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in the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
hundredths of a share of Preferred Stock or any other securities of the Company
that may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to
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stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
- ------
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its
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prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "current market price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation of warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
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(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first- class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as
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the case may be, and to each transfer agent of the Common Stock and Preferred
Stock, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the States of New York or
Virginia (or of any other state of the United States so long as such corporation
is authorized to do business as a banking institution in the States of New York
or Virginia), in good standing, having a principal office in the States of New
York or Virginia, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an
affiliate of a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement outstanding,
granted or awarded as of the Distribution Date, or upon the exercise, conversion
or exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a
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significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
--------------------------
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth business day
following the Stock Acquisition Date, or (ii) the Final Expiration Date, redeem
all but not less than all the then outstanding Rights at a redemption price of
$.02 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding the foregoing, the Board of Directors may not redeem
any Rights following its declaration that any Person is an Adverse Person.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the "current market price", as defined in Section 11(d)(i)
hereof, of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at each holder's last address as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent for the Common
Stock. Any notice that is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation
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or merger into or with any other Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof), or to effect any
sale or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event hereof shall occur, then, in
any such case, (i) the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, to the extent feasible and in accordance
with Section 25 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
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Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein that may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner that the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates; provided, this Agreement may not be supplemented
or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable, or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, unless approved by a vote of the stockholders
of the Company, no supplement or amendment shall be made that changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
one one-hundredths of a share of Preferred Stock for which a Right is
exercisable.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
(or as set forth herein, certain specified members thereof) shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of
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this Agreement, and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board (with, where specifically provided for herein, the concurrence
of the Continuing Directors) in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board to any liability to the holders of
the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: NEWPORT NEWS SHIPBUILDING INC.
By_____________________________ By_____________________________
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By_____________________________ By_____________________________
Name: Name:
Title: Title:
By_____________________________
Name:
Title:
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Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING JUNIOR PREFERRED STOCK
NEWPORT NEWS SHIPBUILDING INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Chairman of the Board and Secretary of Newport News
Shipbuilding Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on ______ __, 1996, adopted the following resolution creating
a series of _______ shares of Preferred Stock designated as Series A
Participating Junior Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Participating Junior Preferred Stock" and the number
of shares constituting such series shall be _______ .
Section 2. Dividends and Distributions.
---------------------------
(A) The dividend rate on the shares of Series A Participating Junior
Preferred Stock for each quarterly dividend period (hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
January 1, April 1, July 1 and October 1 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period, shall be equal (rounded to the nearest cent) to the greater of (a)
$________ or (b) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100
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times the aggregate per share amount (payable in cash, based upon the fair
market value at the time the non-cash dividend or other distribution is declared
as determined in good faith by the Board of Directors) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared (but not withdrawn) on the common stock, par value $.01
per share, of this Corporation (the "Common Stock") during the immediately
preceding quarterly dividend period, or, with respect to the first quarterly
dividend period, since the first issuance of any share or fraction of a share of
Series A Participating Junior Preferred Stock. In the event the Corporation
shall at any time after ______ __, 1996 (the "Record Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Junior Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Junior Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in each of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Junior
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 45 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Participating Junior Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Junior Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation and will vote together with the shares of Common
Stock as one class on all such matters. In the event the Corporation shall at
any time after the Record Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common
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<PAGE>
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Participating Junior
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) (i) If at any time dividends on any Series A Participating
Junior Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the holders of the Series A Participating Junior Preferred
Stock, voting as a separate series from all other series of Preferred Stock and
classes of capital stock, shall be entitled to elect two members of the Board of
Directors in addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Participating Junior Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Participating
Junior Preferred Stock, voting as a separate series, shall be entitled and shall
have exercised their right to elect two Directors, then and during such time as
such right continues (a) the then authorized number of Directors shall be
increased by two, and the holders of Series A Participating Junior Preferred
Stock, voting as a separate series, shall be entitled to elect the additional
Directors so provided for, and (b) each such additional Director shall not be a
member of Class I, Class II or Class III of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election of
Directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3B.
(iii) A Director elected pursuant to the terms hereof may be removed
without cause by the holders of Series A Participating Junior Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Participating
Junior Preferred Stock shall be entitled to elect two Directors, there is no
such Director in office by reason of resignation, death or removal, then,
promptly thereafter, the Board of Directors shall cause a special meeting of the
holders of Series A Participating Junior Preferred Stock for the purpose of
filling such vacancy and such vacancy shall be filled at such special meeting.
Such special meeting shall in any event be held within 45 days of the occurrence
of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Participating Junior Preferred
Stock outstanding are paid, and, in addition thereto, at least one regular
dividend has been paid subsequent to curing such arrearage, the term of office
of any Director elected pursuant hereto, or his successor, shall automatically
terminate, and the authorized number of Directors shall automatically decrease
by
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two, the rights of the holders of the shares of the Series A Participating
Junior Preferred Stock to vote as provided in this Section 3(B) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Participating Junior Preferred Stock shall
have only the voting rights elsewhere herein set forth.
Section 4. Required Shares. Any shares of Series A Participating
Junior Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 5. Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Participating Junior Preferred Stock
shall be entitled to receive the greater of (a) $___ per share, plus accrued
dividends to the date of distribution, whether or not earned or declared, or (b)
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share to
holders of Common Stock. In the event the Corporation shall at any time after
the Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Junior Preferred
Stock were entitled immediately prior to such event pursuant to clause (b) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction of the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6. Optional Redemption. (a) The Company shall have the
option to redeem the whole or any part of the Series A Participating Junior
Preferred Stock at any time at a redemption price equal to, subject to the
provision for adjustment hereinafter set forth, 100 times the "current per share
market price" of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. In the event the Company shall at any time after the Record Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Participating Junior Preferred Stock were
otherwise entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the
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<PAGE>
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted the average of the high bid
and low asked prices in the over-the-counter market, as reported by The Nasdaq
Stock Market ("NASDAQ") or such other system then in use or, if on any such
date, the Common Stock is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors of the
Company. If on such date no such market maker is making a market in the Common
Stock, the fair value of the Common Stock on such date as determined in good
faith by the Board of Directors of the Company shall be used. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close.
(b) Notice of any such redemption shall be given by mailing to the
holders of the Series A Participating Junior Preferred Stock a notice of such
redemption, first class postage prepaid, not later than the thirtieth day and
not earlier than the sixtieth day before the date fixed for redemption, at their
last address as the same shall appear upon the books of the Company. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the shareholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Series A Participating Junior Preferred Stock shall not affect the
validity of the proceedings for the redemption of such Series A Participating
Junior Preferred Stock. If less than all the outstanding shares of Series A
Participating Junior Preferred Stock are to be redeemed, the redemption shall be
made by lot as determined by the Board of Directors.
(c) The notice of redemption to each holder of Series A Participating
Junior Preferred Stock shall specify (a) the number of shares of Series A
Participating Junior Preferred Stock of such holder to be redeemed, (b) the date
fixed for redemption, (c) the redemption price and (d) the place of payment of
the redemption price.
(d) If any such notice of redemption shall have been duly given or if
the Company shall have given to the bank or trust company hereinafter referred
to irrevocable written authorization promptly to give or complete such notice,
and if on or before the redemption date specified therein the funds necessary
for such redemption shall have been deposited by the Company with the bank or
trust company designated in such notice, doing business in Newport News,
Virginia, and having a capital, surplus and undivided profits aggregating at
least $25,000,000 according to its last published statement of condition, in
trust for the benefit of the holders of Series A Participating Junior Preferred
Stock called for
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<PAGE>
redemption, then, notwithstanding that any certificate for such shares so called
for redemption shall not have been surrendered for cancellation, from and after
the time of such deposit all such shares called for redemption shall no longer
be deemed outstanding and all rights with respect to such shares shall no longer
be deemed outstanding and shall forthwith cease and terminate, except the right
of the holders thereof to receive from such bank or trust company at any time
after the time of such deposit the funds so deposited, without interest, and the
right to exercise, up to the close of business on the fifth day before the date
fixed for redemption. In case less than all the shares represented by any
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. Any interest accrued on such funds shall be
paid to the Company from time to time. Any funds so deposited and unclaimed at
the end of six years from such redemption date shall be repaid to the Company,
after which the holders of shares of Series A Participating Junior Preferred
Stock called for redemption shall look only to the Company for payment thereof.
Section 7. Fractional Shares. Series A Participating Junior
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Participating Junior Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of the
____ day of ______, 1996.
_______________________________
[Name]
Chairman of the Board
Attest:
_______________________________
[Name]
Secretary
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<PAGE>
Exhibit B
---------
[Form of Rights Certificate]
Certificate No. R-___________ Rights
NOT EXERCISABLE AFTER JUNE 10, 1998 OR EARLIER
IF REDEEMED BY THE COMPANY. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.02 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND
ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN [ACQUIRING]
[ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE
OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND
VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
NEWPORT NEWS SHIPBUILDING INC.
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ______ __, 1996, as amended from time to time
(the "Rights Agreement"), between Newport News Shipbuilding Inc., a Delaware
corporation (the "Company"), and First Chicago Trust Company of New York (the
- ------------------------
*The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
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<PAGE>
"Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M.
(Newport News, Virginia time) on June 10, 1998 at the office or offices of the
Rights Agent designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a fully paid, non-assessable share of Series A Participating
Junior Preferred Stock (the "Preferred Stock") of the Company, at a purchase
price of $___ per one one-hundredth of a share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of shares that may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of ______ __, 1996,
based on the Preferred Stock as constituted at such date. The Company reserves
the right to require prior to the occurrence of a Triggering Event (as such term
is defined in the Rights Agreement) that a number of Rights be exercised so that
only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse
Person, Associate or Affiliate, or (iii) under certain circumstances specified
in the Rights Agreement, a transferee of a person who, after such transfer,
became an Acquiring Person, an Adverse Person, or an Affiliate or Associate of
any such Person, such Rights shall become null and void and no holder hereof
shall have any right with respect to such Rights from and after the occurrence
of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be
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<PAGE>
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may (unless the Board of Directors shall have made
a determination that a Person is an Adverse Person) be redeemed by the Company
at its option at a redemption price of $.02 per Right at any time prior to the
earlier of the close of business on (i) the tenth business day following the
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), and (ii) June 10, 1998.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions that are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company that may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or, to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of __________ __, 19__
ATTEST: NEWPORT NEWS SHIPBUILDING INC.
____________________________ By____________________________
Secretary Title:
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<PAGE>
Countersigned:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By___________________________
Authorized Signature
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<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ____________________________________________ hereby sells,
assigns and transfers unto______________________________________________________
(Please print name and address of transferee)
______________________________ this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_______________ Attorney, to transfer the within Rights Certificate on the books
of the within-named Company, with full power of substitution.
Dated: _____________________, 19__
----------------------------
Signature
Signature Guaranteed:
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<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, an
Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__ _______________________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: TENNECO INC.:
The undersigned hereby irrevocably elects to exercise ____________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ______________, 19__
_____________________________________
Signature
Signature Guaranteed:
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<PAGE>
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<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person,
an Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__ _______________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
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<PAGE>
Exhibit C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On ______ __, 1996, the Board of Directors of Newport News
Shipbuilding Inc. (the "Company") declared a dividend distribution of one Right
for each outstanding share of Tenneco Common Stock to stockholders of record at
the close of business on ______ __, 1996. Each Right entitles the registered
holder to purchase from the Company a unit consisting of one one-hundredth of a
share (a "Unit") of Series A Participating Junior Preferred Stock, par value
$.01 per share (the "Preferred Stock"), at a Purchase Price of $___ per Unit,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement, as amended from time to time (the "Rights Agreement"),
between the Company and First Chicago Trust Company of New York, as Rights
Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common
Stock and a Distribution Date will occur upon the earlier of (i) 10 business
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), (ii) 10 business days (or such
later date as may be determined by the Board of Directors) following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 20% or more of such outstanding shares of Common
Stock or (iii) 10 business days after the Board of Directors of the Company
determines any person, alone or together with its affiliates and associates, has
become the Beneficial Owner of an amount of Common Stock which the Board of
Directors determines to be substantial (which amount shall in no event be less
than 10% of the shares of Common Stock outstanding) and at least a majority of
the Board of Directors who are not officers of the Company, after reasonable
inquiry and investigation, including consultation with such persons as such
directors shall deem appropriate, shall determine that (a) such beneficial
ownership by such person is intended to cause the Company to repurchase the
Common Stock beneficially owned by such person or to cause pressure on the
Company to take action or enter into a transaction or series of transactions
intended to provide such person with short-term financial gain under
circumstances where the Board of Directors determines that the best long-term
interests of the Company and its stockholders would not be served by taking such
action or entering into such transactions or series of transactions at that time
or (b) such beneficial ownership is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, impairment of
relationships with customers or impairment of the Company's ability to maintain
its competitive position) on the business or prospects of the Company (any such
person being referred to herein and in the Rights Agreement as an "Adverse
Person").
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<PAGE>
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued after ______ __,
1996 will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on June 10, 1998, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that (i) a Person becomes the
beneficial owner of 20% or more of the then outstanding shares of Common Stock
(except pursuant to an offer for all outstanding shares of Common Stock that the
independent directors determine to be fair to and otherwise in the best
interests of the Company and its stockholders), or (ii) the Board of Directors
determines that a person is an Adverse Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of a Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or Adverse Person will be null and
void. However, Rights are not exercisable following the occurrence of a Flip-In
Event until such time as the Rights are no longer redeemable by the Company as
set forth below.
For example, at an exercise price of $___ per Right, each Right not
owned by an Acquiring Person or by an Adverse Person (or by certain related
parties) following a Flip-In Event would entitle its holder to purchase $___
worth of Common Stock (or other consideration, as noted above) for $___.
Assuming that the Common Stock had a per share value of $____ at such time, the
holder of each valid Right would be entitled to purchase ___ shares of Common
Stock for $___.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction (other than a merger that follows an offer described in the second
preceding paragraph), or (ii) more than 50% of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right.
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<PAGE>
The Purchase Price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
In general, at any time until ten business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in part,
at a price of $.02 per Right. The Company may not redeem the Rights if the
Board of Directors has previously declared a person to be an Adverse Person.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.02 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights became
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the duration of the Rights
Agreement and the principal economic terms of the Rights (which may be amended
only with stockholder approval), any of the provisions of the Rights Agreement
may be amended by the Board of Directors of the Company prior to the
Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement (other than those described in the preceding sentence) may be amended
by the Board in order to cure any ambiguity, to make changes that do not
adversely affect the interests of holders of Rights, or to shorten or lengthen
any time period under the Rights Agreement; provided, however, that no amendment
to adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
-3-
<PAGE>
EXHIBIT 10.1
EXHIBIT C
TO
DISTRIBUTION AGREEMENT
DEBT AND CASH ALLOCATION AGREEMENT
THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and
entered into as of this day of , 1996 by and among Tenneco
Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc.
(formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company"), and New Tenneco Inc., a Delaware corporation
("Industrial Company").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by and
among the parties hereto and dated as of , 1996 (the "Distribution
Agreement"), the parties have entered into this Agreement regarding the
allocation of the Cash and Cash Equivalents and Consolidated Debt of Tenneco
and its consolidated subsidiaries as of the Effective Time.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each of the other members of its
Group over which it has direct or indirect legal or effective control, hereby
agrees as follows:
1. Certain Definitions. Capitalized terms which are used herein but which
are not defined below in this SECTION 1 or in any of the other provisions or
Sections of this Agreement or in the Distribution Agreement, shall have the
meaning ascribed to such terms in the Debt Realignment Plan attached as
Exhibit C to the Merger Agreement.
(a) "Actual Energy Debt Amount" means the aggregate amount, as of the
Effective Time, of the following, without duplication:
(i) the then outstanding amount of the Tenneco Revolving Debt plus
accrued and accreted interest and fees and expenses in respect thereof
(as reflected on the Energy Adjusted Closing Balance Sheet); plus
(ii) the Consolidated Public Debt Value; plus
(iii) the then outstanding principal amount of Consolidated Debt of
Tenneco and the Energy Subsidiaries other than that which is described
in clauses (i) and (ii) above (for this purpose undrawn letters of
credit and guarantees shall not be treated as outstanding) plus accrued
and accreted interest and fees and expenses in respect thereof as
reflected on the Energy Adjusted Closing Balance Sheet; plus
(iv) except as otherwise expressly provided in the Merger Agreement
or the Distribution Agreement, the unpaid amount of all direct and out
of pocket fees, costs and expenses (as reflected on the Energy Adjusted
Closing Balance Sheet) incurred on or prior to the Effective Time by
Tenneco and its subsidiaries in respect of the transactions
contemplated under the Debt Realignment, with respect to the Merger
Agreement, the NPS Issuance and with respect to the Distribution
Agreement, including, without limitation, the Corporate Restructuring
Transactions, the Distributions, the Merger and the other related
transactions, including by way of example items specifically set forth
on Schedule 1 to the extent incurred in respect of the aforesaid
transactions (collectively, the "Tenneco Transaction Expenses");
(v) any sales and use, gross receipts or other transfer Taxes
(including Gains Taxes and Transfer Taxes, as defined in the Merger
Agreement) imposed as a result of the Corporate Restructuring
Transactions or otherwise occurring pursuant to the Distribution
Agreement or the Merger Agreement, excluding, however, any stamp duty
imposed by the Stamp Act 1894 (Queensland) as a result of the Merger;
plus
(vi) Restructuring Taxes (as defined in the Tax Sharing Agreement),
except (A) for Taxes resulting from the deferred intercompany items on
Schedule 2, and (B) to the extent the IRS ruling provides the
Transactions (as defined in the Tax Sharing Agreement) are tax-free;
plus
1
<PAGE>
(vii) the then outstanding amount of any off-balance sheet
indebtedness incurred after June 19, 1996 and before the Effective Time
to finance the acquisition of any additional interest in the Oasis
Pipeline;
(viii) dividends declared by Tenneco on its common stock, $4.50
Preferred Stock and $7.40 Preferred Stock which have not been paid
prior to the Effective Time but as to which the record date is before
the Effective Time; plus
(ix) the total amount of dividends accrued on the shares of New
Preferred Stock issued pursuant the NPS Issuance that remain unpaid as
of the Effective Time.
The parties hereto hereby acknowledge and agree that the Actual Energy Debt
Amount shall not include any amounts that may be due and owing ASCC under or
as a result of the factoring arrangement between ASCC and Tenneco (and/or any
of its Subsidiaries) and that are included in the amount of Factored Proceeds.
(b) "Actual Energy Expenditures Amount" means the actual amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) made and paid for by the Energy Business from and
after January 1, 1996 to and including the Effective Time, including,
without limitation any capital expenditures in respect of the 70 MW
Dunaferr power project in Hungary; provided, however, that any amount paid
for the acquisition of any additional interest in either Tenneco Energy
Resources Inc. or the Oasis Pipeline shall not be capital expenditures for
any purpose under this Agreement and shall not be included in the Actual
Energy Expenditures Amount.
(c) "Allocated Energy Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
as of the Effective Time under each of the Tenneco Revolving Debt, the
Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and
the Energy Subsidiaries and the Tenneco Transaction Expenses, and any and
all such indebtedness outstanding or other obligations and liabilities
incurred or accrued under any of the foregoing from time to time and at any
time after the Effective Time.
(d) "Allocated Industrial Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Industrial Debt Securities as of the Effective Time, any and all
such indebtedness outstanding from time to time thereafter and all other
obligations and liabilities incurred or accrued at any time under the
Industrial Debt Securities.
(e) "Allocated Shipbuilding Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Shipbuilding Credit Facility as of the Effective Time, any and
all such indebtedness outstanding from time to time at any time thereafter
and all other obligations and liabilities incurred or accrued at any time
under the Shipbuilding Credit Facility.
(f) "Auditors" has the meaning ascribed to such term in SECTION 6 below.
(g) "Base Amount" means an amount equal to $2,650,000,000, (i) plus,
without duplication, the sum of (A) with respect to Tenneco gas purchase
contracts, the amount of all cash payments made by Tenneco and/or any of
its Subsidiaries during the period commencing on the date of Merger
Agreement and ending on the Closing Date (as defined in the Merger
Agreement) as a result or in respect of any settlement, judgment or
satisfaction of a bond in excess of the market price for gas received by
Tenneco and/or any of its Subsidiaries reduced by the amount of any cash
payments received from customers, insurers or other third parties with
respect thereto (other than ones refunded prior to the Effective Time) or
with respect to any gas supply realignment costs which are so recovered
(and not refunded) on or prior to the Effective Time, (B) the purchase
price paid by Tenneco and/or any of its subsidiaries to acquire any
additional interest in the Oasis Pipeline, (C) the amount of all cash
payments made by Tenneco and/or any of the Energy Subsidiaries during the
period commencing on the date of the Merger Agreement and ending on the
Closing Date in settlement of any significant claim, action, suit or
proceeding to the extent such matter would be an Energy Liability and with
the consent of Acquiror, which shall not be arbitrarily withheld
(including, without limitation, cash payments in settlement of claims
against Tenneco and/or any of its affiliates arising from the Stock
Purchase Agreement dated as of July 31, 1986 by and between Tenneco Inc.)
reduced by
2
<PAGE>
the amount of any cash payments received by Tenneco or any of the Energy
Subsidiaries during such period from customers, insurers or other third
parties with respect thereto, and (D) the total amount of the specific
additions or increases to the Base Amount set forth on SCHEDULE 4 attached
hereto, (ii) less, without duplication, the sum of (A) the gross amount of
cash proceeds actually received by Tenneco from the NPS Issuance (as
defined in the Merger Agreement) less the amount of any expenses related
thereto which are included in the Actual Energy Debt Amount), and (B) the
total amount of the specific subtractions and reductions to the Base Amount
set forth on SCHEDULE 4 attached hereto.
(h) "Cash and Cash Equivalents" has the meaning ascribed to such term
under United States generally accepted accounting principles.
(i) "Consolidated Public Debt Value" means the value (including any
accrued and unpaid interest thereon) of publicly-held Consolidated Debt of
Tenneco and the Energy Subsidiaries outstanding as of the Effective Time
(as reflected on the Energy Adjusted Closing Balance Sheet), calculated and
determined by Tenneco and Acquiror or if, they are unable to agree, by a
nationally recognized investment banking firm selected by mutual agreement
between Tenneco and Acquiror, as of the close of business on the fifth
(5th) business day preceding the Effective Time based on the applicable
spreads to treasuries and the applicable benchmark treasury securities
listed on Schedule 3.
(j) "Closing Calendar Month" means the calendar month in which the
Effective Time occurs.
(k) "Debt Realignment" has the meaning ascribed to such term in the
Merger Agreement.
(l) "Dispute" has the meaning ascribed to such term in SECTION 6 below.
(m) "Energy Adjusted Closing Balance Sheet" has the meaning ascribed to
such term in SECTION 6 below.
(n) "Energy Closing Balance Sheet" has the meaning ascribed to such term
in SECTION 6 below.
(o) "Energy Receivables" means any and all accounts receivable of the
Energy Business (after giving effect to the Corporate Restructuring
Transactions and the Distributions and, therefore, specifically excluding
receivables relating to the business of Case Corporation and the Industrial
Business).
(p) "Factored Proceeds" means the total amount of outstanding cash
proceeds received by Tenneco from ASCC, as of the last business day of the
month preceding the Closing Calendar Month, through the factoring of Energy
Receivables.
(q) "Guaranteed Energy Cash Amount" has the meaning ascribed to such term
in SECTION 5 below.
(r) "Guaranteed Shipbuilding Cash Amount" has the meaning ascribed to
such term in SECTION 5 below.
(s) "Independent Auditors" has the meaning ascribed to such term in
SECTION 6 below.
(t) "Industrial Debt Securities" means, collectively, the notes,
debentures and other debt securities issued by Industrial Company in
exchange for certain issues of the Consolidated Debt pursuant to and in
accordance with the debt exchange by Industrial Company contemplated under
the Debt Realignment.
(u) "Merger Closing Date" means the date on which the Merger is
consummated.
(v) "Required Energy Expenditures Amount" means an aggregate amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) by the Energy Business for 1996 equal to
$333,200,000, plus an amount of capital expenditures by the Energy Business
for 1997 equal to $27,750,000 per month for each month (or pro rata portion
thereof) from January 1, 1997 to the Effective Time.
3
<PAGE>
(w) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning
ascribed to such term in SECTION 6 below.
(x) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such
term in SECTION 6 below.
(y) "Shipbuilding Credit Facility" has the meaning ascribed to such term
in SECTION 3 below.
(z) "Tenneco Allocation Percentage" means a fraction, the numerator of
which is the total number of business days remaining in the Closing
Calendar Month from and after the Effective Time (including the day on
which the Effective Time occurs), and the denominator of which is the total
number of business days in the Closing Calendar Month; provided, however,
that the day on which the Effective Time occurs shall be excluded from the
numerator of such fraction if Tenneco and/or any of its Subsidiaries has
paid as of the Effective Time the payables of Tenneco and its Subsidiaries
for that day, as determined in accordance with Tenneco's past practices for
the payment of such payables.
(aa) "Tenneco Revolving Debt" has the meaning ascribed to such term in
SECTION 2 below.
2. Tenneco Credit Facility and Tenneco Revolving Debt. Tenneco shall, at its
expense, have the sole right and authority to, and will use its commercially
reasonable efforts to, have in place prior to the Distribution Date a credit
facility for itself (with such guarantees of its obligations thereunder by the
Energy Subsidiaries as it deems necessary) in an aggregate principal amount
sufficient (together with other available funds to Tenneco) to fund the
tenders, redemptions, prepayments, defeasances and maturities contemplated
under the Debt Realignment; to pay all the fees, costs and expenses incurred
by Tenneco and its subsidiaries in preparing for, negotiating and effecting
the Distributions, the Merger and the Debt Realignment and any financings in
connection therewith; and for other general corporate purposes (including,
without limitation, working capital, the repayment or refinancing of
Consolidated Debt and the payments of dividends). This facility shall be in
effect at, and shall have a remaining stated maturity of at least 180 days
following, the closing of the Merger and the Distributions. The aggregate
amount of debt (including accrued and accreted interest and fees and expenses)
outstanding as of the Effective Time under this facility is hereinafter called
the "Tenneco Revolving Debt".
Notwithstanding anything contained herein, (a) contemporaneously with the
Distributions, Tenneco and the Energy Subsidiaries shall be removed as obligor
under (and released from liability with respect to) any indebtedness for
borrowed money for which Tenneco or its subsidiaries are liable and which are
assumed by the Industrial Company or the Shipbuilding Company pursuant to the
terms hereof and the Distribution Agreement, (b) any Tenneco Revolving Debt
shall be prepayable without penalty, subject to customary notice provisions,
(c) in respect of publicly-traded Consolidated Debt, between the date of the
Merger Agreement and the Effective Time there shall be no (i) extension of
maturity or average life, (ii) increase in interest rates or (iii) adverse
change in defeasance or redemption provisions with respect to any indebtedness
for borrowed money for which Tenneco or the Energy Subsidiaries will be liable
on or after the Effective Time and (d) except for the Tenneco Revolving Debt,
no indebtedness for borrowed money of Tenneco or the Energy Subsidiaries at
the Effective Time shall contain any affirmative or negative financial or
operational covenants other than ones that are (x) mutually acceptable to
Tenneco and Acquiror or (y) no more restrictive in the aggregate and
substantially equivalent to those set forth in the Indenture dated as of
January 1, 1992 of El Paso Natural Gas Company as in effect as of the date of
the Merger Agreement (other than Section 10.05 of the Indenture).
3. Shipbuilding Credit Facility and Shipbuilding Revolving Debt. Prior to
the Distributions (and at such time as Tenneco shall request), Shipbuilding
Company shall, at its expense, obtain and have in place a credit facility (the
"Shipbuilding Credit Facility") for itself (with such guarantees of its
obligations thereunder by the Shipbuilding Subsidiaries as is necessary to
obtain the Shipbuilding Credit Facility) in an aggregate principal amount of
at least $600 million (the "Minimum Debt Amount") and shall borrow the Minimum
Debt Amount thereunder and distribute the proceeds of such borrowing to
Tenneco (or such subsidiary of Tenneco as Tenneco shall designate) at such
time on or prior to the consummation of the Distributions as Tenneco shall
request.
4
<PAGE>
4. Allocation and Assumption of Debt.
(a) Allocated Energy Debt. On the Distribution Date, Tenneco shall assume,
and shall thereafter be solely liable and responsible for, the Allocated
Energy Debt. Tenneco hereby acknowledges and agrees that the Allocated Energy
Debt shall constitute an Energy Group Liability as defined in the Distribution
Agreement.
(b) Allocated Industrial Debt. On the Distribution Date, Industrial Company
shall assume, and shall thereafter be solely liable and responsible for, the
Allocated Industrial Debt. Industrial Company hereby acknowledges and agrees
that the Allocated Industrial Debt shall constitute an Industrial Group
Liability as defined in the Distribution Agreement.
(c) Allocated Shipbuilding Debt. On the Distribution Date, Shipbuilding
Company shall assume, and shall thereafter be solely liable and responsible
for, the Allocated Shipbuilding Debt. Shipbuilding Company hereby acknowledges
and agrees that the Allocated Shipbuilding Debt shall constitute a
Shipbuilding Group Liability as defined in the Distribution Agreement.
5. Allocation of Cash and Cash Equivalents. Prior to or contemporaneously
with the consummation of the Distributions, each of the parties hereto shall
make such transfers of the Cash and Cash Equivalents of Tenneco and its
consolidated subsidiaries (prior to giving effect to the Distributions) so
that to the extent possible, based on estimates of the aggregate amount of
Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries then on
hand, (a) Tenneco and the Energy Subsidiaries, on a consolidated basis, shall,
as of the Effective Time, have an aggregate amount of Cash and Cash
Equivalents equal to the sum of the following:
(i) $25.0 million,
(ii) the product of (A) the Tenneco Allocation Percentage, and (B) the
lesser of (I) $100 million plus any interest due ASCC thereon for the
Closing Calendar Month, and (II) the total amount of the Factored Proceeds
plus any interest due ASCC thereon for the Closing Calendar Month, and
(iii) should the Effective Time occur on December 27, 30 or 31, 1996, the
lesser of (A) $100 million, and (B) the total amount of the Factored
Proceeds.
(the sum of the amounts described in the immediately preceding clause (i),
(ii) and (iii) is hereinafter, referred to as the "Guaranteed Energy Cash
Amount"), and (b) Shipbuilding Company and the Shipbuilding Subsidiaries, on a
consolidated basis, shall, as of the close of business on the Merger Closing
Date, have an aggregate of $5 million of Cash and Cash Equivalents (the
"Guaranteed Shipbuilding Cash Amount"). All remaining Cash and Cash
Equivalents of Tenneco and its consolidated subsidiaries shall be allocated to
Industrial Company and the Industrial Subsidiaries.
6. Post Distribution Audit.
(a) Preparation of Closing Balance Sheets. As soon as practicable after the
Merger Closing Date, but in any event within 60 days following the Merger
Closing Date, Industrial Company shall cause Arthur Andersen LLP (the
"Auditors") to:
(i) conduct an audit of Tenneco and the Energy Subsidiaries to determine
the aggregate amount, as of the Effective Time, of each of the Factored
Proceeds, the Tenneco Revolving Debt, the Consolidated Debt (other than the
Tenneco Revolving Debt) of Tenneco and the Energy Subsidiaries, the Tenneco
Transaction Expenses, the Cash and Cash Equivalents of Tenneco and the
Energy Subsidiaries and the Actual Energy Expenditures Amount, and to
prepare and deliver to each of Industrial Company and Tenneco a
consolidated balance sheet for Tenneco and the Energy Subsidiaries as of
the Effective Time reflecting (x) the amount of each of the foregoing
(other than the aggregate amount of the Factored Proceeds (which shall be
set forth in a footnote to such consolidated balance sheet) and the
Consolidated Debt valued as part of the Consolidated Public Debt Value) and
(y) the Consolidated Public Debt Value (the "Energy Closing Balance
Sheet"); and
5
<PAGE>
(ii) conduct an audit of Shipbuilding Company and the Shipbuilding
Subsidiaries to determine the aggregate amount of the Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as of
the Effective Time, and to prepare and deliver to each of Industrial
Company and Shipbuilding Company a consolidated balance sheet for
Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective
Time reflecting the aggregate amount of such Cash and Cash Equivalents (the
"Shipbuilding Closing Balance Sheet").
The Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet
shall each be prepared on the basis of an audit conducted by the Auditors in
accordance with generally accepted auditing standards and prepared in
accordance with generally accepted accounting principles consistently applied
and without giving effect to any change in accounting principles required on
account of the consummation of the Merger or the Distributions, except that,
to the extent that any definition contained herein contemplates inclusion or
exclusion of an item that would not be included or excluded under generally
accepted accounting principles, the Auditors shall compute such item in
accordance with such definition. During the course of the preparation of the
Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet by the
Auditors, and during any period in which there is a dispute regarding either
the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet,
each of Tenneco, Industrial Company and Shipbuilding Company, as the case may
be, shall cooperate with the Auditors and each other and shall have access to
all work papers of the Auditors and all pertinent accounting and other records
of Tenneco and the Energy Subsidiaries and Shipbuilding Company and the
Shipbuilding Subsidiaries, as applicable. Tenneco shall pay the fees and
expenses of the Auditors. Notwithstanding any provision of this Agreement or
the Distribution Agreement, the Claims Deposit (as defined in Insurance
Agreement) shall not be included as Cash and Cash Equivalents of Tenneco and
the Energy Subsidiaries.
(b) Disputes Regarding Closing Balance Sheet. Unless (i) in the case of the
Energy Closing Balance Sheet, Tenneco delivers written notice to Industrial
Company on or prior to the 30th day after its receipt of the Energy Closing
Balance Sheet that it disputes any of the amounts set forth on the Energy
Closing Balance Sheet (hereinafter, an "Energy Dispute"), or (ii) in the case
of the Shipbuilding Closing Balance Sheet, Shipbuilding Company delivers
written notice to Industrial Company on or prior to the 30th day after its
receipt of the Shipbuilding Closing Balance Sheet that it disputes the amount
of Cash and Cash Equivalents set forth on the Shipbuilding Closing Balance
Sheet (hereinafter, a "Shipbuilding Dispute") then, as applicable, Tenneco
and/or Shipbuilding Company shall be deemed to have accepted and agreed to the
Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, as
applicable, in the form in which it was delivered to it by the Auditors. If
such a notice of an Energy Dispute is given by Tenneco or a notice of a
Shipbuilding Dispute is given by Shipbuilding Company (in either case such
party being hereinafter referred to as the "Disputing Party") within such 30-
day period, then Industrial Company and the Disputing Party shall, within 15
days after the giving of any such notice, attempt to resolve such Energy
Dispute or Shipbuilding Dispute, as the case may be, and agree in writing upon
the final content of the Energy Closing Balance Sheet or Shipbuilding Closing
Balance Sheet, as the case may be. In the event that the Disputing Party and
Industrial Company are unable to resolve any Energy Dispute or Shipbuilding
Dispute, as the case may be, within such 15-day period, then the certified
public accounting firm of Ernst & Young or another mutually acceptable
independent accounting firm (the "Independent Auditors") shall be employed as
arbitrator hereunder to settle such Energy Dispute and/or Shipbuilding
Dispute, as the case may be, as soon as practicable. The Independent Auditors
shall have access to all documents and facilities necessary to perform its
function as arbitrator. The determination of the Independent Auditors with
respect to any Energy Dispute and/or Shipbuilding Dispute, as the case may be,
shall be final and binding on the applicable parties hereto. Industrial
Company and the Disputing Party shall each pay one-half ( 1/2) of the fees and
expenses of the Independent Auditors for such services. Industrial Company and
the Disputing Party each agree to execute, if requested by the Independent
Auditors, a reasonable engagement letter. The term "Energy Adjusted Closing
Balance Sheet," as used herein, shall mean the definitive Energy Closing
Balance Sheet agreed to by Tenneco and Industrial Company or, as the case may
be, the definitive Energy Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
Section 6(b) (in addition to the matters theretofore agreed to by Tenneco and
Industrial Company). The term
6
<PAGE>
"Shipbuilding Closing Balance Sheet," as used herein, shall mean the
definitive Shipbuilding Closing Balance Sheet agreed to by Shipbuilding
Company and Industrial Company or, as the case may be, the definitive
Shipbuilding Closing Balance Sheet resulting from the determinations made by
the Independent Auditors in accordance with this SECTION 6(B) (in addition to
the matters theretofore agreed to by Shipbuilding Company and Industrial
Company). The date on which the Energy Adjusted Closing Balance Sheet is
determined and provided to each of Industrial Company and Tenneco pursuant to
this SECTION 6(B) is hereinafter referred to as the "Energy Determination
Date". The date on which the Shipbuilding Adjusted Closing Balance Sheet is
determined and provided to each of Industrial Company and Shipbuilding Company
pursuant to this SECTION 6(B) is hereinafter referred to as the "Shipbuilding
Determination Date".
7. Post Distribution Adjustments and Cash Payments.
(a) Adjustments and Payments Relating to Consolidated Debt. If the Actual
Energy Debt Amount exceeds the Base Amount, Industrial Company shall pay
Tenneco the amount of such excess in cash within 10 days after the Energy
Determination Date. If, on the other hand, the Actual Energy Debt Amount is
less than the Base Amount, Tenneco shall pay Industrial Company the amount of
such deficiency in cash within 10 days after the Energy Determination Date.
(b) Adjustments and Payments Relating to Cash and Cash Equivalents.
(i) Adjustments and Payments Relating to Shipbuilding Company. If the
amount of Cash and Cash Equivalents of Shipbuilding Company and the
Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted
Closing Balance Sheet is less than the Guaranteed Shipbuilding Cash
Amount, Industrial Company shall pay Shipbuilding Company the amount of
such deficiency in cash within 10 days after the Shipbuilding
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries
as reflected on the Shipbuilding Adjusted Closing Balance Sheet exceeds
the Guaranteed Shipbuilding Cash Amount, Shipbuilding shall pay
Industrial Company the amount of such excess in cash within 10 days
after the Shipbuilding Determination Date.
(ii) Adjustments and Payments Relating to Tenneco. (A) If the amount
of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as
reflected on the Energy Adjusted Closing Balance Sheet is less than the
Guaranteed Energy Cash Amount, Industrial Company shall pay Tenneco the
amount of such deficiency in cash within 10 days after the Energy
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Tenneco and the Energy Subsidiaries as reflected on the
Energy Adjusted Closing Balance Sheet exceeds the Guaranteed Energy
Cash Amount, Tenneco shall pay Industrial Company the amount of such
excess in cash within 10 days after the Energy Determination Date.
(B) If the Actual Energy Expenditures Amount as reflected on the
Energy Adjusted Closing Balance Sheet is less than the Required Energy
Expenditures Amount, Industrial Company shall pay Tenneco the amount of
such deficiency in cash within 10 days after the Energy Determination
Date. If, on the other hand, the Actual Energy Expenditures Amount as
reflected on the Energy Adjusted Closing Balance Sheet is greater than
the Required Energy Expenditures Amount, Tenneco shall pay to
Industrial Company the amount of such excess in cash within 10 days
after the Energy Determination Date.
(C) Each of Tenneco and Industrial Company hereby agrees that the
amount of any cash payment otherwise due it under any provision of this
SECTION 7 may be offset against and reduced, on a dollar for dollar
basis, in respect of any cash payment it may otherwise be required to
make to the other pursuant to and in accordance with any other
provision of this SECTION 7, and that the amount of such offset and
reduction shall be treated as payment of its obligations under any
provision of this SECTION 7 to the extent of such offset and reduction.
7
<PAGE>
8. Miscellaneous Provisions.
(a) Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
(b) Best Efforts. If at any time after the Merger Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of Tenneco, Industrial Company and Shipbuilding Company shall, on the
written request of any of them, take (or cause the appropriate member of its
Group over which it has direct or indirect legal or effective control to take)
all such reasonably necessary or desirable action.
(c) Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various matters contemplated by this
Agreement.
(d) Successors and Assigns. Except as otherwise expressly provided herein,
no party hereto may assign or delegate, whether by operation of law or
otherwise, any of such party's rights or obligations under or in connection
with this Agreement without the written consent of each other party hereto. No
assignment will, however, release the assignor of any of its obligations under
this Agreement or waive or release any right or remedy the other parties may
have against such assignor hereunder. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will be binding upon and enforceable
against the respective successors and assigns of such party and will be
enforceable by and will inure to the benefit of the respective successors and
permitted assigns of such party.
(e) Modification; Waiver; Severability. This Agreement may not be amended or
modified except in a writing executed by each of the parties hereto. The
failure by any party to exercise or a delay in exercising any right provided
for herein shall not be deemed a waiver of any right hereunder. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(h) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient at such recipient's
address as indicated in the Distribution Agreement or to such other address or
to the attention of such other person as the recipient party has specified by
prior written notice to the sending party.
(i) Survival. Each of the agreements of the parties herein shall survive the
Merger Closing Date.
(j) No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and the other members of their respective
Groups, and shall not give rise to any rights of any kind to any other third
parties.
(k) Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES
CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND
THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO
THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO,
AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
By __________________________________
Name:
Title:
NEW TENNECO INC.
By __________________________________
Name:
Title:
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By __________________________________
Name:
Title:
9
<PAGE>
Schedule 1
to Debt and Cash Allocation Agreement
Accounting fees and expenses
Actuarial fees and expenses
Appraisal fees and expenses
Audit fees and expenses
Broker/dealer fees and expenses
Consulting fees and expenses
Exchange/paying agent fees and expenses
Exit consent fees
Fees and expenses incurred in connection with arranging the Revolving Debt,
including commitment fees, drawdown fees, agent's fees, facility fees and
similar fees and expenses, and lender's costs and expenses payable by the
borrower
Filing fees, including SEC, NYSE, NASD, HSR and other similar fees
Information agent fees and expenses
Investment banking fees and expenses, dealer manager fees and expenses, and
similar fees and expenses
Fees and expenses with respect to legal matters pertaining to the transactions
Mailing expenses
Newspaper advertising costs
Printing fees and expenses
Proxy solicitation fees and expenses
Soliciting dealer fees and expenses
Rating Agency fees
Underwriting, placement, registration and similar fees, commissions and
discounts payable in connection with the NPS Preferred Stock
10
<PAGE>
Schedule 2
to Debt and Cash Allocation Agreement
The deferred intercompany items referred to in SECTION 1(A)(VI) of the Debt
and Cash Allocation agreement are the following intercompany transactions
<TABLE>
<CAPTION>
SELLER BUYER PROPERTY TRANSFERRED
- ------ ----- --------------------
<S> <C> <C>
Tenneco Corporation Tenneco Inc. Stock of Kern County Land Co.
Tenneco Corporation Tenneco Inc. Stock of Tenneco Credit Corp.
Tenneco Corporation Tennessee Gas Pipeline Co. Stock of Tenneco International Inc.
Channel Gas Marketing Channel Industries Gas DT Line
Tenngasco Gas Supply Channel Industries Gas Transmission facilities
Tennessee Gas Pipeline
Co. Energy TRACS Software assignment agreement
</TABLE>
11
<PAGE>
TENNECO INC.
Schedule 3
<TABLE>
<CAPTION>
PRE-DETERMINED
------------------------------------------------
SECURITY DESCRIPTION BENCHMARK TREASURY SPREAD TO TREASURY(1)
- ------------------------------------------------ ------------------------- ----------------------
INDENTURE FACE COUPON MATURITY COUPON MATURITY CASE A CASE B
--------- ------ ------ -------- ---------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inc. ................... $300.0 6.500% 12/15/05 5.875% 11/05 84 bp 76 bp
Inc. ................... 300.0 7.250% 12/15/25 pricing 30yr UST 125 113
Inc. ................... 500.0 7.875% 10/01/02 6.375% 08/02 73 66
Inc. ................... 250.0 8.000% 11/15/99 7.750% 11/99 58 52
Inc. ................... 150.0 9.000% 11/15/12 pricing 30yr UST 95 86
Inc. ................... 200.0 9.875% 02/01/01 7.750% 02/01 66 59
Inc. ................... 250.0 10.000% 03/15/08 pricing 30yr UST 91 82
Inc. ................... 500.0 10.000% 08/01/98 5.875% 08/98 51 46
Inc. ................... 175.0 10.375% 11/15/00 5.625% 11/00 64 58
TGP..................... 400.0 6.000% 12/15/11 pricing 30yr UST 95 86
TGP..................... 75.0 8.000% 05/15/97 NA NA NA NA
TGP..................... 250.0 9.000% 01/15/97 NA NA NA NA
TCC..................... 7.5 8.500% 01/30/97 NA NA NA NA
TCC..................... 0.5 8.500% 03/17/97 NA NA NA NA
TCC..................... 3.0 8.500% 03/24/97 NA NA NA NA
TCC..................... 5.0 8.520% 03/28/97 NA NA NA NA
TCC..................... 6.6 8.570% 03/18/97 NA NA NA NA
TCC..................... 150.0 9.250% 11/01/96 NA NA NA NA
TCC..................... 12.0 9.470% 09/21/98 5.875% 08/98 48 43
TCC..................... 10.0 9.480% 01/28/02 7.500% 11/01 69 62
TCC..................... 250.0 9.625% 08/15/01 7.875% 08/01 68 61
TCC..................... 7.6 9.720% 09/15/01 7.875% 08/01 68 61
TCC..................... 10.0 9.720% 09/25/01 7.875% 08/01 69 62
TCC..................... 5.0 9.900% 12/02/96 7.500% 12/96 45 41
TCC..................... 3.0 9.900% 08/19/98 5.875% 08/98 48 43
TCC..................... 4.5 10.000% 08/19/98 5.875% 08/98 48 43
TCC..................... 5.0 10.000% 12/13/01 7.500% 11/01 70 63
TCC..................... 50.0 10.500% 08/17/98 5.875% 08/98 48 43
TCC..................... 150.0 10.125% 12/01/97 5.250% 12/97 48 43
Inc. ................... $2,625
TGP..................... 725
TCC..................... 680
------
$4,030
------
</TABLE>
NOTE: (1) Case A represents the spread to treasury for each security in the
event that the percentage of the aggregate principal amount of the bonds
participating in any tender or exchange, measured as a group for all
bonds tendered or exchanged for, equals or exceeds 80% of all such bonds
eligible to participate. In the event that the percentage of bonds
participating in any tender or exchange falls short of 80% (calculated as
aforesaid), the market value of all bonds remaining outstanding will be
determined by using the spread to treasury indicated in Case B.
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SCHEDULE 4
TO
DEBT AND CASH ALLOCATION AGREEMENT
ADDITIONAL ADJUSTMENTS TO BASE AMOUNT
1. Indonesia (the South Sulawesi Project)
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures made by any of Tenneco or its consolidated subsidiaries
at any time between June 19, 1996 and the Effective Time (the "PRE-CLOSING
PERIOD") shall be added to the Base Amount (but shall not be included as a
capital expenditure for purposes of determining the Actual Energy Expenditures
Amount); provided, however, the Base Amount will be reduced by the amount of
any Net Cash Proceeds (as defined herein) received by Tenneco or any of its
consolidated subsidiaries (and credited to the account of Industrial Company
under the Debt and Cash Allocation Agreement) during the Pre-Closing Period
from any monetization of this project during the Pre-Closing Period. As used
in the Schedule 4, the term "Net Cash Proceeds" means the total amount of cash
proceeds actually received by the party in question during the Pre-Closing
Period from the consummation during the Pre-Closing Period of the transaction
or transactions in question, less the sum of any and all costs, expenses and
taxes related to the transaction or transactions in question which either are
(i) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to or at the Effective Time, or (ii) incurred but not paid
prior to or at the Effective Time by any member of either the Industrial Group
and/or Shipbuilding Group.
2. Orange Cogeneration Project
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures made by any of Tenneco or its consolidated subsidiaries
at any time during the Pre-Closing Period shall be added to the Base Amount
(but shall not be included as a capital expenditure for purposes of
determining the Actual Energy Expenditures Amount); provided, however, the
Base Amount will be reduced by the amount of any Net Cash Proceeds received by
Tenneco or any of its consolidated subsidiaries (and credited to the account
of Industrial Company under the Debt and Cash Allocation Agreement) during the
Pre-Closing Period from any monetization of this project during the Pre-
Closing Period.
3. Australian Infrastructure Bonds
(a) The Base Amount shall be reduced by any Net Cash Proceeds received by
Tenneco or any of its consolidated subsidiaries (and credited to the account
of Industrial Company under the Debt and Cash Allocation Agreement) during the
Pre-Closing Period from any off-balance sheet financing in respect of this
project.
4. Asset Sales
(a) Microwave Licenses. The Base Amount shall be reduced by the aggregate
amount of Microwave Net Cash Proceeds (as defined below) from any sale or
assignment during the Pre-Closing Period of private operational-fixed
microwave licenses issued by the Federal Communications Commission. As used
herein, "Microwave Net Cash Proceeds" means the gross cash proceeds actually
received by Tenneco or any of its consolidated subsidiaries (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) less the sum of (i) the total amount of relocation costs and cost
and expenses of rebuilding an acceptable replacement communication system that
are actually incurred and paid by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period (or incurred by any member of the
Industrial Group or Shipbuilding Group and remain unpaid as of the Effective
Time), and (ii) the amount of any taxes incurred in connection with any such
sale or assignment which are either (A) actually incurred and paid by Tenneco
or any of its consolidated subsidiaries prior to the Effective Time, or (B)
incurred by any member of the Shipbuilding Group or Industrial Group and
remain unpaid as of the Effective Time.
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5. Land Sales
(a) 960 Acre Parcel Located Along Galveston Bay at Ingleside, Texas. The
Base Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) at any time during the Pre-Closing Period, in connection with the
sale of the above referenced property.
(b) Westchase Development in West Houston (also known as Tract 6A). The Base
Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) at any time during the Pre-Closing Period in connection with the
sale of the above referenced property.
(c) 1625 West Loop (also known as Post Oak Ranch). The Base Amount shall be
reduced by the total amount of Net Cash Proceeds actually received by Tenneco
or any of its consolidated subsidiaries (and credited to the account of
Industrial Company under the Debt and Cash Allocation Agreement) at any time
during the Pre-Closing Period in connection with the sale of the above
referenced property.
6. Sales of Gas Turbines
The Base Amount shall be reduced by the total amount of Net Cash Proceeds
actually received by Tenneco or any of its consolidated subsidiaries (and
credited to the account of Industrial Company under the Debt and Cash
Allocation Agreement) from its sale of any gas turbines at any time during the
Pre-Closing Period.
7. ICH Tax Indemnity Matter
The Base Amount shall be increased by any cash payment (up to a maximum
amount, however, of $19.0 million) made by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period in respect of the settlement of the
ICH tax indemnity matter.
8. Payments due on Settlement of Certain Lawsuits During the Pre-Closing
Period
All cash payments actually received by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period in respect of any settlement of any
of the lawsuits or other proceedings identified and referred to in paragraph 9
of, and Schedule G-2 to, Exhibit G to the Merger Agreement shall, to the
extent provided for under the terms described under paragraph 9 of such
Exhibit G, be for the account of Industrial Company and shall not be included
in the Guaranteed Energy Cash Amount or have any effect on the Base Amount or
the calculation thereof.
9. Hedging Transactions
Any hedging transactions and all costs and expenses with respect thereto
that are entered into in connection with or in anticipation of the Debt
Realignment shall be for the benefit or detriment of Industrial Company and
shall have no effect whatsoever on the Base Amount or the calculation thereof.
10. Rate Refunds Payable to Customers
The Base Amount shall be reduced by the amount, calculated as of the
Effective Time, of any rate refunds, including interest, which would be
payable to customers pursuant to the rate settlement filed with the Federal
Energy Regulatory Commission at Docket No. RP95-112 and have not been paid as
of the Effective Time, whether such amounts are to be paid to customers or
credited against gas supply realignment costs pursuant to a settlement with
customers.
11. Sale of Tenneco Ventures
The Base Amount shall be reduced by the aggregate amount of Net Cash
Proceeds actually received by Tenneco or any of its subsidiaries (and credited
to the account of Industrial Company under the Debt and Cash Allocation
Agreement) from any sale of Tenneco Ventures during the Pre-Closing Period.
1.2 Bonuses for Energy Employees
(a) The total amount of cash bonuses for Energy Employees for the calendar
year 1996 (the "1996 Bonus Amount") shall be pro rated based on the date on
which the Effective Time occurs and shall be shared between Tenneco and
Industrial Company based on such pro ration as follows:
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<PAGE>
(i) Tenneco shall be responsible and liable for the payment of that
portion (the "Tenneco Bonus Portion") of the 1996 Bonus Amount that equals
the product of (A) the 1996 Bonus Amount, and (B) a fraction, the numerator
of which is the number of days remaining in the 1996 calendar year
following the day on which the Effective Time occurs (the "Effective Day"),
and the denominator of which is 365.
(ii) New Tenneco shall be responsible and liable for the payment of that
portion of the 1996 Bonus Amount that equals the amount by which the 1996
Bonus Amount exceeds the Tenneco Bonus Portion.
(b) Each of Tenneco's and New Tenneco's liability for its share of the 1996
Bonus Amount shall be accounted for in the Merger as follows:
(i) If 100% of the 1996 Bonus Amount is paid on or before the Effective
Time, the Base Amount shall be increased by the Tenneco Bonus Portion.
(ii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that remains due and unpaid exceeds the Tenneco Bonus Portion, the Base
Amount shall be reduced by the amount of such excess.
(iii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that remains due and unpaid equals the Tenneco Bonus Portion, the Base
Amount shall not be increased or decreased in respect of the 1996 Bonus
Amount.
15
<PAGE>
EXHIBIT 10.2
EXHIBIT A
TO
DISTRIBUTION AGREEMENT
BENEFITS AGREEMENT
THIS BENEFITS AGREEMENT is made and entered into as of this day of
, 1996, by and among TENNECO INC., a Delaware corporation
("TENNECO"), NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"),
and NEWPORT NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica
Inc.), a Delaware corporation ("SHIPBUILDING COMPANY").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by and
among the parties hereto and dated as of , 1996 (the "Distribution
Agreement") the parties have entered into this Agreement regarding certain
labor, employment, compensation and benefit matters occasioned by the
Distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each other member of its Group
over which it has direct or indirect legal or effective control, hereby agrees
as follows:
SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall
have the meanings set forth below in this Section 1. All other capitalized
terms which are used but are not otherwise defined herein shall have the
meanings ascribed to them in the Distribution Agreement.
"ACTIVE EMPLOYEES" means, with respect to each Group, all employees
regularly engaged in the performance of services to, for or on behalf of
any member of such Group as of the close of business on the Distribution
Date.
"FORMER EMPLOYEES" means, with respect to each Group, all former
employees of Tenneco and/or its Subsidiaries (including, but not limited
to, such employees who, as of the close of business on the Distribution
Date, are on leave of absence, long-term disability or layoff with recall
rights and the dependents of those persons) who, if they were regularly
engaged in the performance of services to, for or on behalf of Tenneco or
any of its Subsidiaries at the close of business on the Distribution Date,
would be an Active Employee of such Group, determined on a basis consistent
with the determination of the Active Employees of such Group.
"PENSION MATTERS" means, collectively, (a) Tenneco's 1986 pension plan
asset valuation and its cost accounting treatment, as described in the DCAA
Audit Report dated November 28, 1995, and (b) any claim which the DCAA may
assert that (or based on any allegation that) the aggregate amount of
assets of the TRP attributable to the Active Employees and Former Employees
of the Shipbuilding Group exceeds the aggregate amount of the liabilities
under the TRP attributable to Active and Former Employees of the
Shipbuilding Group.
"TENNECO SALARIED WELFARE PLANS" means, collectively, the Tenneco Inc.
Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco
Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance
Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and
the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan.
SECTION 2. GENERAL EMPLOYMENT MATTERS.
2.01. GENERAL OBLIGATIONS. From and after the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall, as
applicable, cause each of the other members of its respective Group over which
it has direct or indirect legal or effective control to) (a) continue the
employment of all of the Active Employees of its respective Group, subject,
however to the terms of SECTION 2.03 below and (b) except as otherwise
specifically provided herein, pay, perform and discharge any and all labor,
employment, compensation and benefit liabilities, whether arising prior to, on
or after the Distribution Date, with respect to all such Active
1
<PAGE>
Employees and all Former Employees of its respective Group. Except as
specifically provided herein, each of Tenneco, Industrial Company and
Shipbuilding Company shall be solely responsible for the Former Employees of
its respective Group.
2.02. INITIAL COMPENSATION OF ACTIVE EMPLOYEES. The initial compensation
(base salary or wage level) of each Active Employee of each Group shall be the
same as the compensation (base salary or wage level) of such Active Employee
immediately prior to the Distribution Date.
2.03. NO ADDITIONAL EMPLOYMENT RIGHTS CREATED. Nothing in this Agreement
shall give any Active Employee of any Group any right to continued employment
by any member of that Group or any other Group beyond the Distribution Date,
which is in addition to or supplemental to any such right he or she may have
arising under contract or otherwise.
SECTION 3. COLLECTIVE BARGAINING.
3.01. CONTINUATION OF EXISTING COLLECTIVE BARGAINING AGREEMENTS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause,
as applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to honor all collective
bargaining agreements covering the Active Employees of its respective Group
which are in effect as of the close of business on the Distribution Date, in
accordance with and subject to the terms of each such collective bargaining
agreement. Each of the parties hereto hereby agrees and acknowledges, however,
that nothing herein, including its obligation to continue its applicable
collective bargaining agreements, shall be construed to restrict any right it,
or any other member of its respective Group, may have to terminate,
renegotiate, reopen or otherwise seek changes in any of its collective
bargaining agreements.
3.02. RECOGNITION OF INCUMBENT LABOR ORGANIZATIONS. Each of Tenneco,
Industrial Company and Shipbuilding Company shall (and shall cause, as
applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to recognize all incumbent
labor organizations which, as of the close of business on the Distribution
Date, have established collective bargaining relationships in respect of the
Active Employees of its respective Group.
3.03. CONTINUED SPONSORSHIP OF HOURLY EMPLOYEE BENEFIT PLANS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall continue (and
shall, as applicable, cause each other member of its respective Group over
which it has direct or indirect legal or effective control to continue) to
sponsor all hourly employee benefit plans which, as of the close of business
on the Distribution Date, are in existence and relate to the Active Employees
of its respective Group, subject to its rights under such plans to amend or
terminate such plans.
3.04. PROVISION OF WAGES, RIGHTS AND OTHER EMPLOYMENT BENEFITS REQUIRED
UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS. Without limiting the
generality of the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall provide those of its Active Employees whose
employment is subject to collective bargaining agreements and/or established
collective bargaining relationships with the wages, benefits, and terms and
conditions of employment required by such agreements or relationships, except
that (i) participation in the Tenneco Inc. Employee Stock Purchase Plan will
cease as of September 30, 1996, and (ii) no additional amounts may be invested
in any shares of the common stock, par value $5.00 per share, of Tenneco
("TENNECO COMMON STOCK") in any defined contribution plan from and after the
Effective Time.
SECTION 4. UNITED STATES SALARIED PENSION AND THRIFT BENEFITS.
4.01 TENNECO INC. RETIREMENT PLAN. Effective as of the Distribution Date,
Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco
Inc. Retirement Plan (the "TRP"), and Industrial Company shall become the
sponsor of the TRP. The TRP shall retain liability for all pension benefits
accrued by the Active and Former Employees of the Energy Group and
Shipbuilding Group who are or were formerly participants in the TRP through
the last day of the calendar month in which the Distribution Date occurs (the
"Impact Date").
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<PAGE>
4.02 AMENDMENT OF TRP. After Industrial Company has become the sponsor of
the TRP, it shall amend the TRP to (a) "freeze" the benefit accruals of the
Active Employees of the Energy Group and Shipbuilding Group as of the Impact
Date, and (b) provide that all benefits accrued as of the Impact Date by the
Active Employees of either the Energy Group or the Shipbuilding Group will be
fully vested and non-forfeitable, and Industrial Company shall inform, in
writing, each such Active Employee of his or her accrued benefits under the
TRP as of the Distribution Date; provided, however, that if the Distribution
Date occurs on the Impact Date, Industrial Company shall in any event (i)
first become the sponsor of the TRP as provided under SECTION 4.01 above, and
(ii) immediately thereafter amend the TRP as provided in this SECTION 4.02.
4.03 NO CREDIT FOR POST-DISTRIBUTION DATE SERVICE. Except as may be required
by law, the TRP shall not be required to count service with any entity other
than Industrial Company after the Distribution Date for any purpose.
4.04 NO LIABILITY TO ENERGY GROUP. Following the Distribution Date, the
Energy Group will have no liability, contingent or otherwise, with respect to
the TRP or any other defined benefit pension plan that is subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended, including
any liability for benefits accrued prior to the Distribution Date (including
early retirement benefits and related subsidies) for employees of the Energy
Group, and Industrial Company shall assume or retain, as the case may be, all
such liabilities.
4.05 SHIPBUILDING COMPANY LIABILITIES.
(a) GENERAL INDEMNIFICATION OF INDUSTRIAL COMPANY. Except as specifically
provided in this SECTION 4.05, Shipbuilding Company shall retain, and shall
indemnify and hold the Industrial Company harmless from, any liability
incurred or accrued at any time (whether before on or after the date hereof),
which has been, or may in the future be, asserted by any of (i) the Defense
Contract Audit Agency ("DCAA"), (ii) the United States Navy, or (iii) any and
all other agencies of, within or affiliated with the United States Department
of Defense (the "DOD"), that arise or arose out of, or in connection with
either (A) the participation of Active Employees or Former Employees of the
Shipbuilding Group in the TRP, (B) payments made by any agency of the DOD with
respect to benefits accrued under the TRP, (C) any claim by any agency of the
DOD relating to the assets of the TRP, and (D) any other related matters.
(b) SHARING OF CERTAIN SHIPBUILDING COMPANY LIABILITIES. Notwithstanding the
foregoing, Industrial Company and Shipbuilding Company have agreed to share
the cost, if any, of certain specified liabilities described in SUBSECTION
4.05(A) above on the terms and conditions set forth in the remaining
Subsections of this SECTION 4.05. The liabilities which Industrial Company and
Shipbuilding Company have agreed to share are only those arising from a
Pension Matter.
(c) INDEMNIFICATION PERCENTAGES FOR PENSION MATTERS. Industrial Company
shall indemnify Shipbuilding Company from 80%, and Shipbuilding Company shall
retain and indemnify Industrial Company from 20%, of the following:
(i) all amounts paid in satisfaction of a Government claim for Pension
Matters; and
(ii) all costs incurred, including attorneys' and actuaries' fees, in
defending against the Government's claims in the Pension Matters, as
described in SUBSECTION 4.05(F) below.
(d) CONTROL OVER PENSION MATTERS. Industrial Company shall have total and
exclusive control of and over all aspects of the defense by Industrial Company
and Shipbuilding Company against the Government's claims in the Pension
Matters. Without limiting the generality of the foregoing, Industrial Company
shall have the exclusive right to:
(i) engage and dismiss any and all law firms, actuarial firms and other
service providers;
(ii) settle, compromise or otherwise dispose of either Pension Matter;
(iii) determine to not appeal any adverse determination with respect to
either Pension Matter; and
(iv) negotiate and determine the terms of a deferral agreement described
in item (iv) of SUBSECTION 4.05(E) below.
3
<PAGE>
(e) COOPERATION OF SHIPBUILDING COMPANY. Shipbuilding Company shall
cooperate fully with Industrial Company and its attorneys, actuaries and other
advisors and representatives in defending against the Government's claims in
the Pension Matters. Without limiting the generality of the foregoing,
Shipbuilding Company shall:
(i) advise Industrial Company in writing of any and all claims made by
the Government which may be included in the Pension Matters promptly after
Shipbuilding Company receives notice or otherwise becomes aware of such
claims;
(ii) provide Industrial Company copies of any and all correspondence,
pleadings or other papers it has or receives with respect to the Pension
Matters promptly upon receipt;
(iii) give Industrial Company at least 10 days written notice of and
afford Industrial Company an opportunity to be present at any and all
meetings, conferences or hearings relating to such issues; and
(iv) diligently seek an agreement to defer collection of any Government
claim for Pension Matters.
(f) BILLING FOR PAYMENT TO GOVERNMENT. Whenever the Shipbuilding Company or
Industrial Company makes a payment to the Government for a claim related to
Pension Matters or incurs a cost in defending against the Government's claims
in Pension Matters, it may bill the other party for that party's share of said
claim or cost. A payment to the Government for a claim related to Pension
Matters shall include (i) amounts paid directly to Government to satisfy the
claim; (ii) progress payments withheld to satisfy the Government claim; and
(iii) pension costs disallowed under Shipbuilding Company's new salaried
pension plan to satisfy the Government claim. Costs incurred in defending
against the Government's claims in the Pension Matters shall include outside
attorneys' fees, accounting fees and actuary fees and all other out-of-pocket
costs incurred in defending against the Government's claims. Neither
Industrial Company nor Shipbuilding Company shall charge the other any amounts
for the services of its employees. A bill for the other party's share of a
claim or cost shall be accompanied by adequate documentation and shall be paid
promptly upon receipt. However, any amounts so billed shall be subject to set-
off for amounts owed by the presenter to recipient whether relating to matters
covered by this SECTION 4.05 or otherwise.
(g) ADVANCES BY INDUSTRIAL COMPANY. Any amounts which Industrial Company may
advance to Shipbuilding Company to satisfy a Government Claim pending appeal
(regardless of whether the Government claim is satisfied by (i) direct payment
to the Government; (ii) progress payments withheld; or (iii) pension costs
disallowed under the Shipbuilding Company's new salaried pension plan) shall
be deducted from any amount due from Industrial Company to Shipbuilding
Company upon the ultimate resolution of the appeal of the Government's claim.
To the extent that the amounts advanced to Shipbuilding Company by Industrial
Company exceed the amount due upon the ultimate resolution of the appeal,
Shipbuilding Company shall, within 5 days after the date of such ultimate
resolution, reimburse such excess to Industrial Company with interest charged
from the date the amount was advanced at the interest rate established by the
Secretary of the Treasury under Public Law 92-41.
(h) PROHIBITION AGAINST CERTAIN ACTION OF SHIPBUILDING COMPANY. Shipbuilding
Company shall not take any action or permit or suffer any act or omission
within its control that is, or is likely to be, in any way detrimental to the
defense against the Government's claims under the Pension Matters. Without
limiting the generality of the preceding sentence, Shipbuilding Company will
not, without the express written consent of Industrial Company, which consent
may be withheld in Industrial Company's sole discretion, link either of the
Pension Matters to any other matter which it now has or may in the future have
pending with the Government in terms of settlement or otherwise.
(i) ASSERTION OF AFFIRMATIVE CLAIMS. If Industrial Company determines to
submit an affirmative claim against the Government in connection with the
Pension Matters, Industrial Company and Shipbuilding Company shall share the
cost of pursuing such claim and any recovery on such claim on a percentage
basis of 80% for Industrial Company and 20% for Shipbuilding Company.
(j) NO LIABILITY OF ENERGY BUSINESS. It is expressly acknowledged and agreed
that any liabilities described in this SECTION 4.05 are solely liabilities of
Shipbuilding Company and Industrial Company, in accordance with the terms of
the other provisions of this SECTION 4.05, and the Energy Business has no
obligation with respect to any of such liabilities.
4
<PAGE>
4.06. TENNECO INC. THRIFT PLAN. The active participation in the Tenneco Inc.
Thrift Plan (the "Tenneco DC Plan") by persons other than the Active Employees
of the Industrial Group shall cease effective as of the Distribution Date. In
addition, each of Tenneco and Shipbuilding Company shall cease to be sponsors
of the Tenneco DC Plan as of the Distribution Date and Industrial Company shall
become the sponsor of the Tenneco DC Plan from and after the Distribution Date.
4.07. ESTABLISHMENT OF ENERGY AND SHIPBUILDING DC PLANS.
(a) ENERGY DC PLAN. Tenneco shall establish or make available on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Energy Group (the "Energy DC Plan").
(b) SHIPBUILDING DC PLAN. Shipbuilding Company shall establish on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Shipbuilding Group (the
"Shipbuilding DC Plan").
(c) TRANSFER OF ACCOUNT BALANCES TO ENERGY AND SHIPBUILDING DC PLANS.
Industrial Company shall cause the Tenneco DC Plan to transfer: (i) to the
Shipbuilding DC Plan, the account balances of each Active Employee of the
Shipbuilding Group and each Former Employee of the Shipbuilding Group with
respect to whom the Tenneco DC Plan maintains an account as of the close of
business on the Distribution Date, and (ii) to the Energy DC Plan, the
account balances of each Active Employee of the Energy Group and each
Former Employee of the Energy Group with respect to whom the Tenneco DC
Plan maintains an account as of the close of business on the Distribution
Date. Such transfers shall be in cash, except that the Energy DC Plan and
the Shipbuilding DC Plan will accept the following: (i) Tenneco Common
Stock (or stock of the Acquiror, as defined in the Merger Agreement) for
the Tenneco Common Stock fund portion of such account balances (together
with any and all of the shares of the common stock of Industrial Company
and/or Shipbuilding Company distributed in connection with the
Distributions); and (ii) amounts credited to the Tenneco DC Plan which are
held in mutual funds which are also investment media in the Energy DC Plan
or the Shipbuilding DC Plan, as the case may be.
4.08. NO TENNECO COMMON STOCK. No Tenneco Common Stock shall be offered as an
investment option with respect to contributions made after the Distribution
Date by any of the Tenneco DC Plan, Energy DC Plan or Shipbuilding DC Plan. The
sponsor of each of the foregoing plans shall cause the plan to afford each
participant therein an election to sell the stock of any entity held in the
Tenneco stock fund in the Tenneco DC Plan which does not employ him or her
immediately following the Distribution Date. Shipbuilding Company shall
administer each defined contribution plan which it maintains consistent with
any and all representations which Tenneco made to the Internal Revenue Service
at any time prior to the Distribution Date. No further contributions shall be
made under the Tenneco Inc. Employee Stock Purchase Plan after September 30,
1996.
SECTION 5. PENSION MATTERS OUTSIDE THE UNITED STATES. With respect to the
business and operations of each Group in jurisdictions outside the United
States, each of the parties hereto shall (and, as applicable, shall cause each
other member of its Group over which it has direct or indirect legal or
effective control to) retain any and all pension liabilities and attendant
plans and their assets related to its Active Employees and Former Employees.
SECTION 6. EXECUTIVE COMPENSATION.
6.01. TENNECO BENEFIT EQUALIZATION PLAN AND SUPPLEMENT EXECUTIVE RETIREMENT
PLAN. None of the Active Employees of either the Shipbuilding Group or the
Energy Group shall accrue any benefits under the Tenneco Benefit Equalization
Plan (the "BEP") or the Supplement Executive Retirement Plan (the "SERP") from
and after the Distribution Date. Industrial Company shall assume all
liabilities under the BEP and the SERP and shall cause the BEP and the SERP to
continue to cover the Active Employees and Former Employees of the Energy Group
and Shipbuilding Group after the Distribution Date who have accrued benefits
under either or both of such plans as of the close of business on the
Distribution Date, and the accrued benefits of such Active Employees under such
plans as of the close of business on the Distribution Date shall be fully
vested and non-forfeitable. Each of Tenneco and Shipbuilding Company shall
reimburse Industrial Company for any payments Industrial Company may make from
time to time under the BEP or the SERP to Mr. Edward J. Casey, Jr. in the
5
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case of the Energy Group and any Active Employee or Former Employee of the
Shipbuilding Group, in the case of the Shipbuilding Group. Such charges shall
be made by written notice thereof to, and shall be promptly paid by, the Energy
Group and/or Shipbuilding Group, as the case may be. Tenneco shall retain and
assume any and all supplemental pension obligations (and any related assets)
which are in addition to benefits under the TRP, BEP and SERP under the
contract with Mr. Edward J. Casey, Jr.
6.02. TENNECO INC. DEFERRED COMPENSATION PLAN. The participation of the
Active Employees and Former Employees of the Energy Group and the Shipbuilding
Group in the Tenneco Inc. Deferred Compensation Plan (the "DC Plan") and 1993
Deferred Compensation Plan (the "1993 Plan") shall cease as of the Distribution
Date. As of the Distribution Date, Shipbuilding Company shall assume the
liability for the accounts of its Active Employees and Former Employees in the
DC Plan and the 1993 Plan, Tenneco shall assume the liability for the accounts
of the Active Employees and Former Employees of the Energy Group in the DC Plan
and the 1993 Plan, and Industrial Company shall succeed to sponsorship of the
1993 Plan and the DC Plan and shall assume the liability for the accounts of
the Active Employees and Former Employees of the Industrial Group in the DC
Plan and the 1993 Plan. The total of each such Active Employee's or Former
Employee's account in the DC Plan and the 1993 Plan as of the Distribution Date
shall become the opening balance of such Active Employee's or Former Employee's
account in a Nonqualified Deferred Compensation Plan created, as of the
Distribution Date by either, (i) Tenneco, in the case of Active Employees and
Former Employees of the Energy Group, or (ii) Shipbuilding Company, in the case
of Active Employees or Former Employees of the Shipbuilding Group. Such opening
balances shall become fully vested as of the close of business on the
Distribution Date.
6.03. TENNECO BENEFITS PROTECTION PROGRAM. Effective upon the Distribution
Date, Shipbuilding Company and Tenneco shall each be released from any
obligations which it may have under the Tenneco Benefits Protection Program.
Neither Shipbuilding Company nor Tenneco shall be entitled to any portion of
the Tenneco Inc. Benefit Protection Trust (the "Trust"), other than to the
assets, if any, of the Trust allocable to the respective liabilities retained
or assumed by them pursuant to this Agreement. Industrial Company shall
continue to sponsor and maintain the Trust.
SECTION 6.04. TENNECO OPTIONS AND RESTRICTED STOCK. Prior to the Distribution
Date, Tenneco shall cause all outstanding restricted stock and performance
share equivalent unit awards to become fully vested. Except as provided in the
last sentence of this paragraph, the parties hereto shall cause all outstanding
Tenneco stock options to be converted to options to acquire stock of Tenneco,
Industrial Company or Shipbuilding Company in amounts and with exercise prices
adjusted so that as to each grant the excess of the aggregate fair market value
of the shares subject to the option immediately after the Distributions over
the aggregate option price of such shares is not more than the excess of the
aggregate fair market value of the shares subject to the option immediately
before the Distributions over the aggregate option price of such shares. In all
other respects, the options shall remain subject to the terms and conditions of
the grants under which they were issued, conforming changes excepted. Except to
the extent determined by the Compensation and Benefits Committee of Tenneco's
Board of Directors, each grantee shall receive options with respect to the
stock of the entity which employs him (or with which he is otherwise
affiliated) immediately after the Distributions. If Tenneco has entered into a
definitive agreement for a third-party to acquire Tenneco, the Tenneco stock
options held by employees of the Energy Group shall not be treated as provided
in the preceding portion of this SECTION 6.04; rather such options shall be
made fully exercisable no less than 30 days prior to the closing date of such
acquisition, and if such options are not exercised prior to the closing date,
they will be cancelled effective as of the closing date.
SECTION 6.05. EMPLOYMENT CONTRACTS. Tenneco shall retain and assume any and
all contractual obligations to Messrs. Casey, Menikoff and Sinclair. Tenneco
shall retain and assume any and all obligations to provide office space and
secretarial help to Messrs. Ketelsen and Scott. Industrial Company shall assume
and discharge all supplemental pension obligations to Mr. Ketelsen.
SECTION 7. WELFARE BENEFITS.
7.01. TENNECO SALARIED WELFARE PLANS. Effective on the Distribution Date,
Tenneco and Shipbuilding Company shall each cease to be a sponsor of the
Tenneco Salaried Welfare Plans, and Industrial Company shall
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serve as the sponsor of the Tenneco Salaried Welfare Plans from and after the
Distribution Date. If the Energy Group or the Shipbuilding Group adopt one or
more welfare plans which is (are) identical to the comparable Tenneco Salaried
Welfare Plan, the Industrial Company shall use its best efforts to administer
such plan on behalf of the Energy Group or the Shipbuilding Group, as the case
may be, for a period ending not later thanDecember 31, 1997. Each of
Shipbuilding Company and Tenneco hereby agrees to reimburse Industrial Company
for all costs incurred by it with respect thereto.
7.02. ALLOCATION AND DISCHARGE OF WELFARE PLAN LIABILITIES. Shipbuilding
Company shall retain and discharge all welfare plan liabilities with respect to
Active Employees and Former Employees of the Shipbuilding Group and their
dependents. Industrial Company shall retain and discharge all welfare plan
liabilities with respect to Active Employees and Former Employees of the
Industrial Group and their dependents. Tenneco shall retain and discharge all
other welfare plan liabilities which remain after allocation of liabilities to
Shipbuilding Company and Industrial Company under the two immediately preceding
sentences, including, without limitation, all such liabilities relating to the
Active Employees and Former Employees of the Energy Group and their dependents,
and shall retain or have transferred to it all related assets allocable to such
liabilities, including without limitation, the Tennessee Gas Pipeline Company
Health Care Plan VEBA.
SECTION 8. GENERAL.
8.01. POST-DISTRIBUTION ADMINISTRATION OF PLANS. The parties hereto agree to
administer all plans consistently herewith, and to the extent necessary to
amend plans accordingly.
8.02. COST AND EXPENSES. Each party shall bear all costs and expenses,
including but not limited to legal and actuarial fees, incurred in the design,
drafting and implementation of any and all plans and compensation structures
which it enables or creates and the amendment of its existing plans or
compensation structures.
SECTION 9. MISCELLANEOUS.
9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Distribution
Agreement, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Notwithstanding any other provisions in this Agreement or the Distribution
Agreement to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of the
Distribution Agreement or any other Ancillary Agreement, this Agreement shall
control.
9.02. OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to address,
and should not be interpreted to address, the matters specifically and
expressly covered by any of the other Ancillary Agreements.
9.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
9.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided herein,
all covenants and agreements of the parties contained in this Agreement shall
survive the Distribution Date.
9.05. NOTICES. All notices and other communications to a party hereunder
shall be in writing and hand delivered or mailed by registered or certified
mail (return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to such party (and
will be deemed given on the date on which the notice is received by such party)
at the address for such party set forth below (or at such other address for the
party as the party shall, from time to time, specify by like notice to the
other parties):
If to Tenneco, at:1010 Milam Street
Houston, Texas 77002
Attention: Corporate Secretary
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If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Attention: Corporate Secretary
9.06. WAIVERS. The failure of any party hereto to require strict performance
by any other party of any provision in this Agreement will not waive or
diminish that party's right to demand strict performance thereafter of that or
any other provision hereof.
9.07. AMENDMENTS. This Agreement may not be modified or amended except by an
agreement in writing signed by the parties hereto.
9.08. ASSIGNMENT. This Agreement shall be assignable in whole in connection
with a merger or consolidation or the sale of all or substantially all the
assets of a party hereto so long as the resulting, surviving or transferee
entity assumes all the obligations of the relevant party hereto by operation of
law or pursuant to an agreement in form and substance reasonably satisfactory
to the other parties to this Agreement. Otherwise this Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any party hereto
without the prior written consent of the others, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall
be void.
9.09. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
9.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and the members of their respective Groups and
Affiliates, after giving effect to the Distributions, and should not be deemed
to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
9.11. ATTORNEY FEES. A party in breach of this Agreement shall, on demand,
indemnify and hold harmless the other parties hereto for and against all out-
of-pocket expenses, including, without limitation, reasonable legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement. The payment of such expenses is in addition to any
other relief to which such other party may be entitled hereunder or otherwise.
9.12. TITLE AND HEADINGS. Titles and headings to sections herein are inserted
for the convenience of reference only and are not intended to be a part of or
to affect the meaning or interpretation of this Agreement.
9.13. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND
SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE
FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY
IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY
APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF
DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON
ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND
EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE.
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9.14. SEVERABILITY. In the event any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
9.15. SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantee the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
9.16. RELEASE FROM POST EMPLOYMENT LIABILITY. Tenneco hereby agrees that in
the event it intends to request of any Energy Employee at any time on or
within 5 years subsequent to the Effective Time any release of liability and
further obligation on the part of Tenneco that it will promptly notify New
Tenneco in writing of such intent and, if so requested by New Tenneco, in
connection with such request also request from such Energy Employee a release
of liability and further obligation on the part of New Tenneco either, at New
Tenneco's election, (a) in the form provided to Tenneco by New Tenneco prior
to the Effective Time, with such changes thereto as may subsequently be
reasonably requested from time to time by New Tenneco, or (b) in substantially
the same form as the release obtained from such Energy Employee by Tenneco.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
By: _________________________________
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By: _________________________________
NEW TENNECO INC.
By: _________________________________
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EXHIBIT 10.3
EXHIBIT H
TO
DISTRIBUTION AGREEMENT
INSURANCE AGREEMENT
This Insurance Agreement (the "AGREEMENT") is made and entered into as of
this day of , 1996, by and among Tenneco Inc., a Delaware
corporation ("TENNECO"), New Tenneco Inc., a Delaware corporation ("INDUSTRIAL
COMPANY") and Newport News Shipbuilding Inc., a Delaware corporation
("SHIPBUILDING COMPANY").
WHEREAS, Tenneco, Industrial Company and Shipbuilding Company have entered
into that certain Distribution Agreement, dated as of , 1996
(the "DISTRIBUTION AGREEMENT"), pursuant to which (i) Tenneco and its
Subsidiaries shall cause to be consummated the Corporate Restructuring
Transactions in order to restructure, divide and separate their existing
businesses and assets so that (a) the Industrial Assets and Industrial
Business shall be owned, controlled and operated, directly or indirectly, by
the Industrial Company, and (b) the Shipbuilding Assets and Shipbuilding
Business shall be owned, controlled and operated, directly or indirectly, by
the Shipbuilding Company, and (ii) Tenneco shall distribute on the
Distribution Date all of the outstanding capital stock of Industrial Company
and Shipbuilding Company as a dividend to the holders of shares of the common
stock, par value $5.00 per share, of Tenneco upon the terms and subject to the
conditions set forth in the Distribution Agreement;
WHEREAS, Tenneco, its Subsidiaries and their respective predecessors have
historically maintained various Policies for the benefit or protection of one
or more of the Energy Covered Persons, Industrial Covered Persons and
Shipbuilding Covered Persons;
WHEREAS, in connection with the transactions contemplated by the
Distribution Agreement, Tenneco, Industrial Company and Shipbuilding Company
have determined that it is necessary and desirable to provide for the
respective continuing rights and obligations in respect of said Policies from
and after the Distribution Date; and
WHEREAS, pursuant to the Distribution Agreement the parties hereto have
agreed to enter into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. Unless otherwise defined herein or unless the context otherwise
requires, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined).
"AGREEMENT" shall mean this Insurance Agreement, dated as of , 1996,
by and among Tenneco, Industrial Company and Shipbuilding Company, including
any amendments hereto and each Schedule attached hereto.
"CLAIMS ADMINISTRATION" shall mean, with respect to any Policy, the
processing of claims made under such Policy, including, without limitation,
the reporting of losses or claims to insurance carriers and the management,
defense and settlement of claims.
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"CLAIMS DEPOSIT" shall mean the amount of funds, as of the Distribution
Date, maintained by Tenneco on deposit for the benefit of the insurance
carriers under the Retained Policies.
"CLAIMS-MADE" shall mean, with respect to any Policy, coverage provided by
such Policy for claims made during a period specified therein.
"CLAIMS-MADE POLICIES" shall mean those current and past Policies which are
Claims-Made in nature, including but not limited to those Policies identified
on SCHEDULE A hereto, which show Tenneco or any of its predecessors as the
named insured, but excluding (i) any directors' and officers' liability
insurance policies which are or were maintained by or on behalf of Tenneco,
(ii) the Exclusive Policies, and (iii) the Retained Policies.
"COMMON POLICIES" shall mean the Claims-Made Policies, Occurrence-Based
Policies, Eastern Policies and Retained Policies.
"CONSENT" shall have the meaning set forth in Section 2.3 hereof.
"CORPORATE RESTRUCTURING TRANSACTIONS" shall have the meaning set forth in
the Distribution Agreement.
"COVERED PERSONS" shall mean (i) with respect to Tenneco, the Energy Covered
Persons, (ii) with respect to Industrial Company, the Industrial Covered
Persons, and (iii) with respect to Shipbuilding Company, the Shipbuilding
Covered Persons.
"CURRENT CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies in effect
as of the Distribution Date, which Policies are set forth on SCHEDULE A
hereto.
"CURRENT OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
in effect as of the Distribution Date, which Policies are set forth on
SCHEDULE B hereto.
"DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement,
dated as of , 1996, by and among Tenneco, Industrial Company and
Shipbuilding Company, including any amendments, exhibits and schedules
thereto.
"DISTRIBUTION DATE" shall have the meaning set forth in the Distribution
Agreement.
"EASTERN POLICIES" shall mean the Policies identified on SCHEDULE C hereto,
which Policies show a member of the Energy Group as the named insured,
together with any predecessor policies thereto.
"ENERGY" shall mean, when unqualified, the Energy Assets, Energy Liabilities
and/or Energy Business.
"ENERGY BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY COVERED PERSON" shall mean each member of the Energy Group and any
other Person, in each case to the extent any Policy addressed herein purports
to provide insurance coverage in respect of any claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages or expenses
incurred by such Person arising out of, in connection with or otherwise
related to Energy.
"ENERGY GROUP" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY LIABILITIES" shall have the meaning set forth in the Distribution
Agreement.
"EXCLUSIVE POLICIES" shall mean the Tenneco Exclusive Policies, Industrial
Exclusive Policies and Shipbuilding Exclusive Policies.
"GROUP" shall have the meaning set forth in the Distribution Agreement.
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"INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial
Liabilities, Prior Industrial Businesses and/or Industrial Business.
"INDUSTRIAL ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL COVERED PERSON" shall mean each member of the Industrial Group
and any other Person, in each case to the extent any Policy addressed herein
purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Industrial.
"INDUSTRIAL EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Industrial Company, any other member of the Industrial Group or any
of their respective predecessors as the named insured and do not purport to
relate to Energy or Shipbuilding or to cover any Energy Covered Person or
Shipbuilding Covered Person, but excluding any Retained Policy.
"INDUSTRIAL GROUP" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"INSURANCE ADMINISTRATION" shall mean, with respect to any Policy, the
accounting for premiums, defense costs, indemnity payments, deductibles and
retentions, as appropriate, under the terms and conditions of such Policy, and
the distribution of Insurance Proceeds.
"INSURANCE PROCEEDS" shall mean those monies, net of any applicable premium
adjustment, deductible, retention or similar cost paid or held by or for the
benefit of an insured party which are either (i) received by an insured from
an insurance carrier, or (ii) paid by an insurance carrier on behalf of an
insured.
"LETTERS OF CREDIT" shall have the meaning set forth in Section 7.1 hereof.
"MERGER AGREEMENT" shall have the meaning set forth in the Distribution
Agreement.
"OCCURRENCE-BASED" shall mean, with respect to any Policy, coverage provided
by such Policy for acts, omissions, damages or injuries which occur or are
alleged to have occurred during a period specified in such Policy.
"OCCURRENCE-BASED POLICIES" shall mean those current and past Policies which
are Occurrence-Based in nature, including but not limited to those policies
identified on SCHEDULE B hereto, which show Tenneco or any of its predecessors
as the named insured, but excluding (i) any directors' and officers' liability
policies which are or were maintained by or on behalf of Tenneco, (ii) the
Exclusive Policies, (iii) the Retained Policies, and (iv) the Eastern
Policies.
"OTHER CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies other than
the Transferred Claims-Made Policies.
"OTHER OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
other than the Transferred Occurrence-Based Policies.
"PERSON" shall have the meaning set forth in the Distribution Agreement.
"POLICIES" means insurance policies and insurance contracts of any kind
(other than life and benefits policies or contracts), including, without
limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, automobile, aircraft, property and
casualty, workers' compensation and employee dishonesty insurance policies,
bond and self-insurance and captive insurance company arrangements, together
with the rights, benefits and privileges thereunder.
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"PRIOR INDUSTRIAL BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"PRIOR SHIPBUILDING BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"RETAINED POLICIES" shall mean the Policies identified on SCHEDULE D hereto,
together with all other current and past primary, workers' compensation,
automobile liability and general liability (including products liability)
Policies showing Tenneco, any other member of the Energy Group or any of their
respective predecessors as the insured party and which are cost plus,
fronting, high deductible or retrospective premium programs but excluding the
Eastern Policies.
"SHIPBUILDING" shall mean, when unqualified, the Shipbuilding Assets,
Shipbuilding Liabilities, Prior Shipbuilding Businesses and/or Shipbuilding
Business.
"SHIPBUILDING ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING COVERED PERSON" shall mean each member of the Shipbuilding
Group and any other Person, in each case to the extent any Policy addressed
herein purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Shipbuilding.
"SHIPBUILDING EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Shipbuilding Company, any other member of the Shipbuilding Group or
any of their respective predecessors as the named insured and do not purport
to relate to Energy or Industrial or to cover any Energy Covered Person or
Industrial Covered Person, but excluding any Retained Policy.
"SHIPBUILDING GROUP" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"SUBSIDIARY" shall have the meaning set forth in the Distribution Agreement.
"TENNECO EXCLUSIVE POLICIES" shall mean all current and past Policies,
including but not limited to the current Policies set forth on SCHEDULE E
hereto, which show Tenneco, any other member of the Energy Group or any of
their respective predecessors as the named insured and do not purport to
relate to Shipbuilding or Industrial or to cover any Shipbuilding Covered
Person or Industrial Covered Person, excluding (i) any directors' and
officers' liability policies which are or were maintained by or on behalf of
Tenneco, and (ii) any Retained Policy.
"TERMINATION TIME" shall mean 11:59 p.m., Houston, Texas time, on the
Distribution Date.
"TRANSFERRED CLAIMS-MADE POLICIES" shall have the meaning set forth in
Section 2.2 hereof.
"TRANSFERRED OCCURRENCE-BASED POLICIES" shall have the meaning set forth in
Section 2.1 hereof.
"TRANSFERRED POLICIES" shall have the meaning set forth in Section 2.3
hereof.
1.2 References. References herein to a "Schedule" are, unless otherwise
specified, to one of the Schedules attached to this Agreement, and references
to an "Article" or a "Section" are, unless otherwise specified, to one of the
Articles or Sections, respectively, of this Agreement.
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ARTICLE II
SUBSTITUTION OF NAMED INSUREDS AND CANCELLATION OF POLICIES
2.1 Current Occurrence-Based Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company is substituted as the named insured under
those Current Occurrence-Based Policies identified on SCHEDULE 2.1-A hereto
(the "TRANSFERRED OCCURRENCE-BASED POLICIES"), effective as of the Termination
Time, and (ii) to cause the Current Occurrence-Based Policies identified on
SCHEDULE 2.1-B hereto to be cancelled as of, and to afford no further coverage
to the insureds thereunder except as otherwise contemplated by this Agreement
from and after, the Termination Time. Industrial Company agrees to be
substituted as a named insured under the Transferred Occurrence-Based Policies
and to execute such further documents as Tenneco may reasonably request in
connection therewith.
2.2 Current Claims-Made Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company is substituted as the named insured under
those Current Claims-Made Policies identified on SCHEDULE 2.2-A hereto (the
"TRANSFERRED CLAIMS-MADE POLICIES"), effective as of the Termination Time, and
(ii) to cause the Current Claims-Made Policies identified on SCHEDULE 2.2-B
hereto to be cancelled as of, and to afford no further coverage to the
insureds thereunder except as otherwise contemplated by this Agreement from
and after, the Termination Time. Industrial Company agrees to be substituted
as a named insured under the Transferred Claims-Made Policies and to execute
such further documents as Tenneco may reasonably request in connection
therewith.
2.3 Consent. Tenneco and Industrial Company shall each use its best efforts
to obtain prior to the Distribution Date the consent of each insurance carrier
under the Transferred Occurrence-Based Policies and the Transferred Claims-
Made Policies (collectively, the "TRANSFERRED POLICIES") that is required to
consummate the transactions contemplated by Sections 2.1 and 2.2 hereof (each,
a "CONSENT"), it being understood that if Consent to such transactions is not
received as contemplated by this Section 2.3 with respect to any Policy, such
Policy shall nonetheless be considered and treated as a Transferred Claims-
Made Policy or Transferred Occurrence-Based Policy, as the case may be, for
purposes of this Agreement.
2.4 No Transfer of Certain Policies. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
substitute Industrial Company as the named insured under any Transferred
Policy without Consent thereto if such substitution or attempt to substitute
without such Consent would constitute a breach of such Transferred Policy. If
Consent to such substitution is not obtained prior to the Distribution Date,
Tenneco and Industrial Company agree to negotiate in good faith an arrangement
which shall place the Industrial Company, insofar as reasonably possible, in
the same position as would have existed had such Consent to substitution been
obtained prior to the Distribution Date.
ARTICLE III
COVERAGE
3.1 Maintenance of Coverage Through Distribution Date. From the date hereof
up to the Termination Time, the parties hereto agree to maintain (and to cause
each member of their respective Groups over which they have legal or effective
direct or indirect control to maintain) in full force and effect the
Occurrence-Based Policies, Claims-Made Policies, Eastern Policies and Retained
Policies for the benefit of any Energy Covered Person, Industrial Covered
Person and Shipbuilding Covered Person to which such Policies by their terms
relate.
3.2 Coverage Under Occurrence-Based Policies.
(a) Termination of Coverage Under Transferred Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Occurrence-Based Policy, effective as of the Termination Time
coverage under the Transferred Occurrence-Based Policies shall be terminated
(it being understood that such Transferred
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Occurrence-Based Policies shall nonetheless remain in full force and effect)
so that none of the Transferred Occurrence-Based Policies shall afford any
further coverage to any Energy Covered Person or Shipbuilding Covered Person
for occurrences which take place or are alleged to have taken place after the
Termination Time. From and after the Termination Time, coverage under any
Transferred Occurrence-Based Policy may, at the option of Industrial Company,
continue for any Industrial Covered Person upon the terms and conditions of
such Transferred Occurrence-Based Policy.
(b) Termination of Coverage Under Other Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Other Occurrence-Based Policy, effective as of the Termination Time coverage
under the Other Occurrence-Based Policies shall be terminated so that none of
the Other Occurrence-Based Policies shall afford any further coverage to any
Energy Covered Person, Industrial Covered Person or Shipbuilding Covered
Person for occurrences which take place or are alleged to have taken place
after the Termination Time.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.2(a) and 3.2(b) hereof, from and after the
Termination Time each Energy Covered Person, Industrial Covered Person and
Shipbuilding Covered Person shall have the right to coverage and to make or
pursue a claim for coverage under any Occurrence-Based Policy with respect to
all claims, suits, actions, proceedings, injuries, losses, liabilities,
occurrences, damages and expenses incurred or claimed to have been incurred
prior to the Termination Time by such Covered Person in or in connection with
the operation of, or otherwise related to, (i) Energy, with respect to any
Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered
Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered
Person, in each case subject to the terms, conditions and limitations of such
Occurrence-Based Policy, provided, however, that nothing in this Section
3.2(c) shall be deemed to constitute or reflect an assignment of any such
Occurrence-Based Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under an Occurrence-Based Policy may claim for such
insurance as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Occurrence-Based
Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Occurrence-Based Policy, use its best efforts to either (i)
obtain and comply in full with the conditions required to effect the
reinstatement of the full limits of liability under such Occurrence-Based
Policy for all claims which would be covered thereby absent such exhaustion
(including any pending or known claims) and be responsible for and pay all
costs and expenses, including the amount of any resultant increase in the
premium charged in respect of such Occurrence-Based Policy or any renewal
thereof, in connection therewith, or (ii) obtain and maintain in full force
and effect a Policy in replacement of the limits of liability exhausted under
such Occurrence-Based Policy for all claims which would be covered thereby
absent such exhaustion (including any pending or known claims), and be
responsible for and pay all costs and expenses in connection therewith, which
Policy shall provide at least the same coverage, and contain terms and
provisions which are no less favorable to the insured parties, as existed
under the Occurrence-Based Policy in respect of which such replacement is
obtained, provided, however, that no party hereto shall be required to expend
more than an amount equal to 350% of the original premium paid with respect to
the portion of the limits of liability under such Occurrence-Based Policy
(determined on a pro rata basis) exhausted by such party's respective Covered
Persons to obtain reinstatement or a replacement Policy as contemplated
hereby, it being understood that each party hereto shall nonetheless be
required to obtain the maximum amount of reinstatement or replacement coverage
available for such 350% premium amount in accordance with the terms and
provisions of clauses (i) or (ii) hereof, as applicable. If at any time a
party (an "Impairing Party") hereto becomes aware (such party being deemed to
be aware whenever any of the directors or executive officers of such party or
any other member of its respective Group become aware) of a claim or potential
claim against any of such Impairing Party's respective Covered Persons which
claim is reasonably likely to exhaust (but has not yet exhausted) all or any
portion of the aggregate limits of liability, if any, under any Occurrence-
Based Policy (a "Potential Impairment"), such Impairing Party shall promptly
provide notice of
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such Potential Impairment to the other parties hereto. Such Impairing Party
shall have five business days after providing such notice to elect to, at that
time, either secure reinstatement of the limits of liability under such
Occurrence-Based Policy (to the extent provided for therein) or purchase a
Policy in replacement of such limits of liability (in each case in accordance
with the terms and provisions of the second preceding sentence) in respect of
such Potential Impairment (but shall not be required to so elect at such
time). If such Impairing Party does not timely elect to secure reinstatement
or replacement coverage, then either or both of the other parties hereto may
elect to reinstate the limits of liability under such Occurrence-Based Policy
(to the extent provided for therein) and pay all expenses incurred in
connection therewith, provided, however, that if such Potential Impairment
actually occurs, the Impairing Party shall reimburse the other parties for any
fees and expenses incurred by such parties in connection with such
reinstatement.
3.3 Coverage Under Claims-Made Policies.
(a) Termination of Coverage Under Transferred Claims-Made Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Claims-Made Policy, effective as of the Termination Time coverage
under the Transferred Claims-Made Policies shall be terminated (it being
understood that such Transferred Claims-Made Policies shall nonetheless remain
in full force and effect) so that none of the Transferred Claims-Made Policies
shall afford any further coverage to any Energy Covered Person or Shipbuilding
Covered Person for claims which have not been reported or made as provided by
the terms of such Transferred Claims-Made Policy prior to the Termination
Time. From and after the Termination Time, coverage under any Transferred
Claims-Made Policy may, at the option of Industrial Company, continue for any
Industrial Covered Person upon the terms and conditions of such Transferred
Claims-Made Policy.
(b) Termination of Coverage Under Other Claims-Made Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate action
so that, notwithstanding anything to the contrary contained in any Other
Claims-Made Policy, effective as of the Termination Time coverage under the
Other Claims-Made Policies shall be terminated so that no Other Claims-Made
Policy shall afford any further coverage to any Energy Covered Person,
Industrial Covered Person or Shipbuilding Covered Person for claims which have
not been reported or made as provided by the terms of such Other Claims-Made
Policy prior to the Termination Time.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.3(a) and 3.3(b) hereof, from and after the
Termination Time each Energy Covered Person, Industrial Covered Person and
Shipbuilding Covered Person shall have the right to coverage and to make or
pursue a claim for coverage under any Claims-Made Policy with respect to all
claims, suits, actions, proceedings, injuries, losses, liabilities,
occurrences, damages and expenses which are reported in accordance with the
terms of such Claims-Made Policy prior to the Termination Time and which are
incurred or claimed to be incurred by such Covered Person in or in connection
with the operation of, or otherwise related to, (i) Energy, with respect to
any Energy Covered Person, (ii) Industrial, with respect to any Industrial
Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding
Covered Person, in each case subject to the terms, conditions and limitations
of such Claims-Made Policy, provided, however, that nothing in this Section
3.3(c) shall be deemed to constitute or reflect an assignment of any such
Claims-Made Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under a Claims-Made Policy may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under such Claims-Made Policy.
Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Claims-Made Policy, use its best efforts to either (i) obtain
and comply in full with the conditions required to effect the reinstatement of
the full limits of liability under such Claims-Made Policy for all claims
which would be covered thereby absent such exhaustion (including any pending
or known claims) and be responsible for and pay all costs and expenses,
including the amount of any resultant increase in the premium charged in
respect of such Claims-Made Policy or any renewal
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thereof, in connection therewith, or (ii) obtain and maintain in full force
and effect at its own cost a Policy in replacement of the limits of liability
exhausted under such Claims-Made Policy for all claims which would be covered
thereby absent such exhaustion (including any pending or known claims), and be
responsible for and pay all costs and expenses in connection therewith, which
Policy shall provide at least the same coverage, and contain terms and
provisions which are no less favorable to the insured parties, as existed
under the Claims-Made Policy in respect of which such replacement is obtained,
provided, however, that no party hereto shall be required to expend more than
an amount equal to 350% of the original premium paid with respect to the
portion of the limits of liability under such Claims-Made Policy (determined
on a pro rata basis) exhausted by such party's respective Covered Persons to
obtain reinstatement or a replacement Policy as contemplated hereby, it being
understood that each party hereto shall nonetheless be required to obtain the
maximum amount of reinstatement or replacement coverage available for such
350% premium amount in accordance with the terms and provisions of clauses (i)
or (ii) hereof, as applicable. If at any time an Impairing Party becomes aware
(such party being deemed to be aware whenever any of the directors or
executive officers of such party or any other member of its respective Group
become aware) of a claim or potential claim against any of such Impairing
Party's respective Covered Persons which claim is reasonably likely to exhaust
(but has not yet exhausted) all or any portion of the aggregate limits of
liability, if any, under any Claims-Made Policy (a "Potential Impairment"),
such Impairing Party shall promptly provide notice of such Potential
Impairment to the other parties hereto. Such Impairing Party shall have five
business days after providing such notice to elect to, at that time, either
secure reinstatement of the limits of liability under such Claims-Made Policy
(to the extent provided for therein) or purchase a Policy in replacement of
such limits of liability (in each case in accordance with the terms and
provisions of the second preceding sentence) in respect of such Potential
Impairment (but shall not be required to so elect at such time). If such
Impairing Party does not timely elect to secure reinstatement or replacement
coverage, then either or both of the other parties hereto may elect to
reinstate the limits of liability under such Claims-Made Policy (to the extent
provided for therein) and pay all expenses incurred in connection therewith,
provided, however, that if such Potential Impairment actually occurs, the
Impairing Party shall reimburse the other parties for any fees and expenses
incurred by such parties in connection with such reinstatement.
3.4 Coverage Under Retained Policies.
(a) Termination of Coverage at Termination Time. The parties hereto agree to
take or cause to be taken all necessary or appropriate action so that, except
as otherwise contemplated by the terms of this Agreement and notwithstanding
anything to the contrary contained in any Retained Policy, effective as of the
Termination Time any and all coverage of any Industrial Covered Person or
Shipbuilding Covered Person under the Retained Policies shall be terminated
(it being understood that such Retained Policies shall nonetheless remain in
full force and effect). From and after the Termination Time, coverage under
any of the Retained Policies may, at the option of Tenneco, continue for any
Energy Covered Person upon the terms and conditions of such Retained Policies.
(b) Access to Policies and Policy Limits. Notwithstanding the provisions of
Section 3.4(a) hereof, from and after the Termination Time each Industrial
Covered Person and Shipbuilding Covered Person shall have the right to
coverage and to make or pursue a claim for coverage under any Retained Policy
with respect to all claims, suits, actions, proceedings, injuries, losses,
liabilities, occurrences, damages and expenses incurred or claimed to have
been incurred prior to the Termination Time by such Covered Person in or in
connection with the operation of, or otherwise related to, (i) Industrial,
with respect to any Industrial Covered Person, or (ii) Shipbuilding, with
respect to any Shipbuilding Covered Person, in each case subject to the terms,
conditions and limitations of such Retained Policy, provided, however, that
nothing in this Section 3.4(b) shall be deemed to constitute or reflect an
assignment of any such Retained Policy. Any Industrial Covered Person or
Shipbuilding Covered Person may claim insurance coverage under a Retained
Policy as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Retained Policy.
3.5 Coverage Under Eastern Policies.
(a) Termination of Coverage Under Eastern Policies. The parties hereto agree
to take or cause to be taken all necessary or appropriate action so that,
notwithstanding anything to the contrary contained in any Eastern
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Policies, effective as of the Termination Time coverage under the Eastern
Policies shall be terminated (it being understood that such Eastern Policies
in full force and effect as of the Termination Time shall nonetheless remain
in full force and effect) so that the Eastern Policies do not afford any
further coverage to any Industrial Covered Person or Shipbuilding Covered
Person for occurrences which take place or are alleged to have taken place
after the Termination Time. From and after the Termination Time, coverage
under the Eastern Policies may, at the option of Tenneco, continue for any
Energy Covered Person upon the terms and conditions of the Eastern Policies.
(b) Access to Eastern Policies Following Termination Time. Notwithstanding
the provisions of Sections 3.5(a) hereof, from and after the Termination Time
each Energy Covered Person, Industrial Covered Person (to the extent (but only
to that extent and subject to the last sentence of this Section 3.5(b) and
Section 3.5(d)) payment under any Eastern Policy is a condition precedent to
the provision of coverage by any insurer providing coverage in the same layer
as, or a layer excess to that of, such Eastern Policy) and Shipbuilding
Covered Person (to the extent (but only to the extent and subject to the last
sentence of this Section 3.5(b)) necessary to access reinsurance policies)
shall have the right to coverage and to make or pursue a claim for coverage
under any Eastern Policy with respect to all claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages and expenses
incurred or claimed to have been incurred prior to the Termination Time by
such Covered Person in or in connection with the operation of, or otherwise
related to, (i) Energy, with respect to any Energy Covered Person, (ii)
Industrial, with respect to any Industrial Covered Person, or (iii)
Shipbuilding, with respect to any Shipbuilding Covered Person, in each case,
subject to the terms, conditions and limitations of such Eastern Policy,
provided, however, that nothing in this Section 3.5(b) shall be deemed to
constitute or reflect an assignment of the Eastern Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate actions
so that, from and after the Termination Time, no Industrial Covered Person or
Shipbuilding Covered Person shall be entitled to coverage or to make or pursue
a claim for coverage under the Eastern Policies except to the extent expressly
provided for herein and in no event shall the Eastern Insurance Provider (as
defined below) or any of its subsidiaries have any obligation or liability to
any Shipbuilding Covered Person or Industrial Covered Person under any Eastern
Policy which is not either as a conduit with respect to third party
reinsurance or subject to reimbursement by Industrial Company pursuant to
Section 3.5(d).
(c) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under the Eastern Policies may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under the Eastern Policies, subject to the
provisions of Section 3.5(b).
(d) Reimbursement Obligation of Industrial Company. Industrial Company
agrees to reimburse to the insurer under each Eastern Policy (the "EASTERN
INSURANCE PROVIDER") the full amount of any claim for insurance coverage for
an Industrial Covered Person under such Eastern Policy made pursuant to the
terms of Section 3.5(b) hereof which is actually paid by said Eastern
Insurance Provider after the Termination Time.
3.6 Coverage Under Exclusive Policies. From and after the Termination Time,
coverage under any Exclusive Policy may continue with respect to any claims,
suits, actions, proceedings, injuries, losses, liabilities, occurrences,
damages or expenses incurred or claimed to have been incurred prior to, on or
after the Distribution Date, subject to the terms, conditions and limitations
of such Exclusive Policy, provided, however, that (i) no member of the Energy
Group shall have any liability or obligation with respect to any of the
Industrial Exclusive Policies or Shipbuilding Exclusive Policies, (ii) no
member of the Industrial Group shall have any liability or obligation with
respect to any of the Tenneco Exclusive Policies or Shipbuilding Exclusive
Policies, and (iii) no member of the Shipbuilding Group shall have any
liability or obligation with respect to any of the Tenneco Exclusive Policies
or Industrial Exclusive Policies.
3.7 Assistance in Obtaining Additional Coverage. Each of the parties hereto
agrees to use its reasonable best efforts to assist the other parties in the
transition to separate insurance coverage for the Energy Group, Industrial
Group and Shipbuilding Group from and after the Distribution Date which
assistance shall include, but shall not be limited to, the identification of
potential insurance carriers.
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3.8 Discovery Periods. Except with respect to any Industrial Covered Person
and except as the parties hereto may otherwise agree, the parties hereto
acknowledge and agree that when this Agreement calls for the termination of
insurance coverage under a Claims-Made Policy such insurance coverage shall be
terminated as of the time specified and that no discovery period of coverage
in respect of such Policy shall be provided thereunder, notwithstanding
anything to the contrary contained herein or in any such Policy.
Notwithstanding the foregoing, if requested to do so by Tenneco, Industrial
Company shall use its reasonable efforts to procure that the relevant insurers
under the Claims-Made Policies offer to Tenneco a discovery period of coverage
under said Claims-Made Policies for Energy Covered Persons with an aggregate
limitation of liability separate from the limitation of liability under said
Claims-Made Policies for coverage afforded Industrial Covered Persons. All
premiums, costs and other charges with respect to any discovery period of
coverage provided under any Claims-Made Policy shall be the sole
responsibility of (i) Tenneco, with respect to coverage for Energy Covered
Persons, and (ii) Industrial Company, with respect to coverage for Industrial
Covered Persons. Each party hereto shall not (and shall not permit any of its
respective Covered Persons over which it has legal or effective direct or
indirect control to) take any action contrary to the provisions of this
Section 3.8.
3.9 Further Assurances. Each of Tenneco, Industrial Company and Shipbuilding
Company agree to take (and to cause each of its respective Covered Persons
over which it has direct or indirect legal or effective control to take) all
such actions as are necessary or appropriate, including the provision of
notice to all relevant insurance carriers and cooperation with respect to the
obtaining of any reinstatement of limitations on liability as contemplated
hereby, to effectuate the purposes of this Article III.
ARTICLE IV
PREMIUMS, DEDUCTIBLES AND RELATED MATTERS
4.1 Occurrence-Based and Claims-Made Policies.
(a) Premiums in Respect of Occurrence-Based and Claims-Made Policies. From
and after the Termination Time, all premiums, costs and other charges with
respect to any Occurrence-Based Policy or Claims-Made Policy shall be paid by
Industrial Company, provided, however, that (i) Tenneco shall promptly
reimburse Industrial Company in full for any such premiums, costs or other
charges in respect of the cover afforded under any such Occurrence-Based
Policy or Claims-Made Policy to any Energy Covered Person, and (ii)
Shipbuilding Company shall promptly reimburse Industrial Company in full for
any such premiums, costs or other charges in respect of the cover afforded
under any such Occurrence-Based Policy or Claims-Made Policy to any
Shipbuilding Covered Person, in each case determined in accordance with
Tenneco's historical practices with respect to the allocation of such
premiums, costs and charges prior to the date hereof. All amounts refunded
from and after the Termination Time by insurance carriers in respect of
premiums previously paid under any Occurrence-Based Policy or Claims-Made
Policy shall be the sole property of Industrial Company, provided, however,
that Industrial Company shall promptly pay to Tenneco or the Shipbuilding
Company, as applicable, upon receipt thereof from an insurance carrier, the
Energy Group's or the Shipbuilding Group's respective share of any such
amounts refunded (such respective share to be determined in accordance with
Tenneco's historical practices with respect to the allocation of insurance
premiums among its Subsidiaries and divisions prior to the date hereof). Each
of Tenneco and Shipbuilding Company shall (and shall cause each member of its
respective Group over which it has direct or indirect legal or effective
control to) promptly pay to Industrial Company any such refunded amounts
actually received by it to which Industrial Company is entitled pursuant
hereto.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Occurrence-Based Policy
or Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with
respect to any coverage or claim for coverage in respect of any Energy Covered
Person, (ii) Industrial Company, with respect to any coverage or claim for
coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding
Company, with respect to any coverage or claim for coverage in respect of any
Shipbuilding Covered Person.
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4.2 Retained Policies.
(a) Premiums, Costs and Other Charges. From and after the Termination Time,
all premiums, costs and other charges with respect to any Retained Policy,
including claim payments and associated expenses under cost plus or fronting
policies, shall be the sole responsibility of and be paid by Tenneco,
provided, however, that (i) Industrial Company shall promptly reimburse
Tenneco for all such premiums, costs and other charges paid by Tenneco
(including amounts paid by Tenneco as reimbursement in respect of amounts
drawn under letters of credit maintained by Tenneco pursuant to Section 7.1
hereof) in respect of coverage provided for any Industrial Covered Person to
the extent such premiums, costs and other charges exceed the amount of the
Claims Deposit, and (ii) Shipbuilding Company shall promptly reimburse Tenneco
for all such premiums, costs and other charges paid by Tenneco (including
amounts paid by Tenneco as reimbursement in respect of amounts drawn under
letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in
respect of coverage provided for any Shipbuilding Covered Person. All amounts
refunded from and after the Termination Time by insurance carriers in respect
of premiums previously paid under any Retained Policy shall be the sole
property of Tenneco, provided, however, that Tenneco shall promptly pay to (i)
Industrial Company, all such refunded amounts in respect of coverage provided
for any Industrial Covered Person under such Retained Policy, and (ii)
Shipbuilding Company, all such refunded amounts in respect of coverage
provided for any Shipbuilding Covered Person under such Retained Policy.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Retained Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
4.3 Eastern Policies.
(a) Premiums in Respect of Eastern Policies. All amounts refunded from and
after the Termination Time by insurance carriers in respect of premiums
previously paid under any Eastern Policy shall be the sole property of
Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial
Company, upon receipt thereof from an insurance carrier, the Industrial
Group's respective share of any such amounts refunded, and (ii) Shipbuilding
Company, upon receipt thereof from an insurance carrier, the Shipbuilding
Group's respective share of any such amounts refunded, in each case determined
in accordance with Tenneco's historical practices with respect to the
allocation of insurance premiums among its Subsidiaries and divisions prior to
the date hereof. Each party shall (and shall cause each member of its
respective Group over which it has direct or indirect legal or effective
control to) promptly pay to any other party any such amounts actually received
by it to which such other party is entitled pursuant to this Section 4.3(a).
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Eastern Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
(c) Amounts to be Refunded. Tenneco shall direct and instruct the Eastern
Insurance Provider to pay to Industrial Company in cash promptly after the
Termination Time, to the extent permitted by law, and to record a
corresponding dollar-for-dollar reduction in all associated liabilities on its
books and records for, (i) all amounts which appear as reserves on the books
and records of the Eastern Insurance Provider as of the Termination Time in
respect of claims relating to any Industrial Covered Person which have been
reported prior to the Termination Time, (ii) the full amount of any "incurred
but not reported" reserve and any portfolio loss transfer reserve appearing on
the books and records of the Eastern Insurance Provider as of the Termination
Time under the contingent liability programs of the Eastern Policies, and
(iii) 50% of the amount of any "incurred but not reported" reserve appearing
on the books and records of the Eastern Insurance Provider as of the
Termination Time under the excess liability programs of the Eastern Policies
with respect to Industrial and Energy.
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4.4 Exclusive Policies. From and after the Termination Time, all
deductibles, retentions, self-insured amounts, premiums and other costs with
respect to any Exclusive Policy or claim for coverage thereunder shall be the
sole responsibility of, and all refunded premiums with respect to any
Exclusive Policy shall be the sole property of, (i) Tenneco, with respect to
any Tenneco Exclusive Policy, (ii) Industrial Company, with respect to any
Industrial Exclusive Policy, and (iii) Shipbuilding Company, with respect to
any Shipbuilding Exclusive Policy.
4.5 Excess Costs and Settlements. Each Covered Person shall be responsible
for any excess costs and expenses relating to its respective claims permitted
hereunder (or those of any member of its respective Group) under the Common
Policies, including defense costs to the extent such defense costs are not
covered under such Common Policies, and shall be responsible for obtaining or
reviewing the appropriateness of releases upon settlement of such claims.
4.6 Effect on Other Agreements. Notwithstanding anything to the contrary
contained herein, nothing in this Article IV shall be construed to alter or in
any way limit any rights to indemnity provided in the Distribution Agreement
or in any other Ancillary Agreement (as such term is defined in the
Distribution Agreement).
ARTICLE V
ADMINISTRATION
5.1 Occurrence-Based and Claims-Made Policies.
(a) Administration. From and after the Distribution Date, Claims
Administration and Insurance Administration with respect to the Occurrence-
Based Policies and Claims-Made Policies shall be the responsibility of (i)
Tenneco, with respect to any coverage or claim for coverage of any Energy
Covered Person, (ii) Industrial Company, with respect to any coverage or claim
for coverage of any Industrial Covered Person, and (iii) Shipbuilding Company,
with respect to any coverage or claim for coverage of any Shipbuilding Covered
Person. Each of Shipbuilding Company and Tenneco shall (and shall cause each
of its respective Covered Persons over which it has direct or indirect legal
or effective control to) provide prompt notice to Industrial Company of all
actions taken by it with respect to the Claims Administration and Insurance
Administration for the Occurrence-Based Policies and Claims-Made Policies as
contemplated by this Section 5.1. Each party hereto shall (and shall cause
each other member of its Group over which it has direct or indirect legal or
effective control to) take all necessary or appropriate action, if any, to
delegate Claims Administration and Insurance Administration with respect to
the Occurrence-Based Policies and Claims-Made Policies to any other party who
is to assume such responsibilities pursuant hereto and, to the extent such
delegation is not permitted by the terms of any such policy, shall engage in
Claims Administration or Insurance Administration for any such policy only
upon the express authorization and direction of such other party. Each party
hereto shall be responsible for its own disbursements and out-of-pocket
expenses and the direct and indirect costs of its employees or agents relating
to Claims Administration and Insurance Administration contemplated by this
Section 5.1. Notwithstanding anything to the contrary contained herein,
Industrial Company shall have the right, at its option, to undertake at its
own cost and expense Claims Administration and/or Insurance Administration
with respect to any coverage or claim for coverage of any Energy Covered
Person or Shipbuilding Covered Person.
(b) Effect of Administrative Responsibilities. Each of Tenneco, Industrial
Company and Shipbuilding Company acknowledges and agrees that each other
party's responsibilities under this Section 5.1 for Claims Administration and
Insurance Administration shall not relieve any party submitting an insured
claim under any Occurrence-Based Policy or Claims-Made Policy of (a) the
primary responsibility for reporting such insured claim accurately, completely
and in a timely manner, or (b) any other right or responsibility which such
party may have pursuant to the terms of any Occurrence-Based Policy or Claims-
Made Policy.
5.2 Eastern and Retained Policies. From and after the Termination Time,
Tenneco shall be solely responsible for Claims Administration and Insurance
Administration with respect to the Retained Policies and Eastern Policies
including, without limitation, the administration of all billings associated
with the Retained
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Policies by the insurance carriers thereunder. Notwithstanding the foregoing,
each of Industrial Company and Shipbuilding Company shall retain the right to,
at its option, direct the management, defense, reporting and settlement of
claims involving its respective Covered Persons under the Retained Policies
and Eastern Policies.
ARTICLE VI
PROCEEDS
6.1 Occurrence-Based and Claims-Made Policies. From and after the
Distribution Date, Insurance Proceeds received with respect to claims, costs
and expenses under the Occurrence-Based Policies and Claims-Made Policies
shall be paid to the Covered Person to which such Insurance Proceeds are due
pursuant to the terms of such Policies.
6.2 Eastern and Retained Policies. From and after the Distribution Date,
Insurance Proceeds received with respect to claims, costs and expenses under
the Retained Policies and Eastern Policies shall be paid, as appropriate, to
the Covered Person to which such Insurance Proceeds are due pursuant to the
terms of such Policies.
6.3 Return of Proceeds. Each of Tenneco, Industrial Company and Shipbuilding
Company shall (and shall cause each of its respective Covered Persons over
which it has direct or indirect legal or effective control to) to promptly pay
to each other party any Insurance Proceeds actually received by it to which
any of such other party's Covered Persons are entitled pursuant hereto, which
other party shall then distribute such Insurance Proceeds to the Covered
Person to which they are due pursuant hereto.
ARTICLE VII
LETTERS OF CREDIT AND SURETY BONDS
7.1 Maintenance. (a) Letters of Credit. From and after the Distribution
Date, to secure obligations under the Retained Policies relating to periods
preceding the Termination Time, Tenneco shall, for such time as may be
required by law or the terms of any Retained Policy, maintain in full force
and effect the letters of credit identified on SCHEDULE 7.1-A hereto or, as
necessary or appropriate, substitute therefor and maintain in full force and
effect letters of credit acceptable to the insurance carriers and/or surety
under the Retained Policies issued by comparably rated lenders containing
substantially identical terms and conditions (collectively, the "LETTERS OF
CREDIT"). The parties hereto shall use reasonable commercial efforts to obtain
the necessary consents and approvals, and shall thereafter negotiate in good
faith an agreement, to allocate the Letters of Credit among the parties hereto
such that each party becomes responsible for the maintenance of letters of
credit for such time as may be required by law or the terms of any Retained
Policy to secure obligations under the Retained Policies relating to periods
prior to the Termination Time in respect of coverage afforded thereunder to
such party's respective Covered Persons, provided, however, that neither
Industrial Company nor Shipbuilding Company shall be required to use such
reasonable commercial efforts or negotiate any such agreement if such party
determines that the allocation contemplated hereby cannot be accomplished
without commercially unreasonable expense.
(b) Surety Bonds. The parties hereto acknowledge that Tenneco is obligated
to indemnify the sureties under certain performance bonds and other surety
instruments that secure obligations of the Energy Business, Energy Group,
Industrial Business, Prior Industrial Businesses, Industrial Group,
Shipbuilding Business, Prior Shipbuilding Businesses and/or Shipbuilding Group
including, but not limited to, the surety instruments identified on SCHEDULE
7.1-B hereto (the "TENNECO-PROVIDED BONDS"). From and after the Termination
Time, Tenneco shall maintain such Tenneco-Provided Bonds in place for such
time as may be required by law. To the extent possible on commercially
reasonable terms, each of Industrial Company and Shipbuilding Company shall
use reasonable commercial efforts to obtain a replacement for each Tenneco-
Provided Bond that secures obligations of the Industrial Business, Prior
Industrial Businesses or Industrial Group (in the case of Industrial Company)
or the Shipbuilding Business, Prior Shipbuilding Businesses or Shipbuilding
Group (in the case of Shipbuilding Company) and to thereafter arrange for the
release of Tenneco from the Tenneco-Provided Bond
13
<PAGE>
which has been so replaced. If the surety under any Tenneco-Provided Bond is
required to and does in fact perform according to the terms of said Tenneco-
Provided Bond and Tenneco is required to and does in fact indemnify such
surety in respect thereof, (i) Industrial Company shall reimburse Tenneco for
all amounts actually paid by Tenneco to such surety to the extent such amounts
constitute Industrial Liabilities, and (ii) Shipbuilding Company shall
reimburse Tenneco for all amounts actually paid by Tenneco to such surety to
the extent such amounts constitute Shipbuilding Liabilities.
7.2 Reimbursement for Maintenance Fees. Each of Industrial Company and
Shipbuilding Company hereby agrees to reimburse Tenneco annually commencing on
, 1997 (to be a date as of the end of the thirteenth month
following execution hereof) (such date and each anniversary thereof being
referred to herein as a "DUE DATE") for the actual and reasonable
administrative fees and expenses paid by Tenneco (the "LC MAINTENANCE FEES")
in respect of the issuance and maintenance of the Letters of Credit during the
twelve-month period ended 30 days prior to such year's Due Date (each, a
"YEARLY PERIOD"), to the extent such Letters of Credit secure obligations
relating to any Industrial Covered Person or Shipbuilding Covered Person,
respectively, under the Retained Policies. The amount of the LC Maintenance
Fees for each Yearly Period which shall be the responsibility of Industrial
Company and Shipbuilding Company hereunder shall be based on the total
outstanding reserves showing on the books and records of CIGNA, as of February
28 during such Yearly Period, for claims by all Industrial Covered Persons,
Energy Covered Persons and Shipbuilding Covered Persons under the Retained
Policies relating to periods prior to the Termination Time (the "YEARLY TOTAL
RESERVES"). Industrial Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Industrial Covered Persons under the Retained
Policies relating to periods prior to the Termination Time, and (ii) the
denominator of which is equal to the Yearly Total Reserves for such Yearly
Period. Shipbuilding Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Shipbuilding Covered Persons under the
Retained Policies relating to periods prior to the Termination Time, and (ii)
the denominator of which is equal to the Yearly Total Reserves for such Yearly
Period.
ARTICLE VIII
MISCELLANEOUS
8.1 Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
8.2 Further Assurances. If at any time after the Distribution Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall,
on the written request of any of them, take (or cause the appropriate member
of its Group over which it has direct or indirect legal or effective control
to take) all such reasonably necessary or desirable action. If subsequent to
the Distribution Date any Policy showing any member of the Energy Group,
Industrial Group or Shipbuilding Group, or any of their respective
predecessors, as named insured is discovered which was in effect for periods
prior to the Termination Time and has not been addressed by the provisions of
this Agreement or the Merger Agreement, the parties hereto agree to negotiate
in good faith an arrangement with respect to such Policy which shall give, to
the fullest extent possible, effect to the purposes of this Agreement and the
transactions contemplated by the Distribution Agreement.
8.3 Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various insurance matters
contemplated by this Agreement. Each party hereto shall not (and shall not
permit any of its respective Covered Persons over which it has legal or
effective direct or indirect control to) take any action or permit any
inaction that could reasonably be expected to jeopardize or otherwise
interfere with the rights of any other party (or any of such other party's
respective Covered Persons) hereunder or the ability of
14
<PAGE>
any other party (or any of such other party's respective Covered Persons) to
collect any proceeds which might be available under any of the Policies
addressed herein in accordance with the terms of this Agreement.
8.4 No Representations and Warranties. The parties hereto understand and
agree that no representation or warranty as to the existence, applicability or
extent of insurance coverage for Energy, Industrial or Shipbuilding under any
Policy is herein being made.
8.5 Limitation on Liability. Except as may be otherwise expressly provided
for herein, no party hereto shall be liable hereunder to another party or any
of such other party's Covered Persons for claims not reimbursed by insurers
for any reason not within the control of such party including, without
limitation, coinsurance provisions, deductibles, quota share deductibles,
exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of
an insurance carrier, Policy limitations or restrictions, any coverage
disputes, any failure to timely claim or any defect in such claim or its
processing.
8.6 Successors and Assigns. Except as otherwise expressly provided herein,
no party hereto may assign or delegate, whether by operation of law or
otherwise, any of such party's rights or obligations under or in connection
with this Agreement without the written consent of each other party hereto. No
assignment will, however, release the assignor of any of its obligations under
this Agreement or waive or release any right or remedy the other parties may
have against such assignor hereunder. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will be binding upon and enforceable
against the respective successors and assigns of such party and will be
enforceable by and will inure to the benefit of the respective successors and
permitted assigns of such party.
8.7 Modification; Waiver; Severability. This Agreement may not be amended or
modified except in a writing executed by each of the parties hereto. The
failure by any party to exercise or a delay in exercising any right provided
for herein shall not be deemed a waiver of any right hereunder. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
8.9 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
8.10 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient at such recipient's
address as indicated below:
TENNECO INC.: 1010 Milam Street
Houston, TX 77002
Attention: Corporate Secretary
INDUSTRIAL COMPANY: 1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
SHIPBUILDING COMPANY: 4101 Washington Avenue
Newport News, VA 23607
Attention: Corporate Secretary
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
15
<PAGE>
8.11 Survival. Each of the agreements of the parties herein shall survive
the Distribution Date.
8.12 No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and their respective Covered Persons, and shall
not give rise to any rights of any kind to any other third parties.
8.13 Other. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO
BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE
COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE
OF DELAWARE. This Agreement, together with the Distribution Agreement and
other Ancillary Agreements (as such term is defined in the Distribution
Agreement), constitutes the entire agreement and supersedes all other prior
and contemporaneous agreements and undertakings, both written and oral, among
the parties with respect to the subject matter hereof.
8.14 Sole Agent. In all matters relating to this Agreement, including the
resolution of any disputes relating to this Agreement between any members of
different Groups, (i) Tenneco shall be the sole agent for the members of the
Energy Group, (ii) Industrial Company shall be the sole agent for the members
of the Industrial Group, and (iii) Shipbuilding Company shall be the sole
agent for members of the Shipbuilding Group. No member of any Group shall have
any authority to represent itself in any such matter or to terminate such
agency without the prior written consent of each party hereto.
8.15 No Double Recovery. No provision of this Agreement shall be construed
to provide recovery to any Person for any costs, expenses or other amounts for
which such Person has been fully compensated under any other provision of this
Agreement, any other agreement or otherwise.
IN WITNESS WHEREOF, the parties have made and entered into this Insurance
Agreement as of the date first set forth above.
TENNECO INC.
By:__________________________________
Name:________________________________
Title:_______________________________
NEW TENNECO INC.
By:__________________________________
Name:________________________________
Title:_______________________________
NEWPORT NEWS SHIPBUILDING INC.
By:__________________________________
Name:________________________________
Title:_______________________________
16
<PAGE>
SCHEDULE A
TO INSURANCE AGREEMENT
CURRENT CLAIMS-MADE POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement).
17
<PAGE>
SCHEDULE B
TO INSURANCE AGREEMENT
CURRENT OCCURRENCE-BASED POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement). To the extent a policy listed herein has expired, this
schedule shall be deemed to refer to the successor policy thereto.
18
<PAGE>
SCHEDULE C
TO INSURANCE AGREEMENT
EASTERN POLICIES
(to be updated and made current as of the signing of the Insurance Agreement)
Eastern Insurance Company Limited Policy Number 95ED2501
Eastern Insurance Company Limited Contingent Liability Policies (policy
numbers not currently available)
19
<PAGE>
SCHEDULE D
TO INSURANCE AGREEMENT
CURRENT RETAINED POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement).
20
<PAGE>
SCHEDULE E
TO INSURANCE AGREEMENT
CURRENT TENNECO EXCLUSIVE POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement). To the extent a policy noted herein has expired, this
schedule shall be deemed to refer to the successor policy thereto.
21
<PAGE>
SCHEDULE 2.1-A
TO INSURANCE AGREEMENT
TRANSFERRED OCCURRENCE-BASED POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
22
<PAGE>
SCHEDULE 2.1-B
TO INSURANCE AGREEMENT
CANCELLED OCCURRENCE-BASED POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
23
<PAGE>
SCHEDULE 2.2-A
TO INSURANCE AGREEMENT
TRANSFERRED CLAIMS-MADE POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
24
<PAGE>
SCHEDULE 2.2-B
TO INSURANCE AGREEMENT
CANCELLED CLAIMS-MADE POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
25
<PAGE>
SCHEDULE 7.1-A
TO INSURANCE AGREEMENT
LETTERS OF CREDIT CURRENTLY IN PLACE
Tenneco Inc. is presently maintaining letters of credit totalling
approximately $45 million to secure its obligations under the Retained
Policies. The letters of credit in effect as of the Distribution Date will be
listed hereon.
26
<PAGE>
SCHEDULE 7.1-B
TO INSURANCE AGREEMENT
SURETY BONDS CURRENTLY IN PLACE
Tenneco Inc. is presently obligated to indemnify the surety under various
performance bonds and other surety instruments which secure obligations
relating to Energy, Industrial and/or Shipbuilding. Bidder has been provided a
current list thereof. Such surety bonds in effect as of the Distribution Date
will be listed hereon.
27
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ----------------- ------------ -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Excess Liability XLUMB 00912 9/1/95-96 XL Insurance Company $100,000,000 xs
Bermuda $100,000,000
Excess Liability UO5138609 9/1/95-96 OCIL
Excess Liability TGT 5035/4 9/1/95-96 ACE Insurance $200,000,000 xs
Company--Bermuda $300,000,000
Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000
71FF 101007525BCM Aetna
8141-48-49-A Federal
ERISA Bond (Crime) 445-71-61 9/1/95-96 National Union Fire $15,000,000 NIL
(AIG)
</TABLE>
28
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITERS LIMITS DEDUCTIBLES
---------------- ------------ ------------ ------------------------ ---------------------- -----------------
<S> <C> <C> <C> <C> <C>
Excess Liability DL039795 9/1/95-96 Gerling-Konzern $10,000,000 xs
$10,000,000
Excess Liability BE8180249RA 9/1/95-96 American International $25,000,000 xs
(AIG) $20,000,000
Excess Liability 95ER2501 9/1/95-96 Eastern Insurance Co. $10,000,000 p/o
(Front for AME Re) $55,000,000 xs
$45,000,000
Excess Liability 8784725 9/1/95-96 Lexington $5,000,000 p/o
$55,000,000 xs
$45,000,000
Excess Liability CSR2839501 9/1/95-96 Fireman's Fund $20,000,000 p/o
$55,000,000 xs
$45,000,000
Excess Liability EU 08355330 9/1/95-96 Steadfast Zurich $20,000,000 p/o
$55,000,000 xs
$45,000,000
Automobile--Mexico HLN 00261 1/1/96-97 Serguros Commercial BI:$30,000/$60,000
America PD:$30,000
Aviation Hull & 87BVH-153922 7/1/94-97 Associated Aviation $100,000,000
Liability Underwriters Per Occurrence
Ocean Cargo EIPH1006 7/1/94-96 ESIS International, Inc. $10,000,000 $10,000,000
One Conveyance Per Occurrence
All Risk Property 213601-95 6/1/95-96 Protection Mutual $10,318,608,000 $5,000,000
Damage/Business Blanket Per Occurrence Per Occurrence
Interruption
(USA/Canada)
All Risk Property TBD 6/1/95-96 Royal Insurance $1,771,781,531 $75,000 PD
Damage/Business Blanket Per $150,000 BI
Interruption Occurrence Per Occurrence
(International)
Comprehensive Boiler & BMI-SA- 11/1/95-96 Hartford Steam Boiler $100,000,000 $5,000,000
Machinery Property 9138264-20 Per Accident Any One Accident
Damage/ Business
Interruption
Foreign Public & 62/99102/D 9/1/95-96 Gerling-Konzern $2,000,000 $5,000 Per Claim
Products Liability Per Occurrence $50,000 Pollution
Insurance
(Primary Cover)
Umbrella Excess W51010 9/1/95-96 Winterthur $8,000,000
Liability (Front for Eastern Any One Occurrence
Insurance Company) xs
$2,000,000
</TABLE>
29
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------------ ------------ --------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Workers' Compensation CCSC6162624 9/1/95-96 CIGNA $2,000,000 $2,000,000
Texas--Ded
Workers' Compensation WLRC36163008 9/1/95-96 CIGNA $2,000,000 $2,000,000
NE--Ded
Workers' Compensation WLRC36162600 9/1/95-96 CIGNA $2,000,000 $2,000,000
Other States--Ded
Workers' Compensation CCSC36162624 9/1/95-96 CIGNA $2,000,000 $2,000,000
Retro
Workers' Compensation 1810017884 9/1/95-96 Maine Employers $100,000/$500,000/ $5,000
Maine Mutual $100,000
General Liability HDOG13214001 9/1/95-96 CIGNA $2,000,000 $2,000,000
Automobile Liability ISA042952 9/1/95-96 CIGNA $2,000,000 $2,000,000
Environmental HDCG13214013 9/1/95-96 CIGNA $1,000,000 $1,000,000
Automobile--Canada CAC391021 9/1/95-96 CIGNA $2,000,000 $2,000,000
General Liability-- CGL23835 9/1/95-96 CIGNA $2,000,000 $2,000,000
Canada
</TABLE>
30
<PAGE>
SCHEDULE E
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ----------- --------------- ----------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Tenneco Gas Production JHB 503266 6/19/95-96 Sphere Drake $1,000,000 $5,000 Land
General Liability $10,000 Offshore
Tenneco Gas Production JHB 000297 6/19/95-96 Commercial Underwriters $5,000,000 xs
Excess Liability Ins. Co. $1,000,000
Tenneco Gas South 62/900194/D 7/24/95-1/24/97 Gerling Konzern $2,000,000 $10,000
Australia Construction
Risk Liability
Tenneco Gas Australia CXC 042840 7/24/95-1/24/97 CIGNA $8,000,000 xs
Construction Risk $2,000,000
Liability
Railroad Protective HDOG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/
Bessemer & Lake Erie RR 13214025 $6,000,000 $6,000,000
Co.
Railroad Protective ORPG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/
Boston & Marine Corp. 13214037 $6,000,000 $6,000,000
Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/
National RR Passenger G18967923 $6,000,000 $6,000,000
Corp. (AMTRAK)
Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/
Massachusetts Bay G18967881 $6,000,000 $6,000,000
Transp.
Michigan Production BE 9320742 4/26/96-97 National Union $10,000,000 $500,000
Company Fire Ins. Co. (AIG)
Owners & Contractors OCPG 10/10/95-96 CIGNA $500,000/ $500,000/
Protective Liability 14231298 $500,000 $500,000
Offshore Property/OEE MMA 95-126 7/27/95-96 SEC. IA SEC. IA SEC. IA
Package UNI 25.0% -- Per Schedule -- $5,000,000
SEC. 1A & B--OFFSHORE Gjensidige 15.0% Assured's Int. AOO
PROP. Vesta 15.0% SEC. IB
SEC. II--OEE Protector 10.5% -- Per Schedule SEC. IB
SEC. III--CHARTERER'S Commonwealth 3.0% -- $1,000,000
LIAB. Hull & Co. 5.0% SEC. II (100%)
C.T. Bowring 26.5% OEE $50,000,000 AOO
OCSLA $35,000,000
SEC. IB, II, & III CCC $5,000,000 SEC. II
Gjensidige 17.5% -- $200,000
Vesta 15.0% SEC. III (100%) AOO
Protector 16.0% -- $1,000,000
Commonwealth 20.0% OCSLA $200,000
Hull & Co. 5.0% (100%) Per Occ.
C.T. Bowring 26.5%
CCC $200,000
(100%) Per Occ.
SEC. III
-- $50,000
(100%) AOO
Construction All Risk HG 015595 10/5/95-10/1/96 National Vulcan Aus. $209,032,000 Aus. $30,000
Cornhill Ins. All Perils
SR International except:
Royal Insurance Global Aus. $250,000
Generali Windstorm, Flood,
SCOR and Earth Movement
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------------ ------------ ------------------------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Worker's Employer No. TBD TBD
Compensation E 1344308
South Australia
Employer Cost CPA 000134 7/31/95-96 CIGNA Maximum Weekly
Control Benefit: $500
Insurance
Professional 9517VK18625 7/28/95-96 HIH Casualty & General Insurance Ltd. TBD A $20,000
Indemnity each and every claim
Motor Vehicle MV 452743 7/31/95-96 CIC Insurance Own Damage:
$24,000
T/P Claim: $1,000
Each and Every Claim
Personal Accident 5 011 9265 9/1/95-96 CIGNA PERSONAL ACCIDENT:
Insurance GBP 2,500,000
Any One Claim or
Series of Claims
Arising Out of
Single Incident
GBP 900,000
Per Person Any
One Claim
MEDICAL EXPENSES:
GBP 75,000
Per Event and
Per Person
Increased to
GBP 500,000
Per Event and
Per Person for
Claims Arising in
USA/Canada
RESCUE
Unlimited
</TABLE>
32
<PAGE>
EXHIBIT 10.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT K
TO
DISTRIBUTION AGREEMENT
TAX SHARING AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.,
NEWPORT NEWS SHIPBUILDING INC.,
AND
EL PASO NATURAL GAS COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. Definition of Terms......................................... 1
Section 2. Allocation of Tax Liabilities............................... 6
Section 3. Proration of Taxes for Straddle Periods..................... 10
Section 4. Preparation and Filing of Tax Returns....................... 10
Section 5. Tax Payments and Intercompany Billings...................... 13
Section 6. Tax Benefits................................................ 16
Section 7. Assistance and Cooperation.................................. 17
Section 8. Tax Records................................................. 17
Section 9. Tax Contests................................................ 18
Effective Date; Termination of Prior Intercompany Tax
Section 10. Allocation Agreements....................................... 19
Section 11. No Inconsistent Actions..................................... 19
Section 12. Survival of Obligations..................................... 19
Section 13. Employee Matters............................................ 20
Section 14. Treatment of Payments; Tax Gross Up......................... 20
Section 15. Disagreements............................................... 20
Section 16. Late Payments............................................... 20
Section 17. Expenses.................................................... 21
Section 18. Special Rules for Determining Members of Groups............. 21
Section 19. General Provisions.......................................... 21
</TABLE>
<PAGE>
TAX SHARING AGREEMENT
This Agreement is entered into as of October 31, 1996 by and between Tenneco
Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc.
(formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company"), New Tenneco Inc., a Delaware corporation
("Industrial Company"), and El Paso Natural Gas Company, a Delaware
corporation ("Acquiror"). Tenneco, Shipbuilding Company, and Industrial
Company are sometimes collectively referred to herein as the "Companies."
Capitalized terms used in this Agreement are defined in Section 1 below.
Unless otherwise indicated, all "Section" references in this Agreement are to
sections of this Agreement.
RECITALS
WHEREAS, as of the date hereof, Tenneco is the common parent of an
affiliated group of corporations, including Shipbuilding Company and
Industrial Company, which has elected to file consolidated Federal income tax
returns; and
WHEREAS, the Companies have entered into a Distribution Agreement setting
forth the corporate transactions pursuant to which Tenneco will distribute all
of the outstanding shares of common stock of Shipbuilding Company and all of
the outstanding shares of common stock of Industrial Company to Tenneco
shareholders in transactions intended to qualify as tax-free distributions
under Section 355 of the Code (as defined below); and
WHEREAS, as a result of the Distributions, Shipbuilding Company and
Industrial Company, and their respective subsidiaries, will cease to be
members of the affiliated group of which Tenneco is the common parent,
effective as of the Distribution Date; and
WHEREAS, the Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the transactions contemplated by the Distribution Agreement,
and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Companies hereby agree as follows:
Section 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to each of Shipbuilding Company
and Industrial Company, any date as of the end of which there is a closing of
the financial accounting records for such entity.
"ACCOUNTING FIRM" shall have the meaning provided in Section 15.
"ACQUIROR" means El Paso Natural Gas Company, a Delaware corporation, and
any successor.
"ADJUSTMENT REQUEST" means any formal or informal claim or request filed
with any Tax Authority, or with any administrative agency or court, for the
adjustment, refund, or credit of Taxes, including (a) any amended Tax return
claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.
"AFFILIATE" means any entity that directly or indirectly is "controlled" by
the person or entity in question. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through ownership of voting securities, by
contract or otherwise. Except as otherwise provided herein, the term Affiliate
shall refer to Affiliates of a person as determined immediately after the
Distributions.
"AGREEMENT" shall mean this Tax Sharing Agreement.
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"ALLOCATED FEDERAL TAX LIABILITY" shall have the meaning provided in Section
5.01(b)(i).
"BASE AMOUNT ADJUSTMENT ITEMS" means any Tax Items arising from the amounts
described in clause (i) of the definition of Base Amount in the Debt and Cash
Allocation Agreement attached as Exhibit C to the Distribution Agreement
(relating to gas supply realignment costs and recoveries of such costs) or in
clause (iii) of such definition of Base Amount (relating to payments made in
settlement of any significant Energy Liability (as defined in the Merger
Agreement)), and any Tax Items related to such amounts (such as income accrued
with respect to payments to be received after the Distribution Date from
customers, insurers, or other third parties with respect to gas supply
realignment costs or settlements of Energy Liabilities).
"CARRYBACK" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means Tenneco, Shipbuilding Company, and Industrial Company,
collectively, and "COMPANY" means any one of Tenneco, Shipbuilding Company, or
Industrial Company.
"CONSOLIDATED OR COMBINED INCOME TAX" means any Income Tax computed by
reference to the assets and activities of members of more than one Group.
"CONSOLIDATED OR COMBINED STATE INCOME TAX" means any State Income Tax
computed by reference to the assets and activities of members of more than one
Group.
"CONSOLIDATED TAX LIABILITY" means, with respect to any Tenneco Federal
Consolidated Return, the "tax liability of the group" as that term is used in
Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts, and penalties as provided in the
Code), adjusted as follows:
(i) such tax liability shall be treated as including any alternative
minimum tax liability under Code Section 55;
(ii) in the case of the Tax Period which includes the Distribution Date,
the Consolidated Tax Liability shall be computed as if the Distribution
Date were the last day of the Tax Period; and
(iii) Base Amount Adjustment Items and Debt Discharge Items shall be
disregarded.
"CUMULATIVE FEDERAL TAX PAYMENT" shall have the meaning provided in Section
5.01(b)(ii).
"DEBT DISCHARGE ITEMS" means any Tax Items arising from the Debt Realignment
(as defined in the Merger Agreement).
"DISTRIBUTION AGREEMENT" means the agreement, as amended from time to time,
setting forth the corporate transactions required to effect the distribution
to Tenneco shareholders of Shipbuilding Common Shares and Industrial Common
Shares, and to which this Tax Sharing Agreement is attached as an exhibit.
"DISTRIBUTION DATE" means the Distribution Date as that term is defined in
the Distribution Agreement.
"DISTRIBUTIONS" means the distributions to Tenneco shareholders on the
Distribution Date of all of the outstanding stock of Industrial Company and
Shipbuilding Company owned by Tenneco.
"EFFECTIVE TIME" shall have the meaning provided in the Merger Agreement.
"ENERGY INVESTMENTS GROUP" means the corporations, or divisions of
corporations, identified on Schedule 3.
"FEDERAL ALLOCATION METHOD" shall have the meaning provided in Section
2.02(a).
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"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A or F of the Code.
"FEDERAL TAX ADJUSTMENT" shall have the meaning provided in Section 2.02(b).
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
possession of the United States, or by any political subdivision of any
foreign country or United States possession, which is an income tax as defined
in Treasury Regulation Section 1.901-2.
"GROUP" means the Tenneco Group, the Shipbuilding Group, and the Industrial
Group, as the context requires.
"GSR ITEMS" means, for any Tax Period: (a) the deductions or losses
allowable in such Tax Period attributable to (i) the payment of gas supply
realignment costs as described in clause (i) of the definition of Base Amount
in the Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, or (ii) the payment in any Post-Distribution Tax
Period of gas supply realignment costs incurred pursuant to contracts entered
into on or prior to the Distribution Date; and (b) any taxable income or gain
recognized in such Tax Period attributable to the recovery of such costs from
customers, insurers, or third parties or attributable to any reduction in any
previously deducted payments.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INDUSTRIAL ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Industrial Company
would be exclusively liable for any resulting Tax under this Agreement and
exclusively entitled to receive any resulting Tax Benefit under this
Agreement. For purposes of this Agreement, any proposed adjustment relating to
Tenneco Business Services Inc. (or the predecessor shared services project of
Tenneco) shall be an Industrial Adjustment, and Industrial Company shall be
liable for any Taxes (and shall be entitled to receive any Tax Benefit)
arising from such adjustments.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation, and any
successor.
"INDUSTRIAL GROUP" means Industrial Company and its Affiliates as determined
immediately after the Distributions, modified as provided in Section 18.
"INDUSTRIAL GROUP PRIOR FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(ii).
"INDUSTRIAL GROUP PRIOR STATE TAX LIABILITY" shall have the meaning provided
in Section 2.03(b)(ii)(B).
"INDUSTRIAL GROUP RECOMPUTED FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(i).
"INDUSTRIAL GROUP RECOMPUTED STATE TAX LIABILITY" shall have the meaning
provided in Section 2.03(b)(ii)(A).
"JOINT ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim
for refund asserted in a Tax Contest which is neither an Industrial
Adjustment, a Shipbuilding Adjustment, nor a Tenneco Adjustment.
"MERGER" means the merger of El Paso Merger Company with and into Tenneco as
described in the Merger Agreement.
"MERGER AGREEMENT" means the Agreement and Plan of Merger among Tenneco,
Acquiror, and El Paso Merger Company dated as of June 19, 1996, as amended
from time to time.
"PAYMENT DATE" means (i) with respect to any Tenneco Federal Consolidated
Return, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the return determined under Code Section 6072, and the
date the return is filed,
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and (ii) with respect to any Tax Return for any Consolidated or Combined State
Income Tax, the corresponding dates determined under the applicable Tax Law.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period beginning the day after the Distribution Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period ending on the Distribution Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"PRIOR INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral
agreement or any other arrangements relating to allocation of Taxes existing
between or among the Tenneco Group, the Shipbuilding Group, and the Industrial
Group as of the Distribution Date (other than this Agreement and other than
any such agreement or arrangement between or among persons who are members of
a single Group). The following agreements, including any amendments thereto,
shall not be considered a Prior Intercompany Tax Allocation Agreement: (i) the
agreement by and between Tenneco and Case Equipment Corporation (now known as
Case Corporation) dated June 23, 1994; (ii) the agreement by and among
Tenneco, Tenneco United Kingdom Holdings Limited, and Albright and Wilson plc
dated February 16, 1995; and (iii) the agreement by and between Tennessee Gas
Pipeline Company, Tenneco Gas Marketing Company, and IGC Energy, Inc. dated
November 1, 1995.
"PROHIBITED ACTION" shall have the meaning provided in Section 11.
"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means the Taxes described in Sections 2.06(a)(ii) or
2.06(a)(iii) (relating to Tax resulting from any income or gain recognized as
a result of the Transactions).
"RULING REQUEST" means the letter filed by Tenneco with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and
any amendment or supplement to such ruling request letter.
"SEPARATE COMPANY TAX" means any Tax computed by reference to the assets and
activities of a member or members of a single Group.
"SHIPBUILDING ADJUSTMENT" means any proposed adjustment by a Tax Authority
or claim for refund asserted in a Tax Contest to the extent Shipbuilding
Company would be exclusively liable for any resulting Tax under this Agreement
and exclusively entitled to receive any resulting Tax Benefit under this
Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly known
as Tenneco InterAmerica Inc.), a Delaware corporation, and any successor.
"SHIPBUILDING GROUP" means Shipbuilding Company and its Affiliates as
determined immediately after the Distributions, modified as provided in
Section 18.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Distribution Date.
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"STATE INCOME TAX" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in
respect of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX BENEFIT" means any refund, credit, or other reduction in otherwise
required Tax payments (including any reduction in estimated tax payments).
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund) for any Tax Period
ending on or before the Distribution Date or any Straddle Period.
"TAX CONTEST COMMITTEE" shall have the meaning provided in Section 9.02(b).
"TAX ITEM" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, and credit.
"TAX LAW" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"TAX OPINION" means the opinion letter to be issued by Tenneco's tax counsel
as required by the Merger Agreement, a form of which is attached as Exhibit K
of the Merger Agreement.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax is
reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records
required to be maintained under the Code or other applicable Tax Laws or under
any record retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the
Code or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or
supplements to any of the foregoing.
"TENNECO" means Tenneco Inc., a Delaware corporation, and any successor.
"TENNECO ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Tenneco would be
exclusively liable for any resulting Tax under this Agreement and exclusively
entitled to receive any resulting Tax Benefit under this Agreement.
"TENNECO FEDERAL CONSOLIDATED RETURN" means any United States federal Tax
Return for the affiliated group (as that term is defined in Code Section 1504)
that includes Tenneco as the common parent and includes any member of the
Shipbuilding Group or the Industrial Group.
"TENNECO GROUP" means Tenneco and its Affiliates, excluding any entity that
is a member of the Industrial Group or the Shipbuilding Group.
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"TRANSACTIONS" means the transactions contemplated by the Distribution
Agreement (including the Corporate Restructuring Steps and Distributions, as
defined in such agreement) and by the Merger Agreement (including the Debt
Realignment, as defined in such agreement).
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
Section 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each Company's liability for Taxes with respect to
Pre-Distribution Periods. Once the liability has been determined under this
Section 2, Section 5 determines the time when payment of the liability is to
be made, and whether the payment is to be made to the Tax Authority directly
or to another Company.
2.01 General Rule
(a) Tenneco Liability. Tenneco shall be liable for all Taxes not
specifically allocated to either Industrial Company or Shipbuilding Company
under this Section 2. Tenneco shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for Taxes which Tenneco is liable for under this Section 2.01(a).
(b) Industrial Company Liability. Industrial Company shall be liable for,
and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, Taxes which are
allocated to Industrial Company under this Section 2.
(c) Shipbuilding Company Liability. Shipbuilding Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Industrial Group from and against any liability for, Taxes which are
allocated to Shipbuilding Company under this Section 2.
2.02 Allocation of United States Federal Income Tax. Except as provided in
Sections 2.06, 6.02, and 6.03:
(a) Allocation of Tax Relating to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. With respect to any Tenneco Federal
Consolidated Return filed after the Distribution Date, the Consolidated Tax
Liability shall be allocated among the Groups in accordance with the method
prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on
the date hereof) determined by treating each Group as a single member of
the consolidated group and by disregarding Base Amount Adjustment Items and
Debt Discharge Items in computing each Group's taxable income (the "Federal
Allocation Method"). For purposes of such allocation, the excess, if any,
of (i) Consolidated Tax Liability over (ii) Consolidated Tax Liability
determined without regard to any alternative minimum tax liability under
Code Section 55, shall be allocated among the Groups in accordance with
their respective amounts of alternative minimum taxable income, and any
corresponding alternative minimum tax credit shall be allocated in
accordance with the allocation of such alternative minimum tax liability.
Any amount so allocated to the Industrial Group shall be a liability of
Industrial Company to Tenneco under this Section 2, and any amount so
allocated to the Shipbuilding Group shall be a liability of Shipbuilding
Company to Tenneco under this Section 2. Amounts described in Code Section
1561 (relating to limitations on certain multiple benefits) shall be
divided equally among the Tenneco Group, the Industrial Group, and the
Shipbuilding Group to the extent permitted by the Code.
(b) Allocation of Tenneco Federal Consolidated Return Tax Adjustments. If
there is any adjustment to the reported Tax liability with respect to any
Tenneco Federal Consolidated Return, or to such Tax liability as previously
adjusted, Industrial Company shall be liable to Tenneco for the excess (if
any) of--
(i) the Consolidated Tax Liability of the Industrial Group computed
as if all members of the Industrial Group included in the Tax Return
had filed a consolidated Tax Return for such members based on the Tax
Items of such members as so adjusted (the "Industrial Group Recomputed
Federal Tax Liability"); over
(ii) the Consolidated Tax Liability of the Industrial Group computed
as if such members of the Industrial Group had filed a consolidated Tax
Return for such members based on the Tax Items of such
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members as reported (or, if applicable, as previously adjusted) (the
"Industrial Group Prior Federal Tax Liability").
If the Industrial Group Prior Federal Tax Liability exceeds the Industrial
Group Recomputed Federal Tax Liability, Tenneco shall be liable to
Industrial Company for such excess. The Shipbuilding Group liability shall
be recomputed in a like manner, and Shipbuilding Company shall be liable to
Tenneco for any excess of the Shipbuilding Group Recomputed Federal Tax
Liability over the Shipbuilding Group Prior Federal Tax Liability, and
Tenneco shall be liable to Shipbuilding Company for any excess of the
Shipbuilding Group Prior Federal Tax Liability over the Shipbuilding Group
Recomputed Federal Tax Liability. For purposes of this Section 2.02(b), if
the Industrial Group or the Shipbuilding Group has a net operating loss
after taking into account the adjustments allocable to such group, the
Recomputed Federal Tax Liability of the group shall be less than zero to
the extent such net operating loss produces a Tax Benefit in consolidation
for the applicable taxable year.
(c) Special Allocation With Respect to Energy Investments Group. If the
net operating loss of the Energy Investments Group as reported on the
Tenneco Federal Consolidated Tax Return for the taxable year ended December
31, 1996 (but computed as if the Distribution Date were the last day of the
Tax Period) is less than $185,000,000, Industrial Company shall be liable
to Tenneco for an amount equal to 35% of the difference between
$185,000,000 and the Energy Investments Group net operating loss or net
taxable income. If such net operating loss of the Energy Investments Group
is greater than $213,000,000, Tenneco shall be liable to Industrial Company
for an amount equal to 35% of the difference between $213,000,000 and the
amount of the Energy Investments Group net operating loss. If there is any
subsequent adjustment to the Energy Investment Group's net operating loss
or taxable income, the amount payable by or to Industrial Company under
this Section 2.02(c) shall be adjusted accordingly based on the net
operating loss or taxable income as adjusted.
2.03 Allocation of State Income Taxes. Except as provided in Sections 2.04,
2.05, 2.06, 6.02, and 6.03, State Income Taxes shall be allocated as follows:
(a) Separate Company Taxes. In the case of any State Income Tax which is
a Separate Company Tax, Industrial Company shall be liable for such Tax
imposed on any members of the Industrial Group, and Shipbuilding Company
shall be liable for such Tax imposed on any members of the Shipbuilding
Group.
(b) Consolidated or Combined State Income Taxes. In the case of any
Consolidated or Combined State Income Tax, the liability of Industrial
Company and Shipbuilding Company with respect to such Tax for any Tax
Period shall be computed as follows:
(i) Allocation of Tax Reported on Tax Returns Filed After the
Distribution Date. In the case of any Consolidated or Combined State
Income Tax reported on any Tax Return filed after the Distribution Date
(excluding any amended return), Industrial Company shall be liable to
Tenneco for the State Income Tax liability computed as if all members
of the Industrial Group included in the computation of such Tax had
filed a consolidated or combined Tax Return for such Industrial Group
members based on the income, apportionment factors, and other items of
such members, and Shipbuilding Company shall be liable to Tenneco for
the State Income Tax liability computed as if all members of the
Shipbuilding Group included in the computation of such Tax had filed a
consolidated or combined Tax Return for such Shipbuilding Group members
based on the income, apportionment factors, and other items of such
members.
(ii) Allocation of Combined or Consolidated State Income Tax
Adjustments. If there is any adjustment to the amount of Consolidated
or Combined State Income Tax reported on any Tax Return (or as
previously adjusted), the liability of the Industrial Group and the
Shipbuilding Group shall be recomputed as provided in this
subparagraph. Industrial Company shall be liable to Tenneco for the
excess (if any) of--
(A) the State Income Tax liability computed as if all members of
the Industrial Group included in the Tax Return had filed a
consolidated or combined Tax Return for such members
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based on the income, apportionment factors, and other items of such
members as so adjusted (the "Industrial Group Recomputed State Tax
Liability"); over
(B) the State Income Tax liability computed as if such members of
the Industrial Group had filed a consolidated or combined Tax Return
for such members based on the income, apportionment factors, and
other items of such members as reported (or, if applicable, as
previously adjusted) (the "Industrial Group Prior State Tax
Liability").
If the Industrial Group Prior State Tax Liability exceeds the
Industrial Group Recomputed State Tax Liability, Tenneco shall be
liable to Industrial Company for such excess. The Shipbuilding Group
liability shall be recomputed in a like manner, and Shipbuilding
Company shall be liable to Tenneco for any excess of the Shipbuilding
Group Recomputed State Tax Liability over the Shipbuilding Group Prior
State Tax Liability, and Tenneco shall be liable to Shipbuilding
Company for any excess of the Shipbuilding Group Prior State Tax
Liability over the Shipbuilding Group Recomputed State Tax Liability.
For purposes of this paragraph, the determination and payment of
estimated Taxes (including the determination and payment of any Tax
required to be paid with a request for an extension of time to file a
Tax Return) shall not be treated as an adjustment to the related
Consolidated or Combined State Income Tax.
2.04 Allocation of State Income Tax Effects of Federal Audit Adjustments.
Tenneco shall be liable for any State Income Taxes resulting from the
adjustments to Tenneco Federal Consolidated Returns for Tax Periods ending on
or before December 31, 1989. In accordance with Section 6, any Tax Benefit
realized by the Shipbuilding Group or by the Industrial Group as a result of
Tenneco's payment of such State Income Taxes shall be for the account of
Tenneco and shall be paid to Tenneco under Section 6. For example, if Tenneco
pays a State Income Tax liability of $100x related to adjustments to the Tax
Return of a member of the Shipbuilding Group, and if such payment is available
as a deduction on the Shipbuilding Group's Tax Return for Federal Income Tax,
Shipbuilding Company shall pay to Tenneco the Federal Income Tax benefit
attributable to the deduction (i.e., $35x assuming a 35% maximum marginal tax
rate under Code Section 11, and assuming the payment is treated as a
nondeductible dividend under the Code in accordance with Section 14 of this
Agreement).
2.05 Allocation of Other Taxes. Except as provided in Section 2.06, all
Taxes other than those specifically allocated pursuant to Sections 2.03
through 2.04 shall be allocated based on the legal entity on which the legal
incidence of the Tax is imposed. As between the parties to this Agreement,
Industrial Company shall be liable for all Taxes imposed on any member of the
Industrial Group (including Taxes imposed on the separate consolidated federal
income tax return of Tenneco International Holding Corp.), and Shipbuilding
Company shall be liable for all Taxes imposed on any member of the
Shipbuilding Group. The Companies believe that there is no Tax not
specifically allocated pursuant to Sections 2.03 through 2.04 which is legally
imposed on more than one legal entity (e.g., joint and several liability);
however, if there is any such Tax, it shall be allocated in accordance with
past practices as reasonably determined by the affected Companies, or in the
absence of such practices, in accordance with any allocation method agreed
upon by the affected Companies.
2.06 Transaction and Other Taxes
(a) Tenneco Liability. Except as otherwise provided in Sections 2.06 and
6.02, Tenneco shall be liable for, and shall indemnify and hold harmless
Industrial Group and the Shipbuilding Group from and against any liability
for, all Taxes resulting from the Transactions (other than Taxes allocated
to the Acquiror under the Merger Agreement), including:
(i) Any sales and use, gross receipts, or other transfer Taxes
imposed on the transfers occurring pursuant to the Transactions;
(ii) any Tax resulting from any income or gain recognized under
Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any
corresponding provisions of other applicable Tax Laws) as a result of
the Transactions; and
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(iii) any Tax resulting from any income or gain recognized as a
result of any of the transactions contemplated by the Distribution
Agreement failing to qualify for tax-free treatment under Code Sections
332, 351, 355, 361, or other provisions of the Code (as contemplated in
the Ruling Request) or other applicable Tax Laws, or as a result of the
Merger failing to qualify for tax-free treatment under Code Sections
354 and 361 or other provisions of the Code or other applicable Tax
Laws (as contemplated in the Merger Agreement).
If any Tax referred to in this Section 2.06(a) is included in the
definition of Actual Energy Debt Amount, but cannot be calculated on the
Energy Determination Date (as such terms are defined in the Debt and Cash
Allocation Agreement attached as Exhibit C to the Distribution Agreement),
then Industrial Company shall pay to Tenneco the amount which would have
been included in the Actual Energy Debt Amount. Such payments shall be made
at the time such amounts are determinable. For the purposes of this Section
2.06(a) and the definition of Actual Energy Debt Amount (as defined in the
Debt and Cash Allocation Agreement), the term "transfer Taxes" includes any
Illinois franchise tax imposed under Ill. Rev. Stat. ch. 805, (S) 15.65(b)
in connection with the transfer by Tenneco Corporation of net intercompany
receivables in the approximate amount of $6.9 billion to a subsidiary of
Midwestern Gas Transmission Company in connection with the Corporate
Restructuring Transactions.
(b) Indemnity for Inconsistent Acts. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax (described in subparagraphs (ii) and (iii) above) to the extent arising
from any breach of Industrial Company's representations or covenants under
Section 11. Shipbuilding Company shall be liable for, and shall indemnify
and hold harmless the Tenneco Group and the Industrial Group from and
against any liability for, any Restructuring Tax to the extent arising from
any breach of Shipbuilding Company's representations or covenants under
Section 11. Acquiror shall be liable for, and shall indemnify and hold
harmless the Industrial Group and Shipbuilding Group from and against any
liability for, any Restructuring Tax to the extent arising from any breach
of Acquiror's representations or covenants under Section 11.
(c) Indemnity for Representations. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax to the extent arising from the inaccuracy of any factual statements or
representations in connection with the Ruling Request or the Tax Opinion,
but in each case only to the extent such inaccuracy arises from facts in
existence prior to the Effective Time, and excluding any inaccuracy with
respect to any statements or representations relating to Acquiror,
Shipbuilding Company, or their Affiliates or any plan or intention on the
part of Acquiror, Shipbuilding Company, or their Affiliates as to actions
to be taken at or subsequent to the Effective Time. Shipbuilding Company
shall be liable for, and shall indemnify and hold harmless the Tenneco
Group and the Industrial Group from and against any liability for, any
Restructuring Tax to the extent arising from the inaccuracy of any factual
statements or representations relating to the Shipbuilding Company or its
Affiliates in connection with the Ruling Request or the Tax Opinion.
Acquiror shall be liable for, and shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for, any Restructuring Tax to the extent arising from the inaccuracy of any
factual statements or representations relating to Acquiror or its
Affiliates (other than the Tenneco Group) in connection with the Ruling
Request or the Tax Opinion.
(d) Change in Law Relating to Deferred Gains. If between the date of the
Merger Agreement and the Effective Time there is a change in law and as a
result of such change in law Tenneco is required to restore to income as a
result of the Merger the deferred gains identified on Schedule 2 to the
Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, then any resulting Tax shall be allocated equally
between Industrial Company and Tenneco. For purposes of this Section
2.06(d), the term "change in law" shall mean any of the following occurring
between the date of the Merger Agreement and the Effective Time: (i) an
amendment to the Code; (ii) an amendment to the Treasury Regulations
(including any issuance of proposed, temporary, or final Treasury
Regulations); (iii) a decision of the Tax Court, any Federal District
Court, the Court of Federal Claims, the Federal Circuit Court, or the
United States Supreme Court; and (iv) any notice, announcement, or other
administrative pronouncement published by the Internal
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Revenue Service in the Internal Revenue Bulletin to the effect that the
Treasury Department intends to issue Treasury Regulations after the
Effective Time that will be effective with respect to the Transactions.
(e) Taxes Relating to Settlement Receipts For Account of Industrial
Company. To the extent the economic benefit of any amounts received by the
Energy Business prior to the Effective Time from the settlement of pending
litigation (as identified on Schedule G2 to Exhibit G of the Merger
Agreement) is allocated to Industrial Company under the Debt and Cash
Allocation Agreement, any corresponding tax liability with respect to such
amounts shall be allocated to Industrial Company.
Section 3. Proration of Taxes for Straddle Periods
3.01 General Method of Proration. In the case of any Straddle Period, Tax
Items shall be apportioned between Pre-Distribution Periods and Post-
Distribution Periods in accordance with the principles of Treasury Regulation
Section 1.1502-76(b) as reasonably interpreted and applied by the Companies.
No election shall be made under Treasury Regulation Section 1.1502-
76(b)(2)(ii) (relating to ratable allocation of a year's items). If the
Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury
Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate
the items (other than extraordinary items) for the month which includes the
Distribution Date.
3.02 Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Items relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to such items shall be treated under Treasury Regulation
Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall
be allocated to Pre-Distribution Periods.
Section 4. Preparation and Filing of Tax Returns
4.01 General. Except as otherwise provided in this Section 4, Tax Returns
shall be prepared and filed when due (including extensions) by the person
obligated to file such Tax Returns under the Code or applicable Tax Law. The
Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7. As used in this Section 4,
the terms "domestic" and "foreign" have the meanings ascribed to such terms in
Code Section 7701.
4.02 Industrial Company's Responsibility. Industrial Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed:
(a) Tenneco Federal Consolidated Returns for Tax Periods ending on or
before December 31, 1996.
(b) Tax Returns for State Income Taxes (including Tax Returns with
respect to State Income Taxes that are Separate Company Taxes) which the
Companies reasonably determine, in accordance with Tenneco's past
practices, are required to be filed by the Companies or any of their
Affiliates for Tax Periods ending on or before December 31, 1996, other
than Tax Returns with respect to State Income Taxes that are Separate
Company Taxes of the Shipbuilding Group for Tax Periods beginning on or
after the Distribution Date. If Acquiror elects or is required to combine
the income of any Company or its Affiliates with the income of the Acquiror
or any of its Affiliates (other than any Company or its Affiliates) with
respect to any Tax Return for State Income Taxes for any Tax Period ending
on or before December 31, 1996, Industrial Company shall provide to
Acquiror in accordance with a compliance schedule to be agreed to by
Industrial Company and Acquiror information and documents reasonably
required by Acquiror to prepare and file such Tax Return, and Acquiror
shall have the exclusive obligation and right to prepare and file such Tax
Return, or to cause such Tax Return to be prepared and filed.
(c) Tax Returns that are required to be filed by the members of the
Industrial Group (including the federal consolidated Tax Return required to
be filed by Tenneco International Holding Corp.).
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Nothing in this Section 4.02 shall impose on Industrial Company any liability
for any failure to file any Tax Return, or for failure to file any Tax Return
when due, with respect to any Pre-Distribution Period if the due date for such
return (including extensions) was prior to the Distribution Date.
4.03 Shipbuilding Company's Responsibility. Shipbuilding Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed, Tax Returns required to be filed by members of the Shipbuilding
Group other than those Tax Returns which Industrial Company is required to
prepare and file under Section 4.02.
4.04 Tenneco Responsibility. Tenneco shall prepare and file, or shall cause
to be prepared and filed, Tax Returns required to be filed by or with respect
to members of the Tenneco Group other than those Tax Returns which Industrial
Company is required to prepare and file under Section 4.02. The Tax Returns
required to be prepared and filed by Tenneco under this Section 4.04 shall
include (a) the Tenneco Federal Consolidated Return for Tax Periods ending
after December 31, 1996, (b) Tax Returns for Consolidated or Combined State
Income Taxes which the Companies reasonably determine, in accordance with
Tenneco's past practices, are required to be filed by the Companies or any of
their Affiliates for Tax Periods ending after December 31, 1996, and (c) Tax
Returns for State Income Taxes for Tax Periods ending on or before December
31, 1996 if Acquiror elects or is required to combine the income of any
Company or its Affiliates with the income of the Acquiror or any of its
Affiliates (other than any Company or its Affiliates) with respect to such Tax
Return.
4.05 Tax Accounting Practices
(a) General Rule. Except as otherwise provided in this Section 4.05, any
Tax Return for any Pre-Distribution Period or any Straddle Period, and any
Tax Return for any Post-Distribution Period to the extent items reported on
such Tax Return might reasonably affect items reported on any Tax Return
for any Pre-Distribution Period or any Straddle Period, shall be prepared
in accordance with past Tax accounting practices used with respect to the
Tax Returns in question (unless such past practices are no longer
permissible under the Code or other applicable Tax Law), and to the extent
any items are not covered by past practices (or in the event such past
practices are no longer permissible under the Code or other applicable Tax
Law), in accordance with reasonable Tax accounting practices selected by
the Responsible Company. The Companies agree to report their portion of the
consolidated cumulative overall foreign loss based on the notional account
balances determined on a legal entity basis in a manner consistent with
past practices.
(b) Reporting of Transaction Tax Items Other Than Debt Discharge Items
and Base Amount Adjustment Items. The tax treatment reported on any Tax
Return of Tax Items relating to the Transactions shall be consistent with
the treatment of such item in the IRS Ruling Letter (as defined in the
Merger Agreement) and the Tax Opinion (unless such treatment is not
permissible under the Code). To the extent there is a Tax Item relating to
the Transactions which is not covered by the IRS Ruling Letter or the Tax
Opinion, the Companies shall agree on the tax treatment of any such Tax
Item reported on any Tax Return. For this purpose, the tax treatment of
such Tax Items on a Tax Return by the Responsible Company with respect to
such Tax Return shall be agreed to by the other Company unless either (i)
there is no reasonable basis for such tax treatment, or (ii) such tax
treatment is inconsistent with the tax treatment contemplated in the Ruling
Request or in the Tax Opinion. Such Tax Return shall be submitted for
review pursuant to Section 4.07(a), and any dispute regarding such proper
tax treatment shall be referred for resolution pursuant to Section 15,
sufficiently in advance of the filing date of such Tax Return (including
extensions) to permit timely filing of the return.
(c) Debt Discharge Items. Industrial Company shall determine the tax
treatment of any Debt Discharge Item on any Tax Return, subject only to the
other Companies' rights of review under Section 4.07.
(d) Base Amount Adjustment Items. Tenneco shall determine the tax
treatment of any Base Amount Adjustment Item on any Tax Return, subject
only to the other Companies' rights of review under Section 4.07.
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4.06 Consolidated or Combined Returns. The Companies will elect and join,
and will cause their respective Affiliates to elect and join, in filing
consolidated, unitary, combined, or other similar joint Tax Returns, to the
extent each entity is eligible to join in such Tax Returns, if the Companies
reasonably determine that the filing of such Tax Returns is consistent with
past reporting practices, or in the absence of applicable past practices, will
result in the minimization of the net present value of the aggregate Tax to
the entities eligible to join in such Tax Returns.
4.07 Right to Review Tax Returns
(a) General. The Responsible Company with respect to any Tax Return shall
make such Tax Return and related workpapers available for review by the
other Companies, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return
relates to Taxes for which the requesting party may be liable in whole or
in part for any additional Taxes owing as a result of adjustments to the
amount of Taxes reported on such Tax Return, (iii) such Tax Return relates
to Taxes for which the requesting party may have a claim for Tax Benefits
under this Agreement, or (iv) the requesting party reasonably determines
that it must inspect such Tax Return to confirm compliance with the terms
of this Agreement. The Responsible Company shall use its reasonable best
efforts to make such Tax Return available for review as required under this
paragraph sufficiently in advance of the due date for filing such Tax
Returns to provide the requesting party with a meaningful opportunity to
analyze and comment on such Tax Returns and have such Tax Returns modified
before filing, taking into account the person responsible for payment of
the tax (if any) reported on such Tax Return and the materiality of the
amount of Tax liability with respect to such Tax Return. The Companies
shall attempt in good faith to resolve any issues arising out of the review
of such Tax Returns.
(b) Execution of Returns Prepared by Other Party. In the case of any Tax
Return which is required to be prepared and filed by one Company under this
Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to
sign such Tax Return shall not be required to sign such Tax Return under
this Agreement if there is no reasonable basis for the tax treatment of any
material items reported on the Tax Return.
4.08 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment
Requests")
(a) Consent Required for Adjustment Requests Related to Consolidated or
Combined Income Taxes. Except as provided in paragraphs (b), (c), and (d)
below, each of the Companies hereby agrees that, unless each of the other
Companies consents in writing, which consent shall not be unreasonably
withheld, (i) no Adjustment Request with respect to any Consolidated or
Combined Income Tax for a Pre-Distribution Period shall be filed, and (ii)
any available elections to waive the right to claim in any Pre-Distribution
Period with respect to any Consolidated or Combined Income Tax any
Carryback arising in a Post-Distribution Period shall be made, and no
affirmative election shall be made to claim any such Carryback. Any
Adjustment Request which the Companies consent to make under this Section
4.08 shall be prepared and filed by the Responsible Company under Section
4.02 for the Tax Return to be adjusted. The Company requesting the
Adjustment Request shall provide to the Responsible Company all information
required for the preparation and filing of such Adjustment Request in such
form and detail as reasonably requested by the Responsible Company.
(b) Exception for Adjustment Requests Related to Debt Discharge Items.
Industrial Company shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Debt Discharge Items,
or (ii) IRS Form 1139 (Corporation Application for Tentative Refund) or IRS
Form 1120X (Corporation Amended Return) (or any similar Adjustment Request
allowed under the Code or other Tax Laws), and to make any elections
necessary to file such forms, with respect to any net operating loss
Carryback arising in any Tax Period in which there is any reduction of
Taxes as a result of Debt Discharge Items if any portion of such Carryback
is attributable to such Debt Discharge Items (determined in accordance with
the principles of Section 6.04). If Industrial Company is not the
Responsible
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Company with respect to any such return, then the Responsible Company shall
file such return upon request of the Industrial Company.
(c) Exception for Adjustment Requests Related to Base Amount Adjustment
Items. Tenneco shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Base Amount Adjustment
Items, or (ii) IRS Form 1139 (Corporation Application for Tentative Refund)
or IRS Form 1120X (Corporation Amended Return) (or any similar Adjustment
Request allowed under the Code or other Tax Laws), and to make any
elections necessary to file such forms, with respect to any net operating
loss Carryback arising in Tax Period in which there is any reduction of
Taxes as a result of Base Amount Adjustment Items if any portion of such
Carryback is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04). If Tenneco is not the
Responsible Company with respect to any such return, then the Responsible
Company shall file such return upon request of the Industrial Company.
(d) Exception for Adjustment Requests Related to Audit Adjustments. Each
of the Companies shall be entitled, without the consent of any other
Company, to require Industrial Company to file an Adjustment Request to
take into account any net operating loss, net capital loss, deduction,
credit, or other adjustment attributable to such Company or any member of
its Group corresponding to any adjustment resulting from any audit by the
Internal Revenue Service or other Tax Authority with respect to
Consolidated or Combined Income Taxes for any Pre-Distribution Tax Period.
For example, if the Internal Revenue Service requires a Company to
capitalize an item deducted for the taxable year 1993, the Company shall be
entitled, without the consent of any other Company, to require Industrial
Company to file an Adjustment Request for the taxable year 1994 (and later
years) to take into account any depreciation or amortization deductions in
such years directly related to the item capitalized in 1993.
(e) Other Adjustment Requests Permitted. Nothing in this Section 4.08
shall prevent any Company or its Affiliates from filing any Adjustment
Request with respect to Income Taxes which are not Consolidated or Combined
Income Taxes or with respect to any Taxes other than Income Taxes. Any
refund or credit obtained as a result of any such Adjustment Request (or
otherwise) shall be for the account of the person liable for the Tax under
this Agreement.
(f) Payment of Refunds. Any refunds or other Tax Benefits received by any
Company (or any of its Affiliates) as a result of any Adjustment Request
which are for the account of another Company (or member of such other
Company's Group) shall be paid by the Company receiving (or whose Affiliate
received) such refund or Tax Benefit to such other Company in accordance
with Section 6.
Section 5. Tax Payments and Intercompany Billings
5.01 Payment of Taxes With Respect to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. In the case of any Tenneco Federal
Consolidated Return the due date for which (including extensions) is after the
Distribution Date,
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date, the Responsible Company shall compute the amount
of Tax required to be paid to the Internal Revenue Service (taking into
account the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and, if
Tenneco is not the Responsible Company with respect to such Tax Return,
shall notify Tenneco in writing of the amount of Tax required to be paid on
such Payment Date. Tenneco will pay such amount to the Internal Revenue
Service on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability With Respect
to Tax Due. Within 30 days following any Payment Date, Industrial Company
will pay to Tenneco the excess (if any) of--
(i) the Consolidated Tax Liability determined as of such Payment Date
with respect to the applicable Tax Period allocable to the members of
the Industrial Group as determined by the
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Responsible Company in a manner consistent with the provisions of
Section 2.02(a) (relating to allocation of the Consolidated Tax
Liability in accordance with the Federal Allocation Method) (the
"Allocated Federal Tax Liability"), over
(ii) the cumulative net payments with respect to such Tax Return
prior to such Payment Date by the members of the Industrial Group (the
"Cumulative Federal Tax Payment").
If the Industrial Group Cumulative Federal Tax Payment is greater than the
Industrial Group Allocated Federal Tax Liability as of any Payment Date,
then Tenneco shall pay such excess to Industrial Company within 30 days of
Tenneco's receipt of the corresponding Tax Benefit (i.e., through either a
reduction in Tenneco's otherwise required Tax payment, or a refund of prior
tax payments). Any amount due under Section 2.02(c) with respect to the
Energy Investments Group net operating loss or taxable income as reported
on the Tenneco Federal Consolidated Tax Return for the taxable year ended
December 31, 1996 shall be paid within 30 days following the Payment Date
which is the date the return is filed, and any subsequent adjustment to the
payment due under Section 2.02(c) shall be paid with interest as determined
in a manner consistent with the provisions of Section 5.02.
(c) Computation and Payment of Shipbuilding Company Liability With
Respect to Tax Due. Within the time for any payment under paragraph (b) of
this subsection, the Responsible Company shall also notify Tenneco, if
necessary, and Shipbuilding Company in writing of the Shipbuilding Group
Allocated Federal Tax Liability and the Shipbuilding Group Cumulative
Federal Tax Payment (computed in manner consistent with paragraph (b) of
this subsection). If the Shipbuilding Group Allocated Federal Tax Liability
exceeds the Shipbuilding Group Cumulative Federal Tax Payment, then
Shipbuilding Company shall pay such excess to Tenneco within three business
days following receipt of such notice. If the Shipbuilding Group Cumulative
Federal Tax Payment exceeds the Shipbuilding Group Allocated Federal Tax
Liability, then Tenneco shall pay such excess to Shipbuilding Company
within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e.,
either a reduction in Tenneco's otherwise required Tax payment, or a refund
of estimated tax payments).
(d) Deemed Cumulative Federal Tax Payment for First Payment Date After
the Distribution Date. For purposes of Sections 5.01(b)(ii) and 5.01(c)
with respect to the Tenneco Federal Consolidated Tax Return for the taxable
year ended December 31, 1996, the Industrial Group's Cumulative Federal Tax
Payment shall be equal to $49,000,000, and the Shipbuilding Group's
Cumulative Federal Tax Payment shall be equal to $40,000,000.
(e) Interest on Intergroup Tax Allocation Payments. In the case of any
payments to Tenneco required under paragraphs (b) or (c) of this subsection
5.01, the payor shall also pay to Tenneco an amount of interest computed at
the Prime Rate on the amount of the payment required based on the number of
days from the applicable Payment Date to the date of payment. In the case
of any payments by Tenneco required under paragraphs (b) or (c) of this
subsection 5.01, Tenneco shall also pay to the payee an amount of interest
computed at the Prime Rate on the amount of the payment required based on
the number of days from the date of receipt of the Tax Benefit to the date
of payment of such amount to the payee.
5.02 Payment of Federal Income Tax Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of any adjustment to the Tax liability with
respect to any Tenneco Federal Consolidated Return for any Pre-Distribution
Period. The Responsible Company shall compute the amount attributable to
Industrial Group and the Shipbuilding Group in accordance with Section
2.02(b) and Industrial Company and Shipbuilding Company shall pay to
Tenneco any amount due Tenneco under Section 2.02(b) within 30 days from
the later of (i) the date the additional Tax was paid by Tenneco or (ii)
the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the particulars relating
thereto. Any amount due to Industrial Company or Shipbuilding Company under
Section 2.02(b) shall be paid within 30 days from the date the additional
Tax was paid by Tenneco to the Internal
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Revenue Service. Any payments required under this Section 5.02(a) shall
include interest computed at the Prime Rate based on the number of days
from the date the additional Tax was paid by Tenneco to the date of the
payment under this Section 5.02(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the
Consolidated Tax Liability with respect to any Tenneco Federal Consolidated
Return for any Pre-Distribution Period, Tenneco shall pay to Industrial
Company and Shipbuilding Company, or Industrial Company and Shipbuilding
Company shall pay to Tenneco (as the case may be), their respective amounts
due from or to Tenneco as determined by the Responsible Company in
accordance with Section 2.02(b). Any payments required under this Section
5.02(a) shall include interest computed at the Prime Rate based on the
number of days from the date the Tax Benefit was received by Tenneco to the
date of payment to Industrial Company or Shipbuilding Company under this
Section 5.02(b).
5.03 Payment of State Income Tax With Respect to Returns Filed After the
Distribution Date
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax
required to be paid to the applicable Tax Authority (taking into account
the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and--
(i) If such Tax Return is with respect to a Consolidated or Combined
State Income Tax, the Responsible Company shall, if Tenneco is not the
Responsible Company with respect to such Tax Return, notify Tenneco in
writing of the amount of Tax required to be paid on such Payment Date.
Tenneco will pay such amount to such Tax Authority on or before such
Payment Date.
(ii) If such Tax Return is with respect to a Separate Company Tax,
the Responsible Company shall, if it is not the Company liable for the
Tax reported on such Tax Return, notify the Company liable for such Tax
in writing of the amount of Tax required to be paid on such Payment
Date. The Company liable for such Tax will pay such amount to such Tax
Authority on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability and
Shipbuilding Company Liability With Respect to Tax Due. Within 120 days
following the due date (including extensions) for filing any Tax Return for
any Consolidated or Combined State Income Tax (excluding any Tax Return
with respect to payment of estimated Taxes or Taxes due with a request for
extension of time to file), (i) Industrial Company shall pay to Tenneco the
tax liability allocable to the Industrial Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i), plus
interest computed at the Prime Rate on the amount of the payment based on
the number of days from the due date (including extensions) to the date of
payment by Industrial Company to Tenneco, and (ii) the Responsible Company
shall notify Tenneco (if Tenneco is not the Responsible Company with
respect to such Tax Return) and Shipbuilding Company in writing of the tax
liability allocable to the Shipbuilding Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i). Within
three business days following receipt of such notice, Shipbuilding Company
shall pay to Tenneco the Shipbuilding Group's allocated tax liability as
set forth in such notice, plus interest computed at the Prime Rate on the
amount of the payment based on the number of days from the due date
(including extensions) to the date of payment by Shipbuilding Company to
Tenneco.
5.04 Payment of State Income Taxes Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
applicable Tax Authority when due any additional State Income Tax required
to be paid as a result of any adjustment to the tax liability with respect
to any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. Industrial Company and Shipbuilding Company shall
pay to Tenneco their respective shares of any such additional Tax payment
determined by the Responsible Company in accordance with Section
2.03(b)(ii) within 120 days from the later of (i) the date the additional
Tax was paid by Tenneco or (ii) the date of receipt by Industrial Company
or Shipbuilding Company (as applicable) of a written notice
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and demand from Tenneco for payment of the amount due, accompanied by
evidence of payment and a statement detailing the Taxes paid and describing
in reasonable detail the particulars relating thereto. Industrial Company
and Shipbuilding Company shall also pay to Tenneco interest on their
respective shares of such Tax computed at the Prime Rate based on the
number of days from the date the additional Tax was paid by Tenneco to the
date of their payment to Tenneco under this Section 5.04(a).
(b) Adjustments Resulting in Overpayments. Within 120 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the tax
liability with respect to any Tax Return for any Consolidated or Combined
State Income Tax for any Pre-Distribution Period, Tenneco shall pay to
Industrial Company and Shipbuilding Company their respective shares of any
such Tax Benefit determined by the Responsible Company in accordance with
Section 2.03(b)(ii). Tenneco shall also pay to Industrial Company or
Shipbuilding Company interest on their respective shares of such Tax
Benefit computed at the Prime Rate based on the number of days from the
date the Tax Benefit was received by Tenneco to the date of payment to
Industrial Company or Shipbuilding Company under this Section 5.04(b).
5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall
cause to be paid, to the applicable Tax Authority when due all Separate
Company Taxes owed by such Company or a member of such Company's Group.
5.06 Indemnification Payments. If any Company (the "payor") is required to
pay to a Tax Authority a Tax that another Company (the "responsible party") is
required to pay to such Taxing Authority under this Agreement, the responsible
party shall reimburse the payor within 30 days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.06.
Section 6. Tax Benefits
6.01 General Rule. If a member of one Group receives any Tax Benefit with
respect to any Taxes for which a member of another Group is liable hereunder,
the Company receiving such Tax Benefit shall make a payment to the Company who
is liable for such Taxes hereunder within 30 days following receipt of the Tax
Benefit in an amount equal to the Tax Benefit (including any Tax Benefit
realized as a result of the payment), plus interest on such amount computed at
the Prime Rate based on the number of days from the date of receipt of the Tax
Benefit to the date of payment of such amount under this Section 6.01.
6.02 Debt Discharge Items
(a) Any Tax Benefit attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be credited against
any amount owed by Industrial Company to Tenneco under Sections 5.01(b) or
5.03(b), and any excess Tax Benefit shall be paid by Tenneco to Industrial
Company as an amount owed by Tenneco to Industrial Company under Sections
5.01(b) or 5.03(b). If the Tax Benefit is subsequently adjusted (including
any adjustment to the Tax Benefit received as a reduction in otherwise
required estimated tax payments), Industrial Company shall pay to Tenneco
an amount equal to any reduction in the Tax Benefit, and Tenneco shall pay
to Industrial Company an amount equal to any increase in the Tax Benefit,
in each case under Section 5.01(b) (in the case of adjustments to Tax
payments), or Sections 5.02 or 5.04 (in the case of audit adjustments).
(b) Any Tax liability attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be paid by Industrial
Company to Tenneco as an additional amount owed by Industrial Company to
Tenneco under Section 5.01(b) or 5.03(b). Any adjustment to such Tax
liability shall be paid under Section 5.01(b) (in the case of adjustments
to Tax payments), or Sections 5.02 or 5.04 (in the case of audit
adjustments).
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(c) Payments under this Section 6.02 shall include interest as provided
under Sections 5.01, 5.02, 5.03, or 5.04, as applicable.
6.03 Base Amount Adjustment Items. Any Tax Benefit (or Tax liability)
attributable to Base Amount Adjustment Items (determined in accordance with
the principles of Section 6.04) shall be for the account of Tenneco,
regardless of the legal entity reporting such Tax Benefit or Tax liability.
Pursuant to this Section 6.03, to the extent any net operating loss of the
Tenneco Group is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04), any Tax Benefit associated
with the deduction of such net operating loss (either in the current year or
as a carryback or carryover) shall be for the account of Tenneco.
6.04 Ordering of Tax Items. Tax Items for any Tax Period shall be taken into
account for purposes of this Agreement in the following order of priority:
(a) First, Tax Items other than Debt Discharge Items and Base Amount
Adjustment Items.
(b) Second, Debt Discharge Items and Base Amount Adjustment Items (other
than GSR Items) in proportion to the relative net amounts of such items.
(c) Third, GSR Items.
Section 7. Assistance and Cooperation
7.01 General. After the Distribution Date, each of the Companies shall
cooperate (and cause their respective Affiliates to cooperate) with each other
and with each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to the Companies and their Affiliates
including (i) preparation and filing of Tax Returns, (ii) determining the
liability for and amount of any Taxes due (including estimated Taxes) or the
right to and amount of any refund of Taxes, (iii) examinations of Tax Returns,
and (iv) any administrative or judicial proceeding in respect of Taxes
assessed or proposed to be assessed. Such cooperation shall include making all
information and documents in their possession relating to the other Companies
and their Affiliates available to such other Companies as provided in Section
8. Each of the Companies shall also make available to each other, as
reasonably requested and available, personnel (including officers, directors,
employees and agents of the Companies or their respective Affiliates)
responsible for preparing, maintaining, and interpreting information and
documents relevant to Taxes, and personnel reasonably required as witnesses or
for purposes of providing information or documents in connection with any
administrative or judicial proceedings relating to Taxes. Any information or
documents provided under this Section 7 shall be kept confidential by the
Company receiving the information or documents, except as may otherwise be
necessary in connection with the filing of Tax Returns or in connection with
any administrative or judicial proceedings relating to Taxes.
7.02 Income Tax Return Information. Each Company will provide to each other
Company information and documents relating to their respective Groups required
by the other Companies to prepare Tax Returns. The Responsible Company shall
determine a reasonable compliance schedule for such purpose in accordance with
Tenneco's past practices. Any additional information or documents the
Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company
reasonably requests and in sufficient time for the Responsible Company to file
such Tax Returns timely.
Section 8. Tax Records
8.01 Retention of Tax Records. Except as provided in Section 8.02, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of their respective Groups for Pre-Distribution Tax
Periods, and Tenneco shall preserve and keep all other Tax Records relating to
Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the
contents thereof may become material in the administration of any matter under
the Code or other applicable Tax Law, but in any event until the later of (i)
the expiration of any applicable statutes of limitation, and (ii) seven years
after the Distribution Date. If, prior to the expiration of the applicable
statute of limitation and such seven-year period, a Company reasonably
determines that any Tax Records which it is required to preserve and keep
under this Section 8 are no longer material in the administration
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of any matter under the Code or other applicable Tax Law, such Company may
dispose of such records upon 90 days prior notice to the other Companies. Such
notice shall include a list of the records to be disposed of describing in
reasonable detail each file, book, or other record accumulation being
disposed. The notified Companies shall have the opportunity, at their cost and
expense, to copy or remove, within such 90-day period, all or any part of such
Tax Records.
8.02 State Income Tax Returns. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the guidelines of Section
8.01, by the Company responsible for preparing and filing the applicable Tax
Return.
8.03 Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to
the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items
under this Agreement.
Section 9. Tax Contests
9.01 Notice. Each of the parties shall provide prompt notice to the other
parties of any pending or threatened Tax audit, assessment or proceeding or
other Tax Contest of which it becomes aware related to Taxes for Tax Periods
for which it is indemnified by one or more other parties hereunder. Such
notice shall contain factual information (to the extent known) describing any
asserted Tax liability in reasonable detail and shall be accompanied by copies
of any notice and other documents received from any Tax Authority in respect
of any such matters. If an indemnified party has knowledge of an asserted Tax
liability with respect to a matter for which it is to be indemnified hereunder
and such party fails to give the indemnifying party prompt notice of such
asserted Tax liability, then (i) if the indemnifying party is precluded from
contesting the asserted Tax liability in any forum as a result of the failure
to give prompt notice, the indemnifying party shall have no obligation to
indemnify the indemnified party for any Taxes arising out of such asserted Tax
liability, and (ii) if the indemnifying party is not precluded from contesting
the asserted Tax liability in any forum, but such failure to give prompt
notice results in a monetary detriment to the indemnifying party, then any
amount which the indemnifying party is otherwise required to pay the
indemnified party pursuant to this Agreement shall be reduced by the amount of
such detriment.
9.02 Control of Tax Contests
(a) Separate Company Taxes. In the case of any Tax Contest with respect
to any Separate Company Tax, the Company having liability for the Tax shall
have exclusive control over the Tax Contest, including exclusive authority
with respect to any settlement of such Tax liability.
(b) Consolidated or Combined Income Taxes. In the case of any Tax Contest
with respect to any Consolidated or Combined Income Tax, (i) Shipbuilding
Company shall control the defense or prosecution of the portion of the Tax
Contest directly and exclusively related to any Shipbuilding Adjustment,
including settlement of any such Shipbuilding Adjustment, (ii) Tenneco
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Tenneco Adjustment, including
settlement of any such Tenneco Adjustment, and (iii) Industrial Company
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Industrial Adjustment, including
any settlement of any Industrial Adjustment, and (iv) the Tax Contest
Committee shall control the defense or prosecution of Joint Adjustments and
any and all administrative matters not directly and exclusively related to
any Shipbuilding Adjustment, Tenneco Adjustment, or Industrial Adjustment.
The Tax Contest Committee shall be comprised of two persons, one person
selected by Industrial Company (as designated in writing to Tenneco) and
one person selected by Tenneco (as designated in writing to Industrial
Company). Each person serving on the Tax Contest Committee shall continue
to serve unless and until he or she is replaced by the party designating
such person. Any and all matters to be decided by the Tax Contest Committee
shall require the unanimous approval of both persons serving on the
committee. In the event the Tax Contest Committee shall be deadlocked on
any matter, the provisions of Section 15 of this
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Agreement shall apply. The Tax Contest Committee shall consult in good
faith with Shipbuilding Company to the extent Shipbuilding Company might
reasonably be expected to be materially affected by such matters. A Company
shall not agree to any Tax liability for which another Company may be
liable under this Agreement, or compromise any claim for any Tax Benefit
which another Company may be entitled under this Agreement, without such
other Company's written consent (which consent may be given or withheld at
the sole discretion of the Company from which the consent would be
required).
Section 10. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Distribution Date.
Immediately prior to the close of business on the Distribution Date (i) all
Prior Intercompany Tax Allocation Agreements shall be terminated, and (ii)
amounts due under such agreements as of the Distribution Date shall be settled
as of the Distribution Date (including capitalization or distribution of
amounts due or receivable under such agreements). Upon such termination and
settlement, no further payments by or to Tenneco, by or to the Shipbuilding
Group, or by or to the Industrial Group, with respect to such agreements shall
be made, and all other rights and obligations resulting from such agreements
between the Companies and their Affiliates shall cease at such time. Any
payments pursuant to such agreements shall be ignored for purposes of
computing amounts due under this Agreement.
Section 11. No Inconsistent Actions. Each of the Companies and the Acquiror
covenants and agrees that it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which is inconsistent with the
Tax treatment of the Transactions as contemplated in the Ruling Request or in
the Tax Opinion (any such action is referred to in this Section 11 as a
"Prohibited Action"), unless such Prohibited Action is required by law, or the
person acting has obtained the prior written consent of each of the other
parties (which consent shall not be unreasonably withheld). With respect to
any Prohibited Action proposed by a Company or the Acquiror (the "Requesting
Party"), each of the other parties (the "Requested Parties") shall grant its
consent to such Prohibited Action if the Requesting Party obtains a ruling
with respect to the Prohibited Action from the Internal Revenue Service or
other applicable Tax Authority that is reasonably satisfactory to each of the
Requested Parties (except that the Requesting Party shall not submit any such
ruling request if a Requested Party determines in good faith that filing such
request might have a materially adverse effect upon such Requested Party).
Without limiting the foregoing:
(a) No Inconsistent Plan or Intent
(i) Each of Industrial Company and Shipbuilding Company represents
and warrants that neither it nor any of its Affiliates has any plan or
intent to take any action which is inconsistent with any factual
statements or representations in the Ruling Request or in the Tax
Opinion. Regardless of any change in circumstances, each of Industrial
Company and Shipbuilding Company covenants and agrees that it will not
take, and it will cause its Affiliates to refrain from taking, any such
inconsistent action on or before the last day of the calendar year
ending after the second anniversary of the Distribution Date other than
as permitted in this Section 11. For purposes of applying this Section
11(a) to any such inconsistent action prior to the Effective Time, the
members of the Tenneco Group shall be treated as Affiliates of
Industrial Company.
(ii) Acquiror represents and warrants that neither it nor any of its
Affiliates has any plan or intent to take any action which is
inconsistent with any factual statements or representations in the
Ruling Request or in the Tax Opinion. Regardless of any change in
circumstances, Acquiror covenants and agrees that it will not take, and
it will cause Tenneco and the other Affiliates of Acquiror to refrain
from taking, any such inconsistent action on or before the last day of
the calendar year ending after the second anniversary of the
Distribution Date other than as permitted in this Section 11.
(b) Amended or Supplemental Rulings. Each of the Companies covenants and
agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent
to the Distribution Date without the consent of the other Companies, which
consent shall not be unreasonably withheld.
Section 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
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Section 13. Employee Matters. Each of the Companies agrees to utilize, or
cause its Affiliates to utilize, the alternative procedure set forth in
Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting.
Section 14. Treatment of Payments; Tax Gross Up
14.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of
any change in tax treatment under the Code or other applicable Tax Law,
(a) any Tax indemnity payments made by a Company under Section 5 shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of the Industrial Common Shares and the Shipbuilding Common
Shares to Tenneco shareholders on the Distribution Date, but only to the
extent the payment does not relate to a Tax allocated to the payor in
accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws), and
(b) any Tax Benefit payments made by a Company under Section 6, shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of Industrial Common Shares and Shipbuilding Common Shares to
Tenneco shareholders on the Distribution Date, but only to the extent the
payment does not relate to a Tax allocated to the payor in accordance with
Treasury Regulation Section 1.1502-33(d) (or under corresponding principles
of other applicable Tax Laws).
14.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the
amount of such payment, reduced by the amount of all Income Taxes payable with
respect to the receipt thereof (but taking into account all correlative Tax
Benefits resulting from the payment of such Income Taxes), shall equal the
amount of the payment which the Company receiving such payment would otherwise
be entitled to receive pursuant to this Agreement.
14.03 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect
to the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such
Tax payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income
by the indemnitee (includible in income to the extent provided by law). The
amount of the payment shall not be adjusted under Section 14.02 to take into
account any associated Tax Benefit to the indemnitor or increase in Tax to the
indemnitee.
Section 15. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 16. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 16 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at
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the higher of the interest rate provided under this Section 16 or the interest
rate provided under such other provision.
Section 17. Expenses. Except as provided in Section 15, each party and its
Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
Section 18. Special Rules for Determining Members of Groups. For purposes of
this Agreement, the following special rules shall apply for determining the
members of the Industrial Group and members of the Shipbuilding Group:
18.01 Tennessee Gas Pipeline Company. The assets and activities of Tennessee
Gas Pipeline Company for Pre-Distribution Periods that comprise the Walker
Manufacturing Company Division, the Tenneco Automotive Headquarters Division,
and the Tenneco Brakes Division, as jointly determined by Industrial Company
and Tenneco in accordance with past practices, shall be combined and treated
as a separate corporate entity which is a member of the Industrial Group.
18.02 Former Affiliates of Shipbuilding Group or Industrial Group. The
entities listed on Schedule 1 attached hereto shall be treated as members of
the Shipbuilding Group, and the entities listed on Schedule 2 attached hereto
shall be treated as members of the Industrial Group. Any entity substantially
all of the assets and liabilities of which have been transferred to a member
of the Shipbuilding Group (e.g., by a statutory merger) shall be treated as a
member of the Shipbuilding Group, and any entity substantially all of the
assets and liabilities of which have been transferred to a member of the
Industrial Group shall be treated as a member of the Industrial Group. For
example, Newport News Shipbuilding and Dry Dock Company, a Virginia
corporation, shall, by virtue of its merger into Tenneco InterAmerica Inc., be
treated as a member of the Shipbuilding Group. For purposes of this paragraph,
Tenneco's Affiliates shall not be limited to persons who are Affiliates
immediately after the Distributions.
Section 19. General Provisions
19.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to Shipbuilding Company:
Director, Taxes
Newport News Shipbuilding and Dry Dock Company
4101 Washington Avenue
Newport News, VA 23607
If to Tenneco:
Director, Taxes
Tennessee Gas Pipeline Co.
1010 Milam Street
Houston, Texas 77002
With a copy to:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
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If to Industrial Company:
Robert G. Simpson
Vice President, Tax
Tenneco Inc.
1275 King Street
Greenwich, CT 06831
If to Acquiror:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
19.02 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
19.03 Waiver. No failure by any party to insist upon the strict performance
of any obligation under this Agreement or to exercise any right or remedy
under this Agreement shall constitute waiver of any such obligation, right, or
remedy or any other obligation, rights, or remedies under this Agreement.
19.04 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
19.05 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation
as is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 9.
19.06 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and the Distribution Agreement or any
other agreements relating to the transactions contemplated by the Distribution
Agreement, the provisions of this Agreement shall control.
19.07 Construction. The language in all parts of this Agreement shall in all
cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
19.08 No Double Recovery; Subrogation. No provision of this Agreement shall
be construed to provide an indemnity or other recovery for any costs, damages,
or other amounts for which the damaged party has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or equity. Unless expressly required in this Agreement, a party shall
not be required to exhaust all remedies available under other agreements or at
law or equity before recovering under the remedies provided in this Agreement.
Subject to any limitations provided in this Agreement (for example, the
limitation on filing claims for refund in Section 4.08), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.
19.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
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19.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
the respective officers as of the date set forth above.
Tenneco Inc.
By: _________________________________
Its: ________________________________
Newport News Shipbuilding Inc.
By: _________________________________
Its: ________________________________
New Tenneco Inc.
By: _________________________________
Robert G. Simpson
Vice President, Taxes
El Paso Natural Gas Company
By: _________________________________
Its: ________________________________
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TAX SHARING AGREEMENT
SCHEDULE 1
ADDITIONAL MEMBERS OF THE SHIPBUILDING GROUP
For purposes of this Agreement, in addition to Shipbuilding Company and its
Affiliates as determined immediately after the Distribution Date, the
Shipbuilding Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"shipbuilding" segment for purposes of segment reporting in Tenneco's Annual
Reports on Form 10-K, and (3) sold, transferred, otherwise disposed of, or
discontinued prior to the date hereof. Without limiting the foregoing, the
Shipbuilding Group shall include:
Sperry Marine Inc.
Sperry Marine-Asia Inc.
Sperry Marine (S) PTE Ltd. (Singapore)
Sperry Marine S.p.A. (Italy)
Sperry Marine S.A.R.L. (France)
Sperry Marine Limited (United Kingdom)
Sperry Marine GmbH (Germany)
Sperry Marine A/S (Denmark)
Sperry Marine A/S (Norway)
Sperry Marine B.V. (Netherlands)
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TAX SHARING AGREEMENT
SCHEDULE 2
ADDITIONAL MEMBERS OF THE INDUSTRIAL GROUP
For purposes of this Agreement, in addition to Industrial Company and its
Affiliates as determined immediately after the Distribution Date, the
Industrial Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"automotive parts" or "packaging" segment for purposes of segment reporting in
Tenneco's Annual Reports on Form 10-K, and (3) sold, transferred, otherwise
disposed of, or discontinued prior to the date hereof.
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TAX SHARING AGREEMENT
SCHEDULE 3
ENERGY INVESTMENTS GROUP
KERN COUNTY LAND COMPANY
PETRO-TEX CHEMICAL CORPORATION
TENFAC CORPORATION
TENNCHASE, INC.
TENNECO COAL COMPANY
TENNECO CORPORATION
TENNECO CREDIT CORPORATION
TENNECO EQUIPMENT CORPORATION (f/k/a Case Corporation)
TENNECO EQUIPMENT HOLDING IV CO. (f/k/a Case Finance Co.)
TENNECO EQUIPMENT HOLDING V CO. (f/k/a Integrated Technical Systems, Inc.)
TENNECO EQUIPMENT HOLDING VI CO. (f/k/a Viscosity Oil Co.)
TENNECO INC.
TENNECO INSURANCE VENTURES
TENNECO INTERAMERICA, INC.
TENNECO INTERNATIONAL, INC.
TENNECO MINERALS COMPANY--CALIFORNIA
TENNECO MINERALS COMPANY--NEVADA
TENNECO OIL COMPANY
TENNECO POLYMERS, INC.
TENNECO SHALE OIL COMPANY
TENNECO SNG, INC.
TENNECO SYNFUELS COMPANY
TENNECO WEST
TENNESSEE GAS PIPELINE COMPANY--CORPORATE DIVISION
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EXHIBIT 10.5
EXHIBIT Q
TO
DISTRIBUTION
AGREEMENT
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of , ("Effective Date") by and between
[Industrial Company], a corporation organized and existing under the laws of
the State of Delaware, whose principal place of business is located at 1275
King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and
[Newport News Shipbuilding and Drydock Company], a corporation organized under
the laws of the State of Virginia, whose principal place of business is
located at 4101 Washington Avenue, Newport News, Virginia 23607, hereinafter
referred to as Licensee,
Whereas, Licensor has adopted and is using the name and mark "Tenneco",
alone and in combination with other terms and/or symbols and variations
thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United
States and elsewhere throughout the world and is the owner of the U.S.
Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit
A of this Agreement, from the United States Patent and Trademark Office,
(hereinafter collectively referred to as the "Trademark"); and
Whereas, Licensee is desirous of using said Trademark with respect to the
goods and services listed on Exhibit B, to assist Licensee in its transition
to a new identity and for the limited purposes more fully described below;
Now, therefore, in consideration of the foregoing Recitals which are hereby
incorporated into the operative terms hereof, the mutual promises contained in
this Agreement and good and valuable consideration from the Licensee to the
Licensor, the receipt and sufficiency of which is hereby acknowledged by said
Licensor, the parties hereby agree as follows:
1. License. Licensor grants to Licensee and its subsidiary companies the
limited, non-exclusive right to use the Trademark under the common law and
under the auspices and privileges provided by any of the registrations
covering the same during the term of this Agreement, and Licensee hereby
undertakes to use the Trademark as follows:
a. For a period of 30 days following the Effective Date of this
Agreement, Licensee may use the Trademark in its corporate name. After 30
days following the Effective Date of this Agreement, Licensee shall change,
if necessary, its corporate name to delete the Trademark or any other word
that is confusingly similar to the Trademark (except the word "Tennessee");
b. For a period of six (6) months following the Effective Date of this
Agreement, Licensee shall be entitled to use its existing supplies and
documents which have imprinted thereon the Trademark to the extent that
such supplies and documents were existing inventory prior to the Effective
Date of this Agreement. Licensee shall not print any new supplies or
documents bearing the Trademark as of the Effective Date of this Agreement.
c. For a period of one year from the Effective Date of this Agreement,
Licensee may use the Trademark on existing signs, displays or other
identifications or advertising material (except as limited in b above).
Licensee shall not prepare or install any new signs, displays or other
identifications or advertising material bearing the Trademark. Licensee
shall remove any and all references to the Trademark from any and all
signs, displays or other identifications or advertising material by the end
of the one year period.
2. Quality of Services. Licensee agrees to maintain such quality standards
as shall be prescribed by Licensor in the conduct of the business operations
with which the Trademark is used. Licensee shall use the Trademark only with
goods and services listed in Exhibit B rendered by Licensee in accordance with
the terms of this
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agreement and with the guidance and directions furnished to the Licensee by
the Licensor, or its authorized representatives or agents, from time to time,
if any; but always the quality of the goods and services shall be satisfactory
to the Licensor or as specified by it.
3. Inspection. Licensee will permit duly authorized representatives of the
Licensor to inspect the premises of Licensee using the Trademarks at all
reasonable times, for the purpose of ascertaining or determining compliance
with Paragraphs 1 and 2 hereof.
4. Use of Trademark. When using the Trademark under this Agreement, Licensee
undertakes to comply substantially with all laws pertaining to the Trademark.
This provision includes compliance with marking requirements. Licensee
represents and warrants that all goods and services to be sold under the
Trademark and the marketing, sales, and distribution of them shall meet or
exceed all federal, state, and local laws, ordinances, standards, regulations,
and guidelines pertaining to such products or activities, including, but not
limited to, those pertaining to product safety, quality, labeling and
propriety. Licensee agrees that it will not package, market, sell, or
distribute any goods or services or cause or permit any goods or services to
be packaged, marketed, sold, or distributed in violation of any such federal,
state, or local law, ordinance, standard, regulation, or guideline.
5. Extent of License. The license granted herein is for the sole purpose of
assisting Licensee in its transition to a new identity and is not assignable
or transferable in any manner whatsoever. Licensee has no right to grant any
sublicenses or to use the Trademark for any other purpose.
6. Indemnity. Licensee acknowledges that it will have no claims against
Licensor for any damage to property or injury to persons arising out of the
operation of Licensee's business. Licensee agrees to indemnify, hold harmless,
and defend Licensor and its subsidiaries and its authorized representatives
with legal counsel acceptable to Licensor from and against any and all
demands, claims, injuries, losses, damages, actions, suits, causes of action,
proceedings, judgments, liabilities and expenses, including attorneys' fees,
court costs and other legal expenses, arising out of or connected with:
a. Licensee's use of the Trademark; or
b. any breach by Licensee of any provision of this Agreement or of any
warranty made by Licensee in this Agreement.
No approval by Licensor of any action by Licensee shall affect any right of
Licensor to indemnification hereunder.
7. Termination. Except as otherwise provided herein, this Agreement shall
remain in full force and effect for the periods stated in Paragraph 1, above.
However, Licensor retains the right to immediately terminate this Agreement in
the event of a material breach of any term of this Agreement by Licensee, upon
written notice to the Licensee.
8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive
right, title and interest in and to the Trademark and will not at any time do
or cause to be done any act or thing contesting or in any way impairing or
tending to impair any part or all of such right, title and interest. In
connection with the use of the Trademark, Licensee shall not in any manner
represent that it has any ownership in the Trademark or registrations thereof,
and acknowledges that use of the Trademark shall enure to the benefit of the
Licensor. On termination of this Agreement or any portion thereof in any
manner provided herein, the Licensee will destroy all signs, displays or other
identifications or advertising material, supplies and documents, and any other
materials bearing the Trademark and will certify to Licensor in writing that
it has done so. Furthermore, Licensee will not at any time adopt or use
without the Licensor's prior written consent, any word or mark which is likely
to be similar to or confusing with the Trademark (except the word
"Tennessee").
9. Infringement of Trademark. If Licensee learns of any actual or threatened
infringement of the Trademark or of the existence, use, or promotion of any
mark or design similar to the Trademark, Licensee shall promptly notify
Licensor. Licensor has the right to decide at its sole discretion what legal
proceedings or other action, if
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any, shall be taken, by who, how such proceedings or other action shall be
conducted, and in whose name such proceedings or other action shall be
performed. Any legal proceedings instituted pursuant to this Section shall be
for the sole benefit of Licensor and all sums recovered in such proceedings,
whether by judgment, settlement, or otherwise, shall be retained solely and
exclusively by Licensor.
10. Injunctive Relief. Licensee acknowledges that any breach or threatened
breach of any of Licensee's covenants in this Agreement relating to the
Trademark, including, without limitation, Licensee's failure to cease the
manufacture, sale, marketing, or distribution of the goods bearing the
Trademark at the termination or expiration of this Agreement will result in
immediate and irreparable damage to Licensor and to the rights of any
subsequent Licensee of them. Licensee acknowledges and admits that there is no
adequate remedy at law for failure to cease such activities, and Licensee
agrees that in the event of such breach or threatened breach, Licensor shall
be entitled to temporary and permanent injunctive relief and such other relief
as any court with jurisdiction may deem just and proper.
11. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law or any competent government
or other authority, the remaining provisions shall be severable and
enforceable in accordance with their terms so as this Agreement without such
terms or provisions does not fail of its essential purpose or purposes. The
parties will negotiate in good faith to replace any such illegal or
unenforceable provision or provisions with suitable substitute provisions
which maintain the economic purposes and intentions of this Agreement.
12. Notice. Any notices required or permitted to be given under this
Agreement shall be deemed sufficiently given if mailed by registered mail,
postage prepaid, addressed to the party to be notified at its address shown
above, (followed by facsimile) or at such other address as may be furnished in
writing to the notifying party.
13. Miscellaneous.
a. Captions. The captions for each Section have been inserted for the
sake of convenience and shall not be deemed to be binding upon the parties
for the purpose of interpretation of this Agreement.
b. Interpretation. The parties agree that each party and its counsel has
reviewed this Agreement and the normal rule of construction that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
c. Waiver. The failure of Licensor to insist in any one or more instances
upon the performance of any term, obligation, or condition of this
Agreement by Licensee or to exercise any right or privilege herein
conferred upon Licensor shall not be construed as thereafter waiving such
term, obligation, or condition, or relinquishing such right or privilege,
and the acknowledged waiver or relinquishment by Licensor of any default or
right shall not constitute waiver of any other default or right. No waiver
shall be deemed to have been made unless expressed in writing.
d. Time of Essence. Time is of the essence with respect to the
obligations to be performed under this Agreement, and Licensee shall use
its best efforts to transition all existing materials, including signs and
displays, bearing the Trademark to a new name and mark.
e. Rights Cumulative. Except as expressly provided in this Agreement, and
to the extent permitted by law, any remedies described in this Agreement
are cumulative and not alternative to any other remedies available at law
or in equity.
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f. Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR
DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
Attest: LICENSOR
- -------------------------------
By: _________________________________
Attest:
- ------------------------------- LICENSEE
By: _________________________________
4
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EXHIBIT "A"
<TABLE>
<CAPTION>
REGISTRATION EXPIRATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 1050475 19OC1996
Tenneco 866995 25MR2009
Tenneco 823408 31JA2007
Tenneco 786614 16MR2005
Tenneco 783055 12JA2005
Tenneco 827435 18AP2007
Tenneco 1250178 06SE2003
Tenneco 1251601 20SE2003
Tenneco 1310943 25DE2004
Tenneco 1930571 31OC2005
Tenneco 1917869 12SE2005
Tennnet 1956845 13FE2006
Tennnet 1929997 24OC2005
Tenneco & Shield 831633 14JL2007
Tenneco & Shield 857262 24SE1998
Tenneco & Shield 823409 31JA2007
Tenneco & Shield 827436 18AP2007
Tenneco & Shield 786595 16MR2005
Tenneco & Shield 786984 23MR2005
Tenneco & Shield 1250177 06SE2003
Tenneco & Shield 1236187 03MY2003
Tenneco & Shield 1310944 25DE2004
Tenneco & Shield 1614779 25SE2000
Tenn-Speed 1542283 06JU2009
Tenn-Speed 2 1841694 28JU2004
Tenn-Speed 2 1855752 27SE2004
<CAPTION>
APPLICATION APPLICATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 731906 13SE1995
Tenneco 521074 09MY1994
Tenneco & Horizon 731464 13SE1995
</TABLE>
5
<PAGE>
EXHIBIT B
Ships
Custom and naval shipbuilding, drydock and ship repair services.
Naval architectural design.
6
<PAGE>
EXHIBIT 10.6
NEWPORT NEWS SHIPBUILDING INC.
CHANGE IN CONTROL SEVERANCE
BENEFIT PLAN FOR KEY EXECUTIVES
-------------------------------
1. Definitions
-----------
A. "Change in Control" shall mean the first to occur of the following
events (but no event other than the following events), except as
otherwise provided below:
(1) any person and any of their affiliates or associates becomes the
beneficial owner, directly or indirectly, of securities of
representing twenty-five percent (25%) or more of the combined
voting power of NNS' then outstanding securities having general
voting rights, and a majority of the Incumbent Board does not
approve the acquisition (other than in response to a Threatened
Change in Control under circumstances making it reasonably
apparent that a change in control of NNS has become inevitable)
before the acquisition occurs, notwithstanding the foregoing, a
Change in Control shall not be deemed to occur pursuant to this
clause (i) solely because twenty-five percent (25%) or more of
the combined voting power of NNS' then outstanding securities
having general voting rights is acquired by one or more employee
benefit plans maintained by one or more NNS Companies;
(2) members of the Incumbent Board cease to constitute a majority of
the NNS Board; or
(3) The consummation of any plan of merger, consolidation or
combination between NNS and any person including becoming a
subsidiary of any other person without members of the Incumbent
Board, as constituted immediately prior to the merger,
consolidation or combination constituting a majority of the board
of directors of (a) the surviving or successor corporation, or,
(b) if the surviving or successor corporation is a majority-owned
subsidiary of another corporation or corporations, the ultimate
parent company of the surviving or successor corporation; or
(4) the consummation of any sale, exchange or other disposition of
all or substantially all of NNS' assets without members of the
Incumbent Board immediately prior to any sale, exchange or
disposition of all or substantially all of NNS' assets
constituting a majority of the board of directors of (a) the
corporation which holds such assets after such disposition, or,
(b) if such corporation is a majority-owned subsidiary of another
corporation or corporations, the ultimate parent company of the
successor corporation; or
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(5) if any person and any of their affiliates and associates, shall
elect or have elected, during any period not exceeding 24 months,
at least 25% of the members of the NNS Board, without the
approval of the Incumbent Board and such members are comprised of
persons not serving as members of the NNS Board immediately prior
to the formation of such group or the first solicitation of
proxies by such shareholder;
provided however that the Incumbent Board may determine that any
transaction is not a Change in Control.
B. "Constructive Termination" will be deemed to have occurred if,
following the Change in Control, a Key Executive separates from
service with all NNS Companies after the NNS Companies, by action or
inaction, and without the Key Executive's express written consent:
(1) diminish the Key Executive's status, position, duties or
responsibilities with NNS Companies from those in effect
immediately prior to the Change in Control;
(2) reduce the Key Executive's current annual cash compensation from
NNS Companies below the sum of (a) the Key Executive's annual
base salary or annual base compensation from NNS Companies in
effect immediately prior to the Change in Control and (b) the Key
Executive's average annual award under the Newport News
Shipbuilding Inc. and Tenneco Inc. Executive Incentive
Compensation Plans for the three calendar year periods completed
immediately prior to the Change in Control;
(3) cause a material reduction in (a) the level of aggregate NNS
Companies-paid medical benefit, life insurance and disability
plan coverages; or (b) the aggregate rate of NNS Companies-paid
thrift/savings plan contributions and of NNS Companies-paid
defined benefit retirement plan benefit accrual, from those
coverages and rates in effect immediately prior to the Change in
Control; or
(4) effectively require the Key Executive to relocate because of
transfer of the Key Executive's place of employment with NNS
Companies.
C. "Discharge for Cause" shall be deemed to have occurred only if,
following the Change in Control, a Key Executive is discharged by NNS
Companies from employment or as a non-employee officer because:
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(1) the Key Executive has engaged in dishonesty or other serious
misconduct in his or her capacity as an employee or non-employee
officer of NNS Companies having the effect of injuring the
reputation or business of NNS Companies, monetarily or otherwise;
or
(2) the Key Executive has willfully and continually failed (unless
due to incapacity resulting from physical or mental illness) to
perform either his or her duties as a non-employee officer or the
duties of his or her employment by NNS Companies after written
demand for substantial performance is delivered to the Key
Executive by NNS Companies specifically identifying the manner in
which the Key Executive has not substantially performed such
duties.
Notwithstanding the foregoing, a Key Executive who, immediately prior
to the Change in Control, is a member of Executive Group 1 shall not
be deemed to have been Discharged for Cause unless a written notice
has been delivered to the Key Executive stating that either the NNS
Companies have terminated the Key Executive's employment or status as
a non-employee officer, which notice shall include a resolution,
adopted by a three-quarter's vote of the Incumbent Board (after the
Key Executive has been provided with reasonable notice and an
opportunity, together with counsel, for a hearing before the entire
Incumbent Board), finding that the Key Executive has engaged in the
conduct set forth in clauses "(1)" or "(2)" of the preceding sentence.
D. "Executive Group I" shall consist of each individual who, immediately
prior to a Change in Control, is an officer of NNS of the rank of
Senior Vice President or above.
E. "Executive Group II" shall consist of each individual
(1) who is not a member of Executive Group I; and
(2) is an officer of NNS of the rank of Vice President or above.
F. [RESERVED]
G. "Incumbent Board" means
(1) the members of the NNS Board on the date immediately following
the date on which NNS stock is issued to the shareholders of
Tenneco Inc., to the extent that they continue to serve as
members of the NNS Board; and
3
<PAGE>
(2) any individual who becomes a member of the NNS Board after the
date specified in (1) if his or her election or nomination for
election as a director is approved by a vote of at least three-
quarters of the then Incumbent Board.
H. "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
I. "Key Executive" means an individual who, immediately prior to the
Change in Control, is a member of Executive Group I or Executive Group
II.
J. "Plan" means the Newport News Shipbuilding Inc. Change in Control
Severance Benefit Plan for Key Executives.
K. "NNS" means Newport News Shipbuilding Inc.
L. "NNS Board" means the Board of Directors of NNS.
M. "NNS Company" means NNS and any stock corporation of which a majority
of the voting common or capital stock is owned directly or indirectly
by NNS.
N. "Threatened Change in Control" shall mean each of the following events
(but no event other than the following events), except as otherwise
provided below:
(1) any person and any of their affiliates or associates, without the
prior approval of a majority of the Incumbent Board (a) becomes
the beneficial owner, directly or indirectly, of securities of
NNS representing fifteen percent (15%) or more of the combined
voting power of NNS' then outstanding securities having general
voting rights, or (b) initiates a tender offer to acquire (as the
beneficial owner) securities of NNS representing fifteen percent
(15%) or more of the combined voting power of NNS' then
outstanding securities having general voting rights,
notwithstanding the foregoing, a Threatened Change in the Control
shall not be deemed to occur pursuant to this clause (i) solely
because fifteen percent (15%) or more of the combined voting
power of NNS' then outstanding securities having general voting
rights is acquired by one or more employee benefit plans
maintained by a NNS Inc. or
(2) three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board,
are elected within any single twelve-month period to serve on the
NNS Board; or
4
<PAGE>
(3) the Incumbent Board has determined that a Threatened Change in
Control exists;
provided however the Incumbent Board may determine that any
transaction is not a Threatened Change in Control.
O. "Threatened Change in Control Period" shall mean the period beginning
on the date a Threatened Change in Control occurs and ending on the
earliest of
(1) if the Threatened Change in Control was caused by an event
described in clause (i) of the definition of "Threatened Change
in Control", on the date first subsequent to the date on which
the person referred to therein does not own securities of NNS
representing fifteen percent (15%) or more of the combined voting
power of NNS' then outstanding securities having general voting
rights, or terminates the tender offer instituted by him as the
case may be; or
(2) if the Threatened Change in Control was caused by an event
described in clause (ii) of the definition of "Threatened Change
in Control", on the date first subsequent to the date on which
each member of the NNS Board shall be either a member of the
Incumbent Board or an individual whose election or nomination for
election as a director was approved by a majority of the
Incumbent Board.
(3) if the Threatened Change in Control shall be deemed to have
occurred by reason of the determination described in clause (iii)
of the definition of "Threatened Change in Control", on the date
the Incumbent Board has determined that the circumstances which
constituted the Threatened Change in Control no longer exist; or
(4) the date the Change in Control occurs.
For purposes of the foregoing definitions, the terms "person" and
"beneficial owner" shall have the meaning set forth in Sections 3(a) and
13(d) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
2. Plan Purpose. The purpose of the Plan is to induce Key Executives to
enter into, or continue their services or employment with, and to
steadfastly serve NNS Companies if and when a Change in Control is
threatened, despite attendant career uncertainties, by committing NNS to
provide severance benefits in the event their employment with NNS Companies
terminates as a result of a Change in Control.
5
<PAGE>
3. Effective Date. The date immediately following the date on which NNS stock
is distributed to shareholders of Tenneco Inc.
4. Eligibility for Benefits. (i) If within two years after a Change in
Control, a Key Executive is separated from service as an employee with NNS
Companies because (a) the Key Executive is discharged by the NNS Companies,
provided, such discharge is not Discharge for Cause, or (b) because of
Constructive Termination, and (ii) throughout the period beginning with the
Change in Control and ending with such separation from service with NNS
Companies, the Key Executive remains an employee of NNS Companies, then the
Key Executive shall be paid the following severance benefit:
A. If the Key Executive is a member of Executive Group I immediately
prior to the Change in Control -- an amount equal to 3 times the sum
of (a) the Key Executive's annual base salary or other annual base
compensation in effect immediately prior to the Change in Control,
plus (b) the average of the Key Executive's annual awards under the
Newport News Shipbuilding Inc. and Tenneco Inc. Executive Incentive
Compensation Plans, together with any special awards from NNS
Companies or Tenneco Companies, for the last three years of the Key
Executive's employment.
B. If the Key Executive is a member of Executive Group II immediately
prior to the Change in Control -- an amount equal to 2 times the sum
of (a) the Key Executive's annual base salary in effect immediately
prior to the Change in Control, plus (b) the average of the Key
Executive's annual awards under the Newport News Shipbuilding Inc. and
Tenneco Inc. Executive Incentive Compensation Plans, together with any
special awards from NNS Companies or Tenneco Companies, for the last
three years of the Key Executive's employment with NNS Companies.
C. [RESERVED]
D. During the first thirty days following the first anniversary of a
Change in Control, a member of Executive Group I on the date of the
Change in Control, may voluntarily elect to separate from service and
will be provided with the severance benefit described in A. above.
E. The foregoing constitute minimum severance benefit amounts and, if a
Key Executive receives other cash severance benefits from NNS
Companies, the amount of severance benefit to which the Key Executive
is entitled under the Plan shall be considered to be satisfied to the
extent of such other cash severance payment.
6
<PAGE>
5. Method of Payment. NNS shall pay, or cause to be paid, the severance
benefit under the Plan to the Key Executive in a single cash sum within 30
days following the later of the Key Executive's separation from service as
either an employee with NNS Companies and submission of a claim as required
by Section 13 of the Plan. Except for withholdings required by law to
satisfy local, state, and federal tax withholding requirements, no offset
nor any other reduction shall be taken in paying such benefit.
6. Gross-Up Payment. If any portion of the severance payments described
herein, and/or any other payments, shall be subject to the tax imposed by
Section 4999 of the Internal Revenue Code on account of any transaction
which is a Change in Control, (the portion of such payments which are
subject to the Excise Tax being referred to herein as the "Payments") NNS
shall pay to the affected Key Executive, not later than the 30th day
following the date the Key Executive becomes subject to the Excise Tax an
additional amount (the "Gross-Up Payment"), such that the net amount
retained by the Key Executive after deduction of the Excise Tax on such
Payments, and all federal, state and local income tax, interest and
penalties and Excise Tax on the Gross-Up Payment, shall be equal to the
amount which would have been retained by the Key Executive Individual had
the payments not been subject to the Excise Tax.
7. Assignment. No Key Executive may assign, transfer, convey, mortgage,
hypothecate, or in any way encumber any severance benefit payable under the
Plan, nor shall the Key Executive have any right to receive any severance
benefit under the Plan except at the time, in the amount and in the manner
provided in the Plan.
This Plan may and shall be assigned or transferred to, and shall be binding
upon and shall inure to the benefit of, any successor of NNS, and any such
successor shall be deemed substituted for all purposes of "NNS" under the
provisions of the Plan. As used in the preceding sentence, the term
"successor" shall mean any person, firm, corporation, or business entity
which at any time, whether by merger, purchase or otherwise, acquires all,
or essentially all, of the assets or business of NNS. Notwithstanding such
assignment, NNS shall remain, with such successor, jointly and severally
liable for all obligations under the Plan, which, except as herein
provided, may not be assigned by NNS.
8. Plan Amendment and Termination. The Plan may be terminated or amended at
any time by the Board of Directors except during a Threatened Change in
Control Period. However, in the event of a Change in Control, no
amendment, or termination, made on or after the date of the Change in
Control shall apply to any Key Executive until the expiration of two years
and thirty-one days from the date of the Change in Control.
9. Funding. NNS shall pay, or cause to be paid, any severance benefit under
the Plan out of general assets of NNS Companies.
7
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10. Controlling Law. The Plan shall be interpreted under the laws of the State
of Virginia, except to the extent that federal law preempts.
11. Named Fiduciary and Plan Administrator. The Company is the plan
administrator, and it shall have the authority to control and manage the
operation of this Plan with the authority to interpret the Plan. The Plan
Administrator shall make all reports and disclosures required by law.
12. Plan Sponsor. The Plan sponsor is Newport News Shipbuilding Inc., 4101
Washington Avenue, Newport News, VA 23607.
13. Agent for Service of Process. Legal process may be served on the Plan
Administrator.
14. Making a Claim
A. Submission of a Claim. In order to claim a severance benefit under
this Plan, a Key Executive need only advise the Plan Administrator in
writing that the Key Executive's employment with NNS Companies has
terminated, that the Key Executive claims a severance benefit under
the Plan and of the mailing address to which the severance benefit or
related correspondence is to be sent.
B. Denial of a Claim. If a Key Executive has made a claim for benefits
under this Plan and any portion of the claim is denied, the Plan
Administrator will furnish the Key Executive with a written notice
stating the specific reasons for the denial, specific reference to
pertinent Plan provisions upon which the denial was based, a
description of any additional information or material necessary to
perfect the claim and an explanation of why such information or
material is necessary, and appropriate information concerning steps to
take if the Key Executive wishes to submit the claim for review.
The claim will be deemed denied if the Plan Administrator does not
approve the claim and fails to notify the Key Executive within 90 days
after receipt of the claim, plus any extension of time for processing
the claim, not to exceed 90 additional days, as special circumstances
require. To obtain an extension, the Plan Administrator must advise
the Key Executive in writing during the initial 90 days if an
extension is necessary, stating the special circumstances requiring
the extension and the date by which the Key Executive can expect the
Plan Administrator's decision regarding the claim.
C. Review Procedure. Within 60 days after the date of written notice
denying any benefits, the Key Executive or the Key Executive's
authorized representative may write to the Plan Administrator
requesting a review of that decision.
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The request for review may contain such issues and comments as the Key
Executive wishes considered in the review. The Key Executive may also
review pertinent documents in the Plan Administrator's possession.
The Plan Administrator will make a final determination with respect to
the claim as soon as practicable. The Plan Administrator will advise
the Key Executive of the determination in writing and will set forth
the specific reasons for the determination and the specific references
to any pertinent Plan provisions upon which the determination is
based.
The claim will be deemed denied on review if the Plan Administrator
fails to give the Key Executive written notice of final determination
within 60 days after receipt of the request for review, plus any
extension of time for completing the review, not to exceed 60
additional days, as special circumstances require. To obtain an
extension, the Plan Administrator must advise the Key Executive in
writing during the initial 60 days if any extension is necessary,
stating the special circumstances requiring the extension and the date
by which the Key Executive can expect the Plan Administrator's
decision regarding the review of the claim.
9
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EXHIBIT 10.7
NEWPORT NEWS SHIPBUILDING INC. STOCK OWNERSHIP PLAN
1. PURPOSE
The purpose of the Plan is to promote the long-term success of the Company
for the benefit of shareholders by encouraging its officers and key employees to
have meaningful investments in the Company so that, as stockholders themselves,
those individuals will be more likely to represent the views and interests of
other stockholders and by providing incentives to such officers and key
employees for continued service. The Company believes that the possibility of
participation under the Plan will provide this group of officers and employees
an incentive to perform more effectively and will assist the Company in
attracting and retaining people of outstanding training, experience and ability.
2. DEFINITIONS
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant made to a Participant under Section 8.
"Award Agreement" means the agreement provided in connection with an Award
under Section 12.
"Award Date" means the date that an Award is made, as specified in an Award
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Company" means Newport News Shipbuilding Inc.
"Committee" means the Compensation and Benefits Committee of the Board of
Directors, or any successor committee thereto.
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"Common Stock" means the Company's common stock, $.01 par value per share.
"Covered Employees" shall have the meaning specified in Section 162(m)(3)
of the Code.
"Dividend Equivalent" means an amount equal to the amount of the cash
dividends that are declared and become payable after the Award Date for the
Award to which it relates and on or before the Settlement Date for such Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" on any date means the average of the highest and the
lowest sales prices of a share of Common Stock on the Composite Tape for such
date, as reported by the National Quotation Bureau Incorporated, provided that
if (i) no sales of Common Stock are included on the Composite Tape for such
date, or (ii) in the opinion of the Committee, the sales of Common Stock on such
date are insufficient to constitute a representative market, then the Fair
Market Value of a share of Common Stock on such date shall be deemed to be the
average of the highest and lowest prices of a share of Common Stock as reported
on said Composite Tape for the next preceding day on which (x) sales of Common
Stock are included and (y) the circumstances described in this clause (ii) do
not exist.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an ISO.
"Option Price" means the purchase price of one share of Common Stock under
a Stock Option.
"Participant" means an employee or officer of Newport News who has been
selected by the Committee to receive an Award under the Plan.
"Performance Unit" means an Award denominated in cash, the amount of which
may be based on performance of the Participant or of Newport News or of any
subsidiary or division thereof.
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"Plan" means this Newport News Shipbuilding Inc. Stock Ownership Plan, as
amended from time to time.
"Reload Stock Option" means a Stock Option (i) that is awarded, either
automatically in accordance with the terms of an Award Agreement in which one or
more other Awards are made or by separate Award, upon the exercise of a stock
option granted under this Plan or otherwise where the option price is paid by
the option holder by delivery of shares of Common Stock on the Settlement Date
for such exercise and (ii) that entitles such holder to purchase the number of
shares so delivered for an Option Price equal to the Fair Market Value of a
share of Common Stock on such Settlement Date.
"Restricted Stock" means shares of Common Stock subject to restrictions and
conditions pursuant to Section 8(c).
"Rule 16b-3" means Regulation ' 240.16b-3 of the rules and regulations of
the Securities and Exchange Commission promulgated under the Exchange Act.
"Settlement Date" means, (i) with respect to any Stock Option that has been
exercised in whole or in part, the date or dates upon which shares of Common
Stock are to be delivered to the Participant and the Option Price therefor paid,
(ii) with respect to any SARs that have been exercised, the date or dates upon
which a cash payment is to be made to the Participant, or in the case of SARs
that are to be settled in shares of Common Stock, the date or dates upon which
such shares are to be delivered to the Participant, (iii) with respect to
Performance Units, the date or dates upon which cash or shares of Common Stock
are to be delivered to the Participant, (iv) with respect to Dividend
Equivalents, the date upon which payment thereof is to be made, and (v) with
respect to Stock Equivalent Units, the date upon which payment thereof is to be
made, in each case, determined in accordance with the terms of the Award
Agreement under which any such Award was made.
"Stock Appreciation Right" or "SAR" means an Award that entitles the
Participant to receive on the Settlement Date an amount equal to the excess of
(i) the Fair Market Value of a share of Common Stock on the date of
exercise of the SAR over
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(ii) the Fair Market Value of one share of Common Stock on the Award Date
or any other higher amount specified in the Award Agreement.
"Stock Equivalent Unit" means an Award that entitles the Participant to
receive on the Settlement Date an amount equal to the Fair Market Value of one
share of Common Stock on such date.
"Stock Option" or "Option" means any right to purchase shares of Common
Stock (including a Reload Stock Option) awarded pursuant to Section 8(a).
"Newport News" means the Company, any stock corporation of which a majority
of the capital stock generally entitled to vote for directors is owned directly
or indirectly by the Company, and any other company designated as such by the
Committee, but only during the period of such ownership or designation.
3. TERM
The Plan shall be effective as of October 8, 1996, and shall remain in
effect through December 31, 2001. After termination of the Plan, no further
Awards may be granted other than Reload Stock Options granted in accordance with
Award Agreements existing as of December 31, 2001, but outstanding Awards shall
remain effective in accordance with their terms and the terms of the Plan.
4. PLAN ADMINISTRATION
(a) The Committee shall be responsible for administering the Plan.
(i) Composition of the Committee. The Committee shall be comprised of two
or more members of the Board of Directors, all of whom shall be "non-employee
directors" as defined in Rule 16b-3 and "outside directors" as that term is used
in Section 162 of the Code and the regulations promulgated thereunder.
(ii) Powers. The Committee shall have full and exclusive discretionary
power to interpret the Plan and to determine eligibility for benefits and to
adopt such rules, regulations and
4
<PAGE>
guidelines for administering the Plan as the Committee may deem necessary or
proper. Such power shall include, but not be limited to, selecting Award
recipients, establishing all Award terms and conditions and, subject to Section
13, adopting modifications and amendments to the Plan or any Award Agreement,
including without limitation, any that are necessary to comply with the laws of
the countries in which the Company or its affiliates operate.
(iii) Delegation. The Committee may delegate to one or more of its members
or to one or more agents or advisors such non-discretionary administrative
duties as it may deem advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have under
the Plan.
(b) The Committee may employ attorneys, consultants, accountants and other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Participants, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or Awards, and all members of the Committee shall
be fully protected by the Company, to the fullest extent permitted by applicable
law, in respect of any such action, determination or interpretation.
5. ELIGIBILITY
Awards will be limited to persons who are directors, officers or key
employees of Newport News. In determining the persons to whom Awards shall be
made, the Committee shall, in its discretion, take into account the nature of
the person's duties, past and potential contributions to the success of Newport
News and such other factors as the Committee shall deem relevant in connection
with accomplishing the purposes of the Plan. A person who has received an Award
or Awards may receive an additional Award or Awards. For purposes of this
Section 5, the terms "employee" and "officer" shall also include any former
employee or former officer of Newport News eligible to receive a replacement
award as contemplated in the third sentence of Section 8.
5
<PAGE>
6. AUTHORIZED AWARDS; LIMITATIONS
(a) Except for adjustments pursuant to Section 7, the maximum number of
shares of Common Stock that shall be available for issuance under the Plan (the
"Authorized Plan Shares") shall be_________ (approximately _____% of the issued
and outstanding shares of Common Stock on the effective date of the Plan).
(b) Except for adjustments pursuant to Section 7, in no event (i) shall
more than _____ million of the Authorized Plan Shares be available for issuance
pursuant to the exercise of ISOs awarded under the Plan; and (ii) shall more
than ____ million of the Authorized Plan Shares be available for issuance
pursuant to Restricted Stock Awards.
(c) If an Award expires unexercised or is forfeited, surrendered, canceled,
terminated or settled in cash in lieu of Common Stock, the shares of Common
Stock that were theretofore subject (or potentially subject) to such Award may
again be made subject to an Award Agreement.
(d) Common Stock that may be issued under the Plan may be either authorized
and unissued shares, or issued shares that have been reacquired by the Company
and that are being held as treasury shares. No fractional shares of Common
Stock shall be issued under the Plan; provided, however, that cash, in an amount
equal to the Fair Market Value of a fractional share of Common Stock as of the
Settlement Date of the Award, shall be paid in lieu of any fractional shares in
the settlement of Awards payable in shares of Common Stock.
(e) In no event shall the number of shares of Common Stock subject to Stock
Options plus the number of shares underlying SARs awarded to any one Participant
during the period from October 8, 1996, through December 31, 2001, exceed 10% of
the Authorized Plan Shares. In all events, determinations under the preceding
sentence shall be made in a manner that is consistent with Code Section 162 and
the regulations promulgated thereunder.
7. ADJUSTMENTS AND REORGANIZATIONS
The Committee may make such adjustments to Awards granted under the Plan
(including the terms, exercise price and otherwise) as it deems appropriate in
the event of changes that impact the Company, the Company's share price, or
share status, provided that any such actions are consistently and equitably
applied to all affected Participants; provided, that, notwithstanding
any other provision
6
<PAGE>
hereof, insofar as any Award is subject to performance goals established to
qualify payments thereunder as "performance-based compensation" as described in
Section 162(m) of the Code, the Committee shall have no power to adjust such
Awards other than (i) negative discretion and (ii) the power to adjust Awards
for corporate transactions, in either case to the extent permissible under
regulations interpreting Code Section 162(m).
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-up, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock, the
number and kind of shares that may be delivered under the Plan shall be subject
to such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to preserve the benefits or potential benefits to be made
available under the Plan, and the number and kind and price of shares subject to
outstanding Awards and any other terms of outstanding Awards shall be subject to
such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to prevent dilution or enlargement of outstanding Awards.
8. AWARDS
The Committee shall determine the type and amount of any Award to be made
to any Participant; provided, however, that, except as provided in paragraph
(g), no Award granted pursuant to this Plan shall vest in less than six months
after the date the Award is granted. Awards may be granted singly, in
combination, or in tandem. Awards may also be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for, grants
or rights under any other employee benefit or compensation plan of Newport News,
including any such employee benefit or compensation plan of any acquired entity.
(a) Stock Options.
(i) Grants. Stock Options (including Reload Stock Options) granted under
this Plan may be either of the following:
(1) an ISO or
(2) a Non-Qualified Stock Option
7
<PAGE>
The Committee may grant any Participant one or more ISOs, Non-Qualified
Stock Options, or both types of Stock Options, in each case with or without SARs
or Reload Stock Options or any other form of Award. Stock Options granted
pursuant to this Plan shall be subject to such additional terms, conditions, or
restrictions as may be provided in the Award Agreement relating to such Stock
Option.
(ii) Option Price. The Option Price of a Stock Option shall be not less
than 100% of the Fair Market Value of a share of Common Stock on the Award Date;
provided, however, that in the case of a Stock Option granted retroactively in
tandem with or as a substitution for another Award, the Option Price shall be
not less than 100% of the Fair Market Value of a share of Common Stock on the
date of such other Award; and provided further that in any case ISOs shall have
a price equal to 100% of the Fair Market Value of a share of Common Stock on the
Award Date.
(iii) ISOs. Anything in this Plan to the contrary notwithstanding, no term
of this Plan relating to ISOs shall be interpreted, amended or altered, nor
shall any discretion or authority awarded under the Plan be exercised, so as to
disqualify this Plan under Section 422 of the Code, or, without the consent of
the Participants affected, to disqualify any ISO under Section 422 of the Code.
An ISO shall not be granted to an individual who, on the date of grant,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the employing Company or of its parent or any subsidiary
corporation.
The aggregate Fair Market Value, determined on the Award Date, of the
shares of Common Stock or other stock with respect to which one or more ISOs (or
other "incentive stock options," within the meaning of Subsection (b) of Section
422 of the Code, under all other stock option plans of the Participant's
employing Company and its parent and subsidiary corporations) that are
exercisable for the first time by the Participant during any particular calendar
year shall not exceed the $100,000 limitation imposed by Section 422(d) of the
Code.
(iv) Manner of Payment of Option Price. The Option Price shall be paid in
full at the time of the exercise of the Stock Option and may be paid in any of
the following methods or combinations thereof:
8
<PAGE>
(A) In United States dollars in cash, check, bank draft or money
order payable to the order of the Company;
(B) By the delivery of shares of Common Stock having an aggregate
Fair Market Value on the date of such exercise equal to the
Option Price;
(C) Participants may simultaneously exercise Stock Options and
sell their shares of Common Stock acquired thereby and apply the proceeds
to the payment of the Option Price pursuant to the procedures established
by the Committee; and
(D) In any other manner that the committee shall approve.
(E) Any Shares of Common Stock required or permitted to be sold
by an executive officer of the Company in connection with the payment of
the Option Price shall be transferred to the Company.
(v) Reload Stock Options. The Committee may award Reload Stock
Options to any Participant either in combination with other Awards or in
separate Award Agreements that grant Reload Stock Options upon exercise of
outstanding stock options granted under this Plan or otherwise.
(b) Stock Appreciation Rights.
(i) Grants. The Committee may award any Participant SARs, which shall
be subject to such additional terms, conditions, or restrictions as may be
provided in the Award Agreement relating to such SAR Award, including any
limits on aggregate appreciation. SARs may be settled in Common Stock or
cash or both.
(ii) Award Price. The Award Price per share of Common Stock of a SAR
shall be fixed in the Award Agreement and shall be not less than 100% of
the Fair Market Value of a share of Common Stock on the date of the award;
provided, however, that in the case of a SAR awarded retroactively in
tandem with or as a substitution for another Award, the Award Price per
share of a SAR shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date of such other Award.
9
<PAGE>
(iii) Distribution of SARs. SARs shall be exercisable in accordance
with the conditions and procedures set out in the Award Agreement relating
to such SAR Award.
(c) Restricted Stock. The Committee may award Restricted Stock to any
Participant. Awards of Restricted Stock shall be subject to such conditions and
restrictions as are established by the Committee and set forth in the Award
Agreement, which may include, but are not limited to, continued service with the
Company, achievement of specific business objectives, and other measurements of
individual or business unit or Company performance.
(d) Stock Equivalent Units. The Committee may award Stock Equivalent
Units to any Participant. All or part of any Stock Equivalent Units Award may
be subject to conditions and restrictions established by the Committee, and set
forth in the Award Agreement, which may include some or all of the following ;
continued service with the Company, achievement of specific business objectives,
and other measurements of individual or business unit or Company performance
that may include but shall not be limited to, earnings per share, net profits,
total shareholder return, cash flow, return on shareholders' equity, EVA, and
cumulative return on net assets employed. Without limiting the generality of
the foregoing, it is intended that the Committee shall establish performance
goals applicable to Stock Equivalent Units granted to Participants who, in the
judgment of the Committee, may be Covered Employees in such manner as shall
permit it to qualify as "performance-based compensation" as described in Section
162(m)(4)(C) of the Code. The maximum number of Stock Equivalent Units that may
be granted to any Participant in any one calendar year shall not exceed 100,000.
(e) Dividend Equivalents. The Committee may provide in any Award
Agreement in which Stock Equivalent Units are awarded that such Stock Equivalent
Units may accrue Dividend Equivalents. In lieu of awarding Dividend
Equivalents, the Committee may provide for automatic awards of additional Stock
Equivalent Units on each date that cash dividends are paid on the Common Stock
in an amount equal to (i) the product of the dividend per share on the Common
Stock times the total number of Stock Equivalent Units then held by the
Participant, divided by (ii) the Fair Market Value of the Common Stock on the
dividend payment date.
(f) Performance Units. Performance Units shall be based on attainment over
a specified period of individual performance targets or on other parameters that
may include but shall not be limited to, earnings per share, net profits, total
shareholder return, cash flow, return on shareholders' equity, EVA, and
cumulative return on net assets employed. Performance Units may be settled in
10
<PAGE>
Common Stock or cash or both. Without limiting the generality of the foregoing,
it is intended that the Committee shall establish performance goals applicable
to Performance Units granted to Participants who, in the judgment of the
Committee, may be Covered Employees in such a manner as shall permit payments
with respect thereto to qualify as "performance-based compensation" as described
in Section 162(m)(4)(C) of the Code. The maximum amount of compensation that may
be paid to any one Participant with respect to any one year shall be $2,000,000.
(g) The Committee may also, in its sole discretion, shorten or terminate
the restricted period or waive any other conditions for the lapse of
restrictions with respect to all or any portion of any Award. Notwithstanding
the foregoing, all restricted periods shall terminate and the Awards shall be
fully vested with respect to any Participant upon the Participant's Retirement,
death, or Total Disability, coincident with termination of employment with
Newport News. For purposes of this Section 8:
"Retirement" means the Participant's termination of employment with
Newport News at a time when, under the Newport News Retirement Plan or under
any other retirement plan that is maintained by Newport News and that is
determined by the Committee to be the functional equivalent of the Newport News
Retirement Plan, the Participant is eligible to receive an immediately payable
normal retirement benefit, or, if approved by the Committee, the Participant is
eligible to receive an immediately payable early retirement benefit under such
plans; and
"Total Disability" means the permanent inability of the Participant, which
is a result of accident or sickness, to perform such Participant's occupation or
employment for which the Participant is suited by reason of the Participant's
previous training, education and experience and which results in the termination
of the Participant's employment with Newport News.
9. DIVIDENDS
The Committee may provide in the appropriate Award Agreement that dividends
on Restricted Stock may be paid currently in cash or credited to a Participant's
account for subsequent distribution as determined by the Committee. The Award
Agreement may provide for the reinvestment of dividends paid on Restricted Stock
in shares of Common Stock.
11
<PAGE>
10. DEFERRALS AND SETTLEMENTS
Settlement of Awards may be in the form of cash, Common Stock, other
Awards, or in combinations thereof as the Committee shall determine, and with
such other restrictions as it may impose. The Committee may also require or
permit Participants to defer the issuance or vesting of shares or the settlement
of Awards under such rules and procedures as it may establish under the Plan.
The Committee may also provide that deferred settlements include the payment of,
or crediting of interest on, the deferral amounts or the payment or crediting of
Dividend Equivalents on deferred settlements denominated in shares.
11. TRANSFERABILITY AND BENEFICIARIES
No Awards under the Plan shall be assignable, alienable, saleable or
otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined by
the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by Award Agreements that set forth
the details, conditions and limitations for each Award, which may include the
term of an Award (except that (i) except as provided in Section 8(g), no Award
shall vest in less than six months after the date the Award is granted and (ii)
in no event shall the term of any ISO exceed a period of ten years from the date
of its grant), the provisions applicable in the event the Participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any Award.
13. AMENDMENTS; COMPLIANCE WITH RULE 16B-3
The Committee may suspend, terminate, or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan, except
that, without the approval of the Company's shareholders, no such amendment
shall be made for which shareholder approval is necessary to comply with any
applicable tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief under Section
16b of the Exchange Act.
12
<PAGE>
14. TAX WITHHOLDING
The Company shall have the right to (i) make deductions from any settlement
of an Award made under the Plan, including the delivery or vesting of shares, or
require shares or cash or both be withheld from any Award, in each case in an
amount sufficient to satisfy withholding of any federal, state or local taxes
required by law, or (ii) take such other action as may be necessary or
appropriate to satisfy any such withholding obligations. The Committee may
determine the manner in which such tax withholding may be satisfied, and may
permit shares of Common Stock (rounded up to the next whole number) to be used
to satisfy required tax withholding based on the Fair Market Value of any such
shares of Common Stock, as of the Settlement Date of the applicable Award.
15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements of
Awards received by a Participant under the Plan shall not be deemed a part of
the Participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded
and shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any Participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such right (unless otherwise
determined by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or right to be granted an award under the
Plan, and no Participant shall have any right under the Plan to be retained in
the employment of the Company or its affiliates.
13
<PAGE>
18. GOVERNING LAW
The validity, construction and effect of the Plan, and any actions taken or
relating to the Plan, shall be determined in accordance with the laws of the
State of Delaware and applicable federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in any Award Agreement, a Participant shall
have no rights as a shareholder of the Company until he or she becomes the
holder of record of Common Stock.
21.
No Award or other transaction shall be permitted under this plan which
would have the effect of imposing liability for a participant under Section 16
of the Exchange Act. Irrespective of any other provision of this Plan or Award
Agreement, any such Award or other transaction purportedly made under or
pursuant to this Plan shall be void, ab initio.
14
<PAGE>
Exhibit 10.8
- --------------------------------------------------------------------------------
AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES
UNDER DPAS (15 CFR 350) (greater than) L DX-A3 1 174
- --------------------------------------------------------------------------------
2. CONTRACT (PROC. INST. IDENT.) NO. 3. EFFECTIVE DATE
N00024-95-C-2106 SEE BLOCK 20C
- --------------------------------------------------------------------------------
4. REQUISITION PURCHASE REQUEST/PROJECT NO. N00024-94-NR-91624 4-312F-91624
- --------------------------------------------------------------------------------
5. ISSUED BY N00024
NAVAL SEA SYSTEMS COMMAND
BUYER/SYMBOL: Jim Lofgren SEA 02215
2531 JEFFERSON DAVIS HWY
ARLINGTON, VA 22242-5160
PHONE: Area Code 703/602-7519 Ext 215
- --------------------------------------------------------------------------------
6. ADMINISTERED BY (If other than Item 5) CODE N62793
CRITICALITY DESIGNATOR:
SUPSHIP Newport News
Newport News, VA 23607-2787
PRE-AWARD SURVEY: NONE
- --------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, State and ZIP Code)
CEC NO: 00-130-7495
Newport News Shipbuilding
4101 Washington Avenue
Newport News, VA 23607
TIN NO: 54-03118880
- --------------------------------------------------------------------------------
8. DELIVERY
( ) FOB ORIGIN ( ) OTHER (See below)
- --------------------------------------------------------------------------------
9. DISCOUNT FOR PROMPT PAYMENT
- --------------------------------------------------------------------------------
10. SUBMIT INVOICES (greater than) ITEM 12
(4 copies unless otherwise specified) Via DCAA
TO ADDRESS SHOWN IN Newport New
- --------------------------------------------------------------------------------
CAGE CODE 73689 FACILITY CODE 43689
- --------------------------------------------------------------------------------
11. SHIP TO/MARK FOR CODE
(See Section F of Schedule)
- --------------------------------------------------------------------------------
12. PAYMENT WILL BE MADE BY CODE N00179
Defense Accounting Office
Finance Department Code BSE
Washington, D.C. 20371-5100
- --------------------------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN
COMPETITION
10 U.S.C. 2304(c)( 1 ) ( ) 41 U.S.C. 253(c)( )
- --------------------------------------------------------------------------------
14. ACCOUNTING AND APPROPRIATION DATA
See Attachment "A"
- --------------------------------------------------------------------------------
15 A ITEM NO. 15B SUPPLIES/SERVICES 15C QTY 15D UNIT 15E UNIT PRICE
- --------------------------------------------------------------------------------
(See Section B of Schedule)
- --------------------------------------------------------------------------------
15F AMOUNT
- --------------------------------------------------------------------------------
15G. TOTAL AMOUNT OF CONTRACT $2,517,320,000.00
- --------------------------------------------------------------------------------
16. TABLE OF CONTENTS
- --------------------------------------------------------------------------------
X'd SEC. DESCRIPTION PAGE(S)
- --------------------------------------------------------------------------------
PART I - THE SCHEDULE
- --------------------------------------------------------------------------------
X A SOLICITATION/CONTRACT FORM 1
- --------------------------------------------------------------------------------
X B SUPPLIES OR SERVICES AND PRICES/COSTS 2
- --------------------------------------------------------------------------------
X C DESCRIPTION/SPECS/WORK STATEMENT 6
- --------------------------------------------------------------------------------
X D PACKAGING AND MARKING 65
- --------------------------------------------------------------------------------
X E INSPECTION AND ACCEPTANCE 68
- --------------------------------------------------------------------------------
X F DELIVERIES OR PERFORMANCE 71
- --------------------------------------------------------------------------------
X G CONTRACT ADMINISTRATION DATA 74
- --------------------------------------------------------------------------------
X H SPECIAL CONTRACT REQUIREMENTS 75
- --------------------------------------------------------------------------------
PART II - CONTRACT CLAUSES
- --------------------------------------------------------------------------------
X I CONTRACT CLAUSES 135
- --------------------------------------------------------------------------------
PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
- --------------------------------------------------------------------------------
X J LIST OF ATTACHMENTS
- --------------------------------------------------------------------------------
PART IV - REPRESENTATIONS AND INSTRUCTIONS 174
- --------------------------------------------------------------------------------
K REPRESENTATIONS, CERTIFICATIONS
AND OTHER STATEMENTS OF OFFERORS
- --------------------------------------------------------------------------------
L INSTS., CONDS., AND NOTICES TO OFFERORS
- --------------------------------------------------------------------------------
M EVALUATION FACTORS FOR AWARD
- --------------------------------------------------------------------------------
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
- --------------------------------------------------------------------------------
17. ( X ) CONTRACTOR'S NEGOTIATED AGREEMENT
(Contractor is required to sign this document and return 2 copies to issuing
office.) Contractor agrees to furnish and deliver all items or perform all the
services set forth or otherwise identified above and on any continuation sheets
for the consideration stated herein. The rights and obligations of the parties
to this contract shall be subject to and governed by the following documents:
(a) this award/contract, (b) the solicitation, if any, and (c) such provisions,
representations, certifications and specifications as are attached or
incorporated by reference herein. (Attachments are listed herein.)
- --------------------------------------------------------------------------------
18. ( ) AWARD (Contractor is not required to sign this document.)
Your offer on Solicitation Number
including the additions or changes made by you which additions or changes are
set forth in full above, is hereby accepted as to the items listed above and on
any continuation sheets. This award consummates the contract which consists of
the following documents: (a) the Government's solicitation and your offer, and
(b) this award/contract. No further contractual document is necessary.
- --------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (Type or print)
F. SILVA
VICE PRESIDENT
- --------------------------------------------------------------------------------
19B. NAME OF CONTRACTOR 19C. DATE SIGNED
BY F. SILVA DEC 08 1994
--------------------------------------------------
(Signature of person authorized to sign)
- --------------------------------------------------------------------------------
20A. NAME OF CONTRACTING OFFICER
JAMES G. LOFGREN
Contracting Officer
- --------------------------------------------------------------------------------
20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /s/ James G. Lofgren DEC 08 1994
--------------------------------------------------
(Signature of Contracting Officer)
- --------------------------------------------------------------------------------
NSN 7540-01-152-8069 25-106 STANDARD FORM 26 (REV. 4-85)
<PAGE>
N00024-95-C-2106
SCHEDULE
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
ITEM SUPPLIES/SERVICES QTY UNIT TARGET PRICE
- ---- ----------------- --- ---- ------------
0001 CVN-68 (NIMITZ) Class 1 Ship $2,512,474,532
Aircraft Carrier (NUCLEAR)
(CVN 76)
0002 Onboard Repair Parts for 1 Lot
Item 0001. NSP - Price
included in price of
Item 0001.
0003 Data for Items 0001 and
0002. (See DD Form 1423,
Exhibit "A" hereto). NSP -
Price included in price
of Item 0001.
0004 Provisioning Technical
Documentation (PTD) for
Item 0001. See DD Form
1423, Exhibit "C" hereto).
NSP - Price included in
price of Item 0001.
0005 Technical Manual Requirements 1 Lot $ 4,845,468
0006 Data for Item 0005 (See
DD Form 1423, Exhibit "B"
hereto). NSP - Price
included in price of Item
0005.
0007 Provisioned Item Order (PIO). (See General
Requirement C-32).
Total: $2,517,320,000
2
<PAGE>
N00024-95-C-2106
SCHEDULE
Items 0001 - 0006
- -----------------
TOTAL ITEMS O001 - 0006 TARGET COST:..................$2,060,000,000
TOTAL ITEMS 0001 - 0006 TARGET PROFIT:................$ 457,320,000
--------------
TOTAL ITEMS 0001 - 0006 TARGET PRICE:.................$2,517,320,000
TOTAL ITEMS 0001 - 0006 CEILING PRICE:................$2,884,000,000
(140% of Target Cost)
----
TOTAL ITEMS 0001 - 0006 FACILITIES CAPITAL
COST OF MONEY*:.......................................$ 89,117,100
--------------
SHARING RATIO: 80/20
------------------------------------ under Target Cost
80/20
------------------------------------ over Target Cost
(Govt) (Contractor)
NOTES: (1) The total amount obligated on this contract at the time of
contract award is $2,967,320,000, which represents $2,517,320,000 for the Target
Price of Items 0001 - 0006 and $89,117,100 for the Facilities Capital Cost of
Money* of Items 0001-0006, plus $360,882,900, for payment of compensation
adjustments. See Attachment A.
(2) *The cost of Facilities Capital Cost of Money is not included in
the Target Cost set forth above, but is included in the total amount of the
contract. For the purpose of incentive price revision as provided for in the
clause hereof entitled "Incentive Price Revision (Firm Target)", the term "total
final cost" does not include the allowable cost of Facilities Capital Cost of
Money.
B-1 COMPENSATION (FI) (NAVSEA) (JAN 1990)
(Applicable to Items 0001 - 0006)
The total compensation to be paid the Contractor shall be the sum of the total
final price(s) established in accordance with the "INCENTIVE PRICE REVISION--
FIRM TARGET" (FAR 52.216-16) clause and the amounts payable to or due from the
Contractor pursuant to the contract provisions identified in paragraph (d)(l) of
said clause.
3
<PAGE>
N00024-95-C-2106
SCHEDULE
B-2 REFUNDS (SPARES AND SUPPORT EQUIPMENT) (NAVSEA) (SEP 1990)
(a) In the event that the price of a spare part or item of support equipment
delivered under this contract significantly exceeds its intrinsic value, the
Contractor agrees to refund the difference. Refunds will only be made for the
difference between the intrinsic value of the item at the time an agreement on
price was reached and the contract price. Refunds will not be made to recoup the
amount of cost decreases that occur over time due to productivity gains (beyond
economic purchase quantity considerations) or changes in market conditions.
(b) For purposes of this requirement, the intrinsic value of an item is defined
as follows:
(1) If the item is one which is sold or is substantially similar or
functionally equivalent to one that is sold in substantial quantities to the
general public, intrinsic value is the established catalog or market price, plus
the value of any unique requirements, including delivery terms, inspection,
packaging or labeling.
(2) If there is no comparable item sold in substantial quantities to
the general public, intrinsic value is defined as the price an individual would
expect to pay for the item based upon an economic purchase quantity as defined
in FAR 52.207-4, plus the value of any unique requirements, including delivery
terms, inspection, packaging or labeling.
(c) At any time up to two years after delivery of a spare part or item of
support equipment, the Contracting Officer may notify the Contractor that, based
on all information available at the time of the notice, the price of the part or
item apparently exceeds its intrinsic value.
(d) If notified in accordance with paragraph (c) above, the Contractor agrees to
enter into good faith negotiations with the Government to determine if, and in
what amount, the Government is entitled to a refund.
(e) If agreement pursuant to paragraph (d) above cannot be reached, and the
Navy's return of the new or unused item to the Contractor is practical, the
Navy, subject to the Contractor's agreement, may elect to return the item to the
Contractor. Upon return of the item to its original point of Government
acceptance, the Contractor shall refund in full the price paid. If no agreement
pursuant to paragraph (d) above is reached, and
4
<PAGE>
N00024-95-C-2l06
SCHEDULE
return of the item by the Navy is impractical, the Contracting Officer may, with
the approval of the Head of the Contracting Activity, issue a Contracting
Officer's final decision on the matter, subject to Contractor appeal as provided
in the "DISPUTES" clause (FAR 52.233-1).
(f) The Contractor will make refunds, as required under this requirement, in
accordance with instructions from the Contracting Officer.
(g) The Contractor shall not be liable for a refund if the Contractor advised
the Contracting Officer in a timely manner that the price it would propose for a
spare part or item of support equipment exceeded its intrinsic value, and with
such advise, specified the estimated proposed price, the estimated intrinsic
value and known alternative sources or item, if any, that can meet the
requirement.
(h) This requirement does not apply to any spare parts or items of support
equipment whose price is determined through adequate price competition. This
requirement also does not apply to any spare part or item of support equipment
with a unit price in excess of $100,000; or in excess of $25,000 if the
Contractor submitted, and certified the currency, accuracy and completeness of,
cost or pricing data applicable to the item.
5
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N00024-95-C-2106
SCHEDULE
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENT
PART 1 - CONTRACT LINE ITEM DESCRIPTION
ITEMS 0001 AND 0002 - GENERAL SCOPE OF WORK
The Contractor shall construct Aircraft Carrier CVN-76 at the Contractor's
plant at Newport News, Virginia and shall deliver the vessel complete, including
the installation of materials to be furnished by the Government and the
preparation and furnishing of drawings and other data all in conformity with the
Specifications for Building Aircraft Carrier CVN-68 Class hereinafter referred
to as "these specifications" as applicable to (NAVSEA S9CVN-CK-SBS-010/(U) CVN
76 of 1 JULY 1994 (Attachment C) as modified by Change Packages 1, 2, and 3
(Attachment C), including changes thereof which may be as hereinafter provided.
In addition, the Contractor shall utilize in the construction of CVN-76 the same
technical information developed by the Contractor for CVN74/75 unless changes
are required by these specifications invoked above or otherwise approved in
writing by NAVSEA. Propulsion Plant system changes when approved by NAVSEA shall
be incorporated into the full scale propulsion plant mock-up unless otherwise
approved in writing by NAVSEA. Such changes will then be subject to review by
NAVSEA in the mock-up in accordance with the requirements of these shipbuilding
specifications and General Requirement C-22.
Items 0003 and 0006 - DATA REQUIREMENTS (NAVSEA) (SEP 1992)
The data to be furnished hereunder shall be prepared in accordance with the
Contract Data Requirements List, DD Form 1423, Exhibit(s) "A" and "B", attached
hereto.
ITEM 0004 - PROVISIONING TECHNICAL DOCUMENTATION
The Provisioning Technical Documentation (PTD), except for provisioning
supporting reactor plant components, shall be in accordance with MIL-STD-1552A
and MIL-STD-1561A (dated 17 March 1981), the NAVSEA Provisioning Requirements
Statement (PRS) dated August 1981, and the Contract Data Requirements List, DD
Form 1423, Exhibit "C" hereto. PTD for reactor plant components shall be in
accordance with the shipbuildinq specification.
6
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N00024-95-C-2016
SCHEDULE
The Contractor shall attend a Provisioning Guidance Conference to be held
in the Supervisor's office on a mutually agreed to date. At that meeting, the
Contractor shall submit an estimate of the total number of Contractor-furnished
provisionable items to be placed aboard or installed on the vessel. The
Contractor shall also adhere to a schedule for submission of PTD which will be
developed at the Provisioning Guidance Conference and to submit reports titled
"Listing and Status of Provisionable Items" for Contractor furnished equipment
on a monthly basis until 21 months prior to the end of construction of the
vessel and every two weeks thereafter. In the event that the Contractor desires
to utilize his ADP capabilities in lieu of the NAVSHIPS forms, the format of the
ADP report must be acceptable to the Supervisor.
Item 0005 - TECHNICAL MANUAL REQUIREMENTS
With the exception of the effort specifically identified in General Requirement
C-29 as being provided by the Government, the Contractor shall provide all
effort required for the preparation and delivery of technical manuals.
Item 0007
Provisioning supplies to be furnished hereunder will be ordered in contract
modifications issued in accordance with the General Requirement C-32 entitled -
PROVISIONED ITEM ORDER - ALTERNATE I (NAVSEA) (MAY 1993).
Items 0001 - 0007
- -----------------
(a) Department of Defense Contract Security Classification Specifications,
DD Form 254, attached hereto, forms a part of this schedule.
(b) The requirements of NAVSEAINST C9210.22B, "Security and Safety of
Nuclear Reactor Plants, Reactor Fuel and Components Containing Plutonium or
Enriched Uranium, Requirements For" are incorporated in this contract.
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N00024-95-C-2106
SCHEDULE
PART C-2 - GENERAL REQUIREMENTS
The following is a list of General Requirements in Section C-2.
<TABLE>
<CAPTION>
TITLE PAGE
----- ----
<S> <C>
C-1 ACCESS TO THE VESSELS (AT)............................................10
C-2 ACCESS TO VESSELS BY NON-U.S. CITIZENS................................10
C-3 AGREEMENT REGARDING ADDITIONAL SPRAY SHIELDS..........................13
C-4 ALLOWANCE LIST SERVICE................................................13
C-5 APPROVAL BY THE GOVERNMENT (AT).......................................13
C-6 ASSIGNMENT AND USE OF NATIONAL STOCK NUMBERS..........................14
C-7 DELETED...............................................................14
C-8 DELETED...............................................................14
C-9 CREW CVN-76...........................................................15
C-10 CVN-68 CLASS PROGRAM INTERACTION......................................17
C-11 DELIVERY OF DATA......................................................18
C-12 DEPARTMENT OF LABOR OCCUPATIONAL SAFETY AND HEALTH
STANDARDS FOR SHIPBUILDING............................................18
C-13 DESIGN BUDGET.........................................................18
C-14 DELETED...............................................................20
C-15 DRAWINGS AND OTHER DATA...............................................21
C-16 DRYDOCKING FACILITIES AND SHIPBUILDING WAYS
CERTIFICATION.........................................................24
C-17 ENGINEERING SERVICES..................................................25
C-18 EXCLUSION OF MERCURY (ELECTRONICS)....................................25
C-19 EXCLUSION OF MERCURY (MACHINERY)......................................26
C-20 GOVERNMENT FURNISHED PROPERTY.........................................28
C-21 GOVERNMENT INSTALLATION OF CRYPTOGRAPHIC EQUIPMENT....................30
C-22 GOVERNMENT REVIEW OF PROPULSION PLANT MOCKUP..........................30
C-23 HEALTH, SAFETY, AND FIRE PROTECTION...................................30
C-24 DELETED...............................................................31
C-25 ON-BOARD REPAIR PARTS (OBRP)..........................................31
C-26 PERMITS AND RESPONSIBILITIES..........................................31
C-27 PLANS AND OTHER DATA..................................................32
C-28 PLANT PROTECTION......................................................32
C-29 PRINTING OF TECHNICAL MANUALS, PUBLICATIONS, CHANGES,
REVISIONS AND AMENDMENTS - ALT I......................................33
C-30 PROTECTION OF THE SHIP DURING ADVERSE ENVIRONMENTAL
CONDITIONS............................................................36
C-31 DELETED...............................................................36
C-32 PROVISIONED ITEM ORDER ALT I..........................................37
C-33 QUALIFICATION OF CONTRACTOR NONDESTRUCTIVE TESTING
(NDT) PERSONNEL.....................................................41
C-34 DELETED...............................................................42
C-35 QUALITY PROGRAM.......................................................43
C-36 OUARTERLY PRODUCTION PROGRESS CONFERENCES.............................46
</TABLE>
8
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N00024-95-C-2106
SCHEDULE
<TABLE>
<CAPTION>
TITLE PAGE
----- ----
<S> <C>
C-37 RADIOLOGICAL CONTROLS AND RADIATION HEALTH PROTECTION.................52
C-38 REACTOR PLANT SPECIAL TOOLING AND TEST EQUIPMENT......................53
C-39 RECORDING AND MAINTAINING DATA FOR REACTOR PLANT WORK.................53
C-40 SHIPYARD PHYSICAL SECURITY............................................54
C-41 SPECIAL AGREEMENT REGARDING SWITCHBOARD SUBCONTRACTS..................54
C-42 STANDARDIZATION.......................................................55
C-43 DELETED...............................................................56
C-44 USE OF JIGS, FIXTURES, MODELS, MOCKUPS OR SIMILAR
NON-RECURRING ITEMS FROM PREVIOUS CVN 68 CLASS
CONSTRUCTION SHIPS...................................................56
C-45 USE OF POWER GRINDERS AND SAWS........................................56
C-46 DELETED...............................................................57
C-47 INVENTION RIGHTS......................................................57
C-48 EXCUSABLE DELAY.......................................................57
C-49 PAYMENT OF INVOICES...................................................57
C-50 PROVISIONS RELATING TO MATERIAL FORMERLY FURNISHED BY
THE GOVERNMENT ON PREVIOUS AIRCRAFT CARRIER CONTRACTS................58
C-51 ACCESS TO THE NAVY SUPPLY SYSTEM......................................58
C-52 CLARIFICATION OF "INSURANCE -- PROPERTY LOSS OR DAMAGE --
LIABILITY TO THIRD PERSONS"..........................................59
C-53 CONTRACT ADJUSTMENT FOR ENERGY SHORTAGE...............................60
C-54 HYDRA SYSTEM..........................................................64
</TABLE>
9
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N00024-95-C-2106
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C-1 ACCESS TO THE VESSEL(S) (AT) (NAVSEA) (JAN 1983)
Officers, employees and associates of other prime Contractors with the
Government and their subcontractors, shall, as authorized by the Supervisor,
have, at all reasonable times, admission to the plant, access to the vessel(s)
where and as required, and be permitted, within the plant and on the vessel(s)
to perform and fulfill their respective obligations to the Government. The
Contractor shall make reasonable arrangements with the Government or Contractors
of the Government, as shall have been identified and authorized by the
supervisor to be given admission to the plant and access to the vessel(s) for
office space, work areas, storage or shop areas, or other facilities and
services, necessary for the performance of the respective responsibilities
involved, and reasonable to their performance.
C-2 ACCESS TO VESSELS BY NON-U.S. CITIZENS (NAVSEA) (MAY 1993)
(a) No person not known to be a U.S. citizen shall be eligible for access to
naval vessels, work sites and adjacent areas when said vessels are under
construction, conversion, overhaul, or repair, except upon a finding by
COMNAVSEA or his designated representative that such access should be permitted
in the best interest of the United States. The Contractor shall establish
procedures to comply with this requirement and NAVSEAINST 5500.3 (series) in
effect on the date of this contract or agreement.
(b) If the Contractor desires to employ non-U.S. citizens in the performance of
work under this contract or agreement that requires access as specified in
paragraph (a) of this requirement, approval must be obtained prior to access for
each contract or agreement where such access is required. To request such
approval for non-U.S. citizens of friendly countries, the Contractor shall
submit to the cognizant Contract Administration Office (CAO), an Access Control
Plan (ACP) which shall contain as a minimum, the following information:
(1) Badge or Pass oriented identification, access, and movement control
system for non-U.S. citizen employees with the badge or pass to be worn or
displayed on outer garments at all times while on the Contractor's facilities
and when performing work aboard ship.
(i) Badges must be of such design and appearance that permits easy
recognition to facilitate quick and positive identification.
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N00024-95-C-2106
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(ii) Access authorization and limitations for the bearer must be
clearly established and in accordance with applicable security regulations and
instructions.
(iii) A control system, which provides rigid accountability
procedures for handling lost, damaged, forgotten or no longer required badges,
must be established.
(iv) A badge or pass check must be performed at all points of entry
to the Contractor's facilities or by a site supervisor for work performed on
vessels outside the Contractor's plant.
(2) Contractor's plan for ascertaining citizenship and for screening
employees for security risk.
(3) Data reflecting the number, nationality, and positions held by non-
U.S. citizen employees, including procedures to update data as non-U.S. citizen
employee data changes, and pass to cognizant CAO.
(4) Contractor's plan for ensuring subcontractor compliance with the
provisions of the Contractor's ACP.
(5) These conditions and controls are intended to serve as guidelines
representing the minimum requirements of an acceptable ACP. They are not meant
to restrict the Contractor in any way from imposing additional controls
necessary to tailor these requirements to a specific facility.
(c) To request approval for non-U.S. citizens of hostile and/or communist-
controlled countries (listed in Department of Defense Industrial Security
Manual, DOD 5220.22-M or available from cognizant CAO), the Contractor shall
include in the ACP the following employee data: name, place of birth,
citizenship (if different from place of birth), date of entry to U.S.,
extenuating circumstances (if any) concerning immigration to U.S., number of
years employed by the Contractor, position, and stated intent concerning U.S.
citizenship. COMNAVSEA or his designated representative will make individual
determinations for desirability of access for above group. Approval of ACP's for
access of non-U.S. citizens of friendly countries will not be delayed for
approval of non-U.S. citizens of hostile communist-controlled countries. Until
approval is received, the Contractor must deny access to vessels for employees
who are non-U.S. citizens of hostile and/or communist-controlled countries.
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N00024-95-C-2106
SCHEDULE
(d) An ACP which has been approved for specific Master Ship Repair Agreement
(MSRA) or Agreement for Boat Repair (ABR) or Basic Ordering Agreement (BOA), is
valid and applicable to all job orders awarded under that agreement.
(e) The Contractor shall fully comply with approved ACPs. Noncompliance by the
Contractor or subcontractor serves to cancel any authorization previously
granted, in which case the Contractor shall be precluded from the continued use
of non-U.S. citizens on this contract or agreement until such time as the
compliance with an approved ACP is demonstrated and upon a determination by the
CAO that the Government's interests are protected. Further, the Government
reserves the right to cancel previously granted authority when such cancellation
is determined to be in the Government's best interest. Use of non-U.S. citizens,
without an approved ACP or when a previous authorization has been canceled, will
be considered a violation of security regulations. Upon confirmation by the CAO
of such violation, this contract, agreement or any job order issued under this
agreement may be terminated for default in accordance with the clause entitled
"DEFAULT (FIXED-PRICE SUPPLY AND SERVICE)" (FAR 52.249-8), "DEFAULT (FIXED-PRICE
RESEARCH AND DEVELOPMENT)" (FAR 52.249-9) or "TERMINATION (COST REIMBURSEMENT)"
(FAR 52.249-6), as applicable.
(f) Prime Contractors have full responsibility for the proper administration of
the approved ACP for all work performed under this contract or agreement,
regardless of the location of the vessel, and must ensure compliance by all
subcontractors, technical representatives and other persons granted access to
U.S. Navy vessels, adjacent areas, and work sites.
(g) In the event the Contractor does not intend to employ non-U.S. citizens in
the performance of the work under this contract, but has non-U.S. citizen
employees, such employees must be precluded from access to the vessel and its
work site and those shops where work on the vessel's equipment is being
performed. The ACP must spell out how non-U.S. citizens are excluded from access
from contract work areas.
(h) The same restriction as in paragraph (g) above applies to other than non-
U.S. citizens who have access to the Contractor's facilities (e.g., for
accomplishing facility improvements, from foreign crewed vessels within its
facility, etc.).
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N00024-95-C-2106
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C-3 AGREEMENT REGARDING ADDITIONAL SPRAY SHIELDS
The Contractor shall advise the Supervisor not later than six months prior
to Fast Cruise that the Contractor is ready to survey the ship to determine the
need for additional spray shields on flammable liquid piping. Installation of a
maximum of 100 additional shields, if authorized by a contract modification at
least four months prior to Fast Cruise, will be accepted by the Contractor with
no schedule impact.
C-4 ALLOWANCE LIST SERVICE
(a) The Contractor shall provide fitting out services and shall be
responsible for providing those operating space items specifically included in
Naval Sea Systems Command specifications as set forth in Section C.
(b) The Contractor shall order, fund, receive, inspect, expedite and follow
up on delivery of operating space items for which he is responsible.
(c) The Contractor shall take whatever action is necessary to furnish all
material for which he is responsible prior to completion of construction; the
Contractor shall expedite such shortages until all items required are delivered
to the ship. The Naval Supervising Activity (NSA) will communicate with the
Contractor in regard to the status of or expediting of the shortages for which
the Contractor is responsible.
(d) The Contractor shall submit shortage reports of material not received
for all Contractor furnished operating space fitting out material to the
Supervisor.
C-5 APPROVAL BY THE GOVERNMENT (AT) (NAVSEA) (JAN 1983)
Approval by the Government as required under this contract and applicable
specifications shall not relieve the Contractor of its obligation to comply with
the specifications and with all other requirements of the contract, nor shall it
impose upon the Government any liability it would not have had in the absence of
such approval.
13
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N00024-95-C-2106
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C-6 ASSIGNMENT AND USE OF NATIONAL STOCK NUMBERS (NAVSEA)
(MAY 1993)
To the extent that National Stock Numbers (NSNs) or preliminary NSNs are
assigned by the Government for the identification of parts, pieces, items,
subassemblies or assemblies to be furnished under this contract, the Contractor
shall use such NSNs or preliminary NSNs in the preparation of provisioning
lists, package labels, packing lists, shipping containers and shipping documents
as required by applicable specifications, standards or Data Item Descriptions of
the contract or as required by orders for spare and repair parts. The cognizant
Government Contract Administration Office shall be responsible for providing the
Contractor such NSNs or preliminary NSNs which may be assigned and which are not
already in possession of the Contractor.
C-7 DELETED
C-8 DELETED
14
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N00024-95-C-2106
SCHEDULE
C-9 CREW - CVN 76
(a) A crew furnished by the Government of about three thousand one hundred
and sixty eight (3,168) people referred to hereinafter as the "Crew" will be
present at the Contractor's plant in approximate accordance with the following
quantities and schedule for the vessel:
<TABLE>
<CAPTION>
Schedule for Crew Officers/Enlisted Cumulative
- ----------------- ----------------- ----------
<S> <C> <C>
7 months prior to scheduled
first plant fill* 1/18 1/18
6 months prior to scheduled
first plant fill* 39/268 40/286
4 months prior to scheduled
second plant fill* 24/191 64/477
11 months prior to scheduled
first sea trials* 23/314 87/791
8 months prior to scheduled
first sea trials* 19/260 106/1051
5 months prior to scheduled
first sea trials* 46/1250 152/2301
3 months prior to scheduled
first sea trials* 15/700 167/3001
</TABLE>
* Recognizing the lead-time associated with ordering crew members to the
Contractor's plant, the shipbuilder's main events schedule in effect one year in
advance of the prospective reporting dates of each increment will be used to
compute scheduled increment arrival dates. In the event that the schedule
changes after the Navy has issued orders to crew members, the Navy will exert
its reasonable efforts to reschedule personnel reporting dates. In the event
that personnel have reported, the Navy will exert its reasonable efforts to
utilize them, so as to minimize any disruptive effect on the Contractor's work.
15
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N00024-95-C-2106
SCHEDULE
(b) It is contemplated that substantial portions of the vessel outside the
nuclear propulsion plant compartments will be sufficiently completed by the
Contractor prior to fast cruise to permit their transfer to the Government for
such agreed to uses by the Ship's Force, during the interval prior to delivery
of the vessel as will not unduly interfere with the orderly and efficient
completion of remaining Contractor responsible work. Such transfers shall be by
mutual agreement between the Contractor and the Government in accordance with
the procedures of Schedule D. Each transfer shall be by a supplemental agreement
of this contract.
(c) Notwithstanding compartment transfers in accordance with paragraph (b)
of this article, berthing and messing facilities on board the vessel adequate to
accommodate the Crew shall be completed and turned over to the Crew for
occupancy not earlier than six weeks nor later than two weeks prior to Fast
Cruise. During the interval commencing six weeks prior to Fast Cruise and
terminating not later than two weeks prior to Fast Cruise, the Government may
move aboard approximately 25 percent of the Crew each week and the Contractor
will complete and turn over berthing and messing facilities adequate to support
this move aboard phasing.**
(d) Subsequent to the arrival of the fourth increment of the Crew it is
anticipated that the Government may, with members of the Crew, perform certain
defined industrial work tasks not provided for by this contract which shall be
limited to the vessel. These work tasks shall be undertaken in accordance with
Schedule E, only after the Contractor and the Government have executed a priced
supplemental agreement covering applicable Navy Task Order.
(e) The Crew shall have access to the Contractor's plant and to the vessel
at all reasonable times during the periods identified above. The Contractor
agrees to furnish, during the aforesaid periods, suitably furnished office
facilities and conference rooms in accordance with Schedule F for training and
daily meetings of the Crew. The Contractor further agrees that the Crew shall be
permitted to use the equipment, facilities, and services furnished by the
Contractor to the Supervisor.
** The Contractor may accelerate the start of crew move-aboard to support
waterfront scheduling.
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N00024-95-C-2106
SCHEDULE
(f) The Nucleus Crew is part of the regularly assigned ship's force and
constitutes the only group of personnel qualified to operate the nuclear
propulsion plant of the vessel. In addition to operating the propulsion plant,
the Nucleus Crew is assigned to assist the Supervisor in his inspections to
insure that construction and checkout of the ship and its equipment meet
contractual requirements, however, the Contractor reserves the right to have the
Supervisor review any discrepancies submitted by the Nucleus Crew to shipyard
personnel.
(g) The Contractor may, for reasonable business necessity, change the
location of the office, training and meeting facilities during the period of
time the Crew is at the Contractor's plant. The Contractor shall give reasonable
notice to the Supervisor and obtain his approval prior to the relocation.
C-10 CVN-68 CLASS PROGRAM INTERACTION
If the Government, subsequent to the date of execution of this contract,
authorizes any change for CVN-74/75 in accordance with the Changes clause of
Contract N00024-88-C-2055 and the Contractor can establish through the
documentation required by the clause of this contract entitled "Documentation of
Request for Equitable Adjustment" that, despite his reasonable efforts to
prevent conflicts, delays, and/or disruptions, such change causes the
Contractor's shipway, berthing, drydock or other facilities to be unavailable
for the ship under this contract and directly results in delays and/or
disruptions to the ship under this contract, then it is agreed that the
Contractor shall be entitled to an equitable adjustment in contract price and/or
delivery in accordance with the Changes clause of this contract.
Nothing in this clause shall be construed or interpreted to limit or
diminish any rights of the Contractor or the Government which may exist under
this contract.
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N00024-95-C-2106
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C-11 DELIVERY OF DATA
Any item of data listed in the DD Form 1423 of this contract which has
previously been delivered to the Government by the Contractor, need not be
resubmitted and delivered hereunder, provided that the Contractor, in writing,
shall timely advise the Contracting Officer of such circumstance, identifying
the DD Form 1423 Line Item and the contract under which the data was submitted
and the place of delivery of such item of data; except, that if the item of data
on the DD Form 1423 of this contract represents a partial revision of previously
delivered data required to reflect the ship, the Contractor shall only be
required to prepare and deliver the required revision as specified in the
applicable DD Form 1423 Line Item.
All data identified on DD Form 1423, Exhibits "A", "B" and "C" shall be
delivered, at the times and to the designation therein specified, via the
Supervisor. The Contractor shall submit to the Supervisor, not later than 180
days after delivery of each vessel, a complete list of data submitted for each
data item identified on DD Form 1423, Exhibits "A", "B", and "C". Those items
not submitted shall also be identified with reasons for non-submittal.
C-12 DEPARTMENT OF LABOR OCCUPATIONAL SAFETY AND HEALTH
STANDARDS FOR SHIPBUILDING (AT) (NAVSEA) (JAN 1990)
Attention of the Contractor is directed to Public Law 91-596, approved December
29, 1970 (84 Stat. 1593, 29 USC 655) known as the "OCCUPATIONAL SAFETY AND
HEALTH ACT OF 1970" and to the "OCCUPATIONAL SAFETY AND HEALTH STANDARDS FOR
SHIPYARD EMPLOYMENT" promulgated thereunder by the Secretary of Labor (29 CFR.
1910 and 1915). These regulations apply to all shipbuilding and related work, as
defined in the regulations. Nothing contained in this contract shall be
construed as relieving the Contractor from any obligations which it may have for
compliance with the aforesaid regulations.
C-13 DESIGN BUDGET
1. Design Budgeting is a process by which the Government schedules the release
of final specifications and provide GFE equipment delivery schedules for the
Design Budgeted Systems and Equipments listed in Schedule "X", after the award
of the contract and after the target cost, target profit, target price, and
ceiling price (hereinafter referred to as the price structure) and ship delivery
schedule have been established.
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N00024-95-C-2106
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2. Schedule "X" and the corresponding Scoping Documents referenced in the
specification have been provided to the Contractor prior to award of this
contract and have been carefully reviewed by the Contractor. The Contractor has
carefully and thoroughly considered the costs and risks associated with the
deferred release of the technical information and GFE deliveries contained in
Schedule "X", and understands both the Design Budget Plans and the potential
variations within the parameters identified in the Scoping Documents referenced
in the specification for each Design Budget Item. Accordingly, the price
structure of the contract reflects the release of the technical information and
GFE deliveries relating to the Design Budgeted Items in accordance with
Schedule "X" and the associated scoping documents for design budgeted items
referenced in the specification.
3. The Contractor certifies that the price for Design Budget Items contained in
the target price of Line Item 0001 is based on information identified in the
Scoping Documents referenced in the Specification. Design Budget items are
listed as follows:
COMBAT SYSTEMS DRAWINGS
NAVY TACTICAL COMPUTER SYSTEM AFLOAT (NTCS-A)
CARRIER INTELLIGENCE CENTER (CVIC)
RADIO COMMUNICATIONS SYSTEM (RCS)
NTCSS (SNAP III/NALCOMIS)
CARRIER TACTICAL SUPPORT CENTER (CV-TSC)
ADVANCED COMBAT DIRECTION SYSTEM (ACDS)
AUXILIARY DETECTION PROCESSOR (SPS-48E EW/
COMMON TRACKER & ADP)
RADAR DISPLAY & DISTRIBUTION SYSTEM (RADDS)
RING LASER GYRO NAVIGATION (RLGN)
SHIP SELF DEFENSE SYSTEM (SSDS)
MARK 7 MOD 4 ARRESTING GEAR
AVIATION DATA MANAGEMENT & CONTROL SYSTEM (ADMACS)
(FORMERLY AIRSYSNET/ISIS)
AVIATION INTERMEDIATE MAINTENANCE SHOP OUTFITTING (AIMD)
NON-CFC 800 TON AIR CONDITIONING & 7 TON REFRIGERATION
PLANTS
HALON XX REPLACEMENT
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N00024-95-C-2106
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In addition, the target price for Line Item 0001 includes the impact, if
any, of deferred delivery of technical information for GFE hardware or software
that is delineated in Schedule "X". Delay in delivery of the technical
information or GFE hardware beyond the dates specified in Schedule "X" will be
subject to mutual resolution by the Contractor and the Government in accordance
with the requirements of the clause of the contract entitled "Changes", or if
mutually agreed to, in accordance with the provisions of this clause.
4. All design budget data deliverables required by Schedule "X" will be
provided by the Government by formal transmittal. Upon receipt, the Contractor
shall promptly review the information provided to determine if the scope of work
identified is consistent with the specific scoping documents referenced in the
specification for each Design Budget Item as agreed to at contract award.
5. In the event that the Contractor demonstrates that the deliverables are not
within the scope of design budget constraints (form, fit and function
characteristics such as weight, power, cable runs, etc....) as specified in the
scoping document, and as agreed to at award, the Contractor shall be entitled to
an equitable adjustment in accordance with the "Changes" clause. These items
must be identified in accordance with Special Contract Requirement H-15
entitled, "Notification of Changes (FT) ALT I" within 30 days of receipt of the
Government transmittal. The Contractor shall, within 45 days of providing
notification, provide a price proposal with the estimated price impact.
C-14 DELETED
20
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C-15 DRAWINGS AND OTHER DATA
(a) One (1) reproducible copy of working plans, technical manuals for
Government Furnished Equipment, material specifications, and other design data
required for construction of the reactor plant and propulsion control system
will be furnished by the Government to the Contractor for the purpose of this
contract for the following system and/or spaces and equipment:
Reactor coolant system
Reactor coolant maintenance and test system
Coolant pressurizing system
Coolant purification and sampling system
Coolant pressure relief system
Coolant charging system
Coolant discharge system
Coolant valve operating system
Steam generating system
Reactor fill system
Reactor plant fresh water cooling system
Reactor plant discharge storage system
Reactor plant control air system
Reactor compartment boundary closures leakage rate test system
Reactor compartment ventilation and blowdown system
Water treatment system
Primary and secondary liquid shield system
Piping, sounding tubes, etc., passing through the reactor compartment
to serve the reserve feed tanks located under the reactor compartment
and pressurizer shed
Reactor coolant pumping power system
Reactor plant I.C. system
Primary plant control system
Primary plant instrumentation system
Rod control system
Rod position indication system
Reactor protection system
Nuclear instrumentation system
Steam generator water level control system
Radiation monitoring system
Catapult supervisory control system
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Reactor compartment isolation instrumentation system
Reactor safequards system
Calorimetric calibration system
Radiation shielding
Reactor compartment structure, including doors and hatches
Reactor compartment ladders and gratings
Reactor plant foundations for equipment over 50 pounds
Enclosed operating station arrangements
Nucleonics room and secondary sampling station arrangements
Reactor plant handling gear
Radiological controls and marking
Thermal insulation schedule for reactor plant piping and equipment
Reactor compartment machinery arrangement
Arrangements of stowage of reactor plant materials
Steam plant and reactor plant control station arrangement plans
Control panel layouts for steam plant and reactor plant
Reactor Instrument Maintenance System
(b) The drawings, technical manuals, and other design data, including
revisions thereof, identified in paragraph (a) above, have been, are being, and
will be developed for the CVN 68 Class aircraft carriers. Some of such drawings,
technical manuals, and other design data, including revisions thereof, are not
in existence on the date of execution of this contract; they will be provided to
the Contractor in a suitable condition, and in time to support construction. All
the drawings, technical manuals, and other design data, including revisions
thereof, identified in paragraph (a) above, shall be followed and used without
change or deviation, to the extent specified therein, unless a change thereto, a
deviation therefrom, or a waiver thereof is authorized by SEA 08. In the event
any drawing, technical manual, or item of design data, or any revision thereof,
is identified by the Contractor as being in conflict or inconsistent with any
other drawing, technical manual, or item of design data, or any revision
thereof, or with any part of the specification identified in Section C of this
contract, the Contractor shall not proceed with the work affected thereby, but
shall refer any such conflict or inconsistency for resolution to SEA 08.
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(c) The "Notification of Changes" clause of this contract is applicable
to data furnished under Paragraph (a) above.
(d) The release as provided for in the "Notification of Changes" clause
is applicable to the data provided under paragraph (a) above.
(e) (1) The drawings, technical manuals, and other design data provided
to the Contractor under this contract, including revisions thereof, identified
in paragraph (a), (hereinafter sometimes collectively referred to as "data") are
prepared by or for the Government and are to be furnished to the shipbuilder by
the Government under this contract. Some of such data did not exist on the date
of (1) the beginning of the negotiation for or (2) the execution of this
contract. It is anticipated that during the period of performance of this
contract some of such data will be developed and/or revised on the basis of
technical information generated by the Government design contractor, by the
shipbuilder, or by the Government. Data so developed or revised is to be
furnished to the shipbuilder; some of such data may be furnished directly to the
shipbuilder by the Government design Contractor or another Contractor.
(ii) The "Changes" clause of this contract provides, in pertinent part,
for an equitable adjustment to the contract whenever the Contracting Officer
changes the "drawings, design, or specifications" and "such change causes an
increase or decrease in the cost of, or the time required for the performance of
any part of the work under this contract, whether changed or not changed by any
such order ... ". It is understood, however, that not all data furnished to the
Contractor after the date of execution of this contract constitutes a "change"
to which the equitable adjustment provisions of the "Changes" clause apply.
(iii) It is agreed that revisions to non-deviation data shall be
accomplished by the Contractor with no change to target cost, target profit,
ceiling price, or other contract provisions, except when one or more of the
following conditions exists the Contractor shall be entitled to an equitable
adjustment in accordance with the "Changes" clause:
(a) revisions which require ripout or rework.
(b) revisions which require changes to material on order or require
replacement of material.
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(c) revisions which are not timely furnished to the contractor to
support ship construction, which such untimely furnishing results in the
incurrence by the Contractor of additional costs of performance.
(d) revisions which require the Contractor to exceed the requirements
of the specifications.
(f) Drawings, technical manuals, and other design data for the performance
of this contract other than those drawings, technical manuals, and other design
data described in paragraph (a) of this clause shall be subject to the approval
of the Supervisor, in accordance with the drawing procedures delineated in the
specifications except that CVN 68 Class drawings, technical manuals, and other
design data which have been approved by NAVSEA or by the Supervisor of
Shipbuilding, Conversion and Repair, USN, Newport News, Virginia, and which are
used without deviation in the performance of this contract, do not require
further approval. A list of drawings to be so used shall be provided to the
Supervisor prior to such use. Approval of drawings or other data shall not
relieve the Contractor of any responsibility for meeting the requirements of
this contract.
C-16 DRYDOCKING FACILITIES AND SHIPBUILDING WAYS CERTIFICATION (AT) (NAVSEA)
(JAN 1990)
Drydocking facilities and shipbuilding ways employed in the performance of this
contract shall be continuously certified in accordance with MIL-STD-1625C (SH)
Notice 1, and the optional maintenance program described in HDBK-257(SH) dated
31 January 1979.
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C-17 ENGINEERING SERVICES
The Contractor shall be responsible for the proper installation, checkout and
testing of all government furnished equipment and systems, as identified in
C-20, and for making necessary adjustments or alignments to such equipment or
systems, as required by the specifications. The Government will provide
engineering services to support the installation, checkout and testing of such
equipment and systems. These Government furnished services are advisory only,
providing only specialized information regarding the particular equipment or
system to facilitate proper installation, checkout and testing. The timing of
the Government furnished services shall be as mutually agreed to by the
Government and the Contractor. The Government's furnishing of these engineering
services does not relieve the Contractor from its obligations under this clause.
C-18 EXCLUSION OF MERCURY (ELECTRONICS) (NAVSEA) (SEP l990)
(a) Supplies furnished shall contain no free mercury (metallic form) or mercury
compounds (e.g. mercuric oxide and mercuric chloride) without written approval
of the Naval Sea Systems Command (NAVSEA).
Note: The Contractor shall perform a review to the extent necessary to
obtain reasonable assurance that mercury is not being used in the
supplies (e.g. review of drawing parts lists and material lists)
(b) Mercury bearing instruments and equipment (i.e. those instruments and
equipment containing free mercury) shall not be used in the manufacture,
fabrication, assembly testing, etc., of any supplies.
Note: (1) The most probable causes of mercury contamination are direct
connected manometers, mercury vacuum pumps, mercury seals,
mercury-in-glass thermometers, or handling free mercury in the
immediate vicinity of supplies.
(2) The Contractor shall perform a review of his facilities to
provide reasonable assurance that supplies are not in danger of
mercury contamination (e.g. check of instruments and test
equipment).
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(3) In case of doubt or question of manufacturing procedures,
equipment, or instruments regarding mercury, contact NAVSEA for
assistance.
(4) In the event of any accident involving mercury contamination or
suspicion of such contamination of supplies, NAVSEA shall be
notified immediately.
(c) The Contractor shall develop the same assurance and confidence of
compliance with the mercury exclusion clause as it does with other specification
requirements (e.g. toxic materials, flammable materials, fragile materials, and
radioactive materials).
(d) The Contractor shall require all subcontractors to comply with the mercury
exclusion requirements.
C-19 EXCLUSION OF MERCURY (MACHINERY) (NAVSEA) (SEP 1990)
(a) The supplies furnished under this contract shall contain no metallic
mercury or mercury compounds and shall be free from mercury contamination (i.e.
during the manufacturing process, tests, or inspections, the supplies offered
shall not have come in direct contact with mercury or any of its compounds nor
with any mercury containing devices employing only a single boundary of
containment. (A single boundary of containment is one which is not backed by a
second seal or barrier to prevent contamination in event of rupture of the
primary seal or barrier.)) Mercury contamination of the supplies will be cause
for rejection of the material.
(b) (1) If there is reasonable cause to suspect the supplies of being
contaminated by mercury, the following test may be used to determine whether
contamination by metallic mercury exists: Enclose the equipment in a
polyethylene bag or close-fitting air-tight container and place in an oven at
125 deg. F(+/-) 5 deg. F for one hour. Sample the trapped air and if mercury
vapor concentration is 0.01 mg/cu meter or more, the material is mercury
contaminated insofar as the requirements of this contract are concerned. Mercury
vapor concentration can be determined with a mercury vapor detector such as a
portable General Electric Vapor Detector (catalog number 8257557G-3), Beckman
Instrument Model K-23, or other instruments that have equivalent range and
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capabilities. It should be noted that certain vapors such as benzene interfere
with this type of mercury vapor detector and that the detector should never be
zero adjusted in any suspect atmosphere.
(b)(2) If the component would be damaged by heat, or is of such a size or
configuration that it cannot be completely enclosed, a portion of the component,
but not less that 10 percent of the area suspected of being contaminated, may be
enclosed in a close-fitting polyethylene bag or other airtight container for 8
hours at a temperature of 76/o/F [plus] 10/o/F (24/o/C [plus] 5/o/C).
The trapped air then is to be analyzed; if the mercury vapor concentration is
0.01 mg/m/3/ or more, the component is to be considered contaminated.
(b)(3) Some classes of mercury compounds are not volatile at 125/o/F. If
contamination by such a compound is suspected, the Contractor shall contact
NAVSEA to determine the special chemical analysis to be used.
(c) If the inclusion of metallic mercury or mercury compounds is required as a
functional part of the material furnished under this contract, the Contractor
shall obtain written approval from the Naval Sea Systems Command (NAVSEA) before
proceeding with manufacture. The Contractor's request shall explain in detail
the requirements for mercury; identify specifically the parts to contain
mercury; and explain the method of protection against mercury escape. Such a
request will be forwarded to the Government Inspector or Government
Representative with a copy to NAVSEA. Upon approval by NAVSEA, the vendor will
provide a "Warning Plate" as prescribed by NAVSEA which will include a statement
that mercury is a functional part of the item and will include name and location
of that part.
(d) If and to the extent that this contract calls for work to be performed by
the Contractor on a submarine or in the nuclear plant of a surface ship, the
Contractor, in connection with such work, shall not bring into or utilize in the
submarine or nuclear plant of surface ship any equipment, instrument or other
device containing metallic mercury or mercury compounds, unless such equipment,
instrument or device has been approved by NAVSEA or its authorized
representative for use in submarine and/or nuclear plants of surface ships.
(e) These requirements shall be included in all subcontracts hereunder.
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C-20 GOVERNMENT FURNISHED PROPERTY
(a) Except as otherwise provided in the clauses of this section
entitled "Drawings and Other Data", and "Engineering Services", the Government
shall furnish to the Contractor for use under this contract, in accordance with
the clause of Section I entitled "Government Property", only that property
identified in Section C, General Requirement C-38 and Special Contract
Requirement H-27 and that property listed in the following schedules, hereby
incorporated into and made a part of this contract:
(1) Schedule "A" as identified as Part III Section J.
Naval Sea Systems Command Requisition references to any Schedule "A"
other than that described in (a)(l) of this Clause shall be of no force and
effect. Any requirements for the furnishing of material by the Government
appearing in the specifications, plans, drawings, or other data except as
specified in Schedule "A" shall be of no force and effect and are
hereby superseded by the list set forth in Schedule "A". Any and all materials
required for the performance of this contract, except as identified in Section
C, General Requirement C-38 and Special Contract Requirement H-27, which do not
appear in Schedule "A", shall be furnished and installed by the Contractor.
(b) The property furnished by the Government under paragraph (a) (1)
of this clause is for installation or stowage aboard a vessel being constructed
under this contract. None of such property shall be used by the Contractor or a
subcontractor for any purpose other than that for which the property has been
furnished, unless specifically authorized in writing by the Contracting Officer.
Test equipment intended to be provided to the vessel and furnished to the
Contractor for stowage aboard the vessel shall not be used by the Contractor for
any purpose other than for performance of tests required by the specifications.
(c) When pursuant to the clause of Section I entitled "Government
Property", the Contractor is directed or authorized by the Government to effect
repairs or modifications to Government Property, and the Government considers
any of such work to be the responsibility of a third party by reason of a
warranty in favor of the Government or otherwise, the Government shall so inform
the Contractor. In each such case the Contractor agrees to attempt to obtain
full compensation for the performance of such work from such third party. The
term "full compensation" includes reimbursements of costs and may include an
allowance for
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reasonable profit. Compensation so obtained shall be in lieu of the equitable
adjustment provided in the "Government Property" clause, provided, however, that
the contract shall be equitably adjusted in accordance with the "Government
Property" clause to the extent that the Contractor is unable to obtain full
compensation from such third party and documents the reasons therefor, or
changes in vessel delivery date are involved, or both.
(d) (i) Paragraph (c) above provides for compensation by third parties
for the repairs or modifications to Government property. The parties agree that
for repairs or modifications to nuclear Government property listed or referenced
in Schedule "A" which the Contractor considers do not involve ship delay or
disruption or a change to any Government contract, the work shall be done under
a Work Authorization issued on a cost-type contract administered and funded for
this purpose by Naval Nuclear Propulsion Program prime contractors.
(ii) Upon acceptance of the Work Authorization, the Contractor will
provide the Contracting Officer a written acknowledgement. The acknowledgement
will state that the Contractor considers (1) no delay in ship delivery will
result and (2) no change in the current negotiated price or amount of any
contract is required as a result of the work covered by the Work Authorization.
The Contracting Officer will then authorize the Contractor to perform the work
based on the use of Work Authorization funding.
(iii) If the Contractor commences the performance of a Work
Authorization as described above and subsequently considers that continuing to
proceed with that Work Authorization would potentially result in delay to ship
delivery or require a change in the current negotiated price of any contract,
the Contractor shall promptly notify the Contracting Officer. Notwithstanding
the provisions of subparagraph (c) above, the Contractor will not be entitled to
a contract change or equitable adjustment for the performance of any work
accomplished as a result of the Work Authorization prior to notifying the
Contracting Officer.
(iv) The authorization procedure identified in (d) (i) above requires
that funding for repairs or modifications to nuclear Government property be
provided by Naval Nuclear Propulsion Program prime contractors. The Contractor
agrees to accept new contracts with Naval Nuclear Propulsion Program prime
contractors or extend the scope of existing contracts to cover repairs to
Government property authorized under (d) (i) above on
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the same terms and conditions as those under Westinghouse subcontract
73-R-Nl40300-S. The fee shall be nine and one half percent (9 1/2%) through
delivery and acceptance of CVN 76. Other changes may be made as mutually agreed
by the parties. Further, the Contractor agrees to negotiate any extension of
such contracts as may be necessary to cover such repairs and modifications
through delivery of the last vessel under this contract.
C-21 GOVERNMENT INSTALLATION OF CRYPTOGRAPHIC EQUIPMENT
The Contractor shall notify the Supervisor in writing of the need for
the Government to install and checkout, on an equipment level, the cryptographic
equipment in the communications center. The foregoing notification shall be
provided seventy (70) calendar days prior to when the communication center can
be made available to the Government. The communication center shall be made
available to the Government on a non-exclusive use basis commencing with the
turnover of the space to the Government.
C-22 GOVERNMENT REVIEW OF PROPULSION PLANT MOCKUP
Government review of the mock-up will be in accordance with Newport
News Shipbuilding Procedure M-149, Revision A-3.
C-23 HEALTH, SAFETY AND FIRE PROTECTION
The Contractor shall take all reasonable precautions in the
performance of the work under this contract to protect the health and safety of
employees and of members of the public and to minimize danger from all hazards
to life and property. The Contractor shall comply with all health, safety, and
fire protection regulations and requirements (including reporting requirements)
of the Government with respect to the risks described in the "Indemnification
Under Public Law 85-804" clause of Section I. In the event the Contractor fails
to comply with such regulations or requirements of the Government, the
Contracting Officer may, without prejudice to any other legal or contractual
rights of the Government, issue an order stopping all or any part of the work
being performed under this contract; thereafter an order for resumption of work
will be issued upon the determination by the Contracting Officer that the
deficiency has been corrected. The Contractor shall make no claims for an
extension of the delivery date of a vessel or for damages or any other
compensation by reason of or in connection with such work stoppage, unless the
Contractor can demonstrate that he was in compliance with such regulations or
requirements of the
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Government. If, after the date of this contract, any of the aforesaid
regulations or requirements are changed by the Government, and if the
Contractor's costs of complying with such regulations and requirements are
thereby increased or decreased, then the contract price shall be equitably
adjusted by reason of such increase or decrease in costs. Any such equitable
adjustment shall be accomplished in the same manner as if the aforesaid changes
had been directed under the "Changes" Clause of Section I.
C-24 DELETED
C-25 ON-BOARD REPAIR PARTS (OBRP)
The Contractor certifies that the proposal for OBRP is based on the
CVN 73 load COSAL as updated to delivery of CVN 73. The Contractor agrees to
provide OBRP for CVN 76 in accordance with the updated incremental COSAL(S)
issued by the Government and the following:
a. A one-time equitable adjustment, based on the following procedure,
shall be included in the final price determined in accordance with paragraph (d)
of the clause of this contract entitled "Incentive Price Revision--Firm Target
(FI) (APR 1984) (DEVIATION - 16 NOV 1992) (NAVSEA 5252.216-9127)". The
adjustment shall be made by determining the net differential in base month cost
of items added or deleted by revisions or changes to the COSAL identified above.
The cost impact on OBRP of changes issued to this contract shall be included in
this one-time adjustment and shall not be incorporated into the adjudicated cost
of individual contract changes.
b. No changes to the OBRP shall be made until and unless the ACO
notifies the Contractor, in writing, that funds adequate to cover said changes
are available. In no event shall the equitable adjustment made pursuant to
paragraph "a" above exceed the amount certified by the ACO as "available" for
this purpose.
C-26 PERMITS AND RESPONSIBILITIES (NAVSEA) (SEP 1990)
The Contractor shall, without additional expense to the Government, be
responsible for obtaining any necessary licenses and permits, and for complying
with any applicable Federal, State, and Municipal laws, codes, and regulations,
in connection with any movement over the public highways of overweight/
overdimensional materials.
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C-27 PLANS AND OTHER DATA (FT) (NAVSEA) (JAN 1983)
Whenever the Department shall so require, the Contractor shall, at the cost of
reproduction, furnish to whomsoever may be designated by the Department
(including other shipbuilding Contractors), copies of working plans (including
reproducibles), selected record plans, indices, material schedules, plan
schedules, purchase specifications and other date relating to the construction
of the vessel. The furnishing of such data shall not constitute any guaranty or
warranty, either express or implied, by the Contractor other than that they are
correct copies of such data.
C-28 PLANT PROTECTION (NAVSEA) (SEP 1990)
(a) The Contractor shall provide for its plant and the work in process under
this contract such safeguards, including personnel, devices, and equipment, as
would constitute reasonable protection under peacetime conditions (in the light
of the size of the plant and the scope of its operations) against all hazards,
including unauthorized entry, malicious mischief, theft, vandalism and fire.
(b) In addition to the foregoing precautions, the Contractor shall provide such
additional safeguards as may be required or approved by the Contracting Officer
for the protection of its plant and the work in process under this contract
against espionage, sabotage, and enemy action. The cost to the Contractor of all
safeguards so required or approved shall, to the extent allocable to this
contract, be reimbursed to the Contractor in the same manner as if the
Contractor has furnished such safeguards pursuant to a change order issued under
the clause of this contract entitled "CHANGES--FIXED-PRICE" (FAR 52.243-1) or
"CHANGES--COST-REIMBURSEMENT" (FAR 52.243-2), as applicable. Such cost shall not
include any allowance on account of overhead expense, except shop overhead
charges incident to the construction or installation of such devices or
equipment.
(c) Upon payment by the Government of the cost to the Contractor of any device
or equipment required or approved under paragraph (b) above, title thereto shall
vest in the Government, and the Contractor shall comply with the instructions of
the Contracting Officer respecting the identification and disposition thereof.
No part or item of any such devices or equipment shall be or become a fixture by
reason of affixation to any realty not owned by the Government.
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C-29 PRINTING OF TECHNICAL MANUALS, PUBLICATIONS, CHANGES, REVISIONS AND
AMENDMENTS - ALTERNATE I (NAVSEA) (MAY 1993)
(a) The printing, duplication, and binding of all technical manuals, books, and
other publications, and changes, amendments, and revisions thereto, including
all copies and portions of such documents which are required to be prepared and
furnished under this contract for review, approval or otherwise, shall be
accomplished in accordance with the issue of "Government Printing and Binding
Regulations", published by the Joint Committee on Printing, Congress of the
United States, as in effect on the date of this contract.
(b) Publications and other printed or duplicated material which (1) are
prepared and carried by equipment manufacturers for regular commercial sale or
use, and (2) require no significant modification for military use or to meet the
requirements of this contract, or (3) are normally supplied for commercial
equipment, shall be provided by the Contractor. Except for material falling
within (1) through (3) of this paragraph, the printing of technical manuals,
publications, changes, revisions, or amendments by the Contractor or
subcontractor is prohibited.
(c) The Contractor shall have the printing and binding of final approved
technical manuals, publications, changes, revisions and amendments thereto, as
required under this contract (whether prepared by the Contractor or a
subcontractor), printed at Government expense by or through the Defense Printing
Service Detachment Office (DPSDO) in the Naval District in which the Contractor
is located, in accordance with the following general procedures:
(1) Prior to preparation of materials for printing (photolithographic
negatives or camera-ready copies) by the Contractor or a subcontractor, the
Contractor shall make arrangements with the DPSDO and with the designated
Contract Administration Office for printing and binding which shall include:
(i) Citation of contract number;
(ii) Security classification of materials to be printed;
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(iii) Establishment of a schedule for printing, including estimated
delivery date to DPSDO;
(iv) Provisions for furnishing photolithographic negatives or
camera-ready copies and art work in the proper sequence for printing;
(v) A check-off list to verify the printing sequence of text pages
and foldouts in the form prescribed by DPSDO;
(vi) Complete printing instructions, which shall specify colors, if
required for specific pages, the trim size, including apron, if required, for
each foldout/in or chart, or other unique requirements;
(vii) Type of binding (sidewire stitch, loose leaf, screw posts,
etc.); and
(viii) Other instructions, as applicable, such as packing
instructions, quantity for each addressee, required delivery schedule, or
delivery instructions. (The Contractor shall provide an address list and
addressed mailing labels for each addressee).
(2) The Contractor shall ship, all transportation charges paid, to
DPSDO or a contract printer designated by DPSDO, the complete set of
photolithographic negatives or camera-ready copies required to be printed in
accordance with the detailed procedures specified by DPSDO. The DPSDO shall sign
the acceptance block of the DD Form 250 for reproducible quality only.
(3) For steam and electrical plant composite diagrams, the Contractor
shall provide an original Mylar print of the diagram to the DPSDO. DPSDO will
prepare the negatives for the composite diagram and return those to the
Contractor for editorial review. DPSDO will correct any errors and print the
corrected composite diagram.
(4) DPSDO will furnish or provide for all supplies and services (including
binders) which are necessary to accomplish the printing and binding.
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(5) DPSDO will pack and ship or provide for packing and shipping of the
printed material to the Contractor and the distribution list furnished by the
Contractor in accordance with the printing order, unless distribution by the
Contractor is otherwise required by the terms of the contract, the
specifications, or otherwise, in which case the printed and bound publications
will be returned to the Contractor for distribution.
(6) DPSDO will pack and ship the material used for printing to the DPSDO,
4th Naval District, for storage.
(d)(1) In establishing the schedule for printing, the Contractor shall
provide for furnishing the photolithographic negatives or camera-ready copies to
DPSDO in time to allow at least the following minimum number of working days
(eight-hour day, five days per week exclusive of Saturdays, Sundays, and
holidays) from date of acceptance of material for printing at DPSDO to date of
shipment of printed material from DPSDO.
<TABLE>
<CAPTION>
Minimum number of working
Printing days required by DPSDO
- -------- -------------------------
<S> <C>
Up to 200 pages 30
201 pages to 400 pages inclusive 40
401 pages to 600 pages inclusive 50
601 pages and over 60
</TABLE>
(2) If DPSDO exceeds the delivery requirements established in accordance
with paragraph (c)(1)(iii), for the item(s) specified, the time shall be
extended by an equivalent number of working days, provided that the Contractor
requests such extensions, in writing, to the Contracting Officer and submits
with its request sufficient evidence to enable the Contracting Officer to
determine the validity of the Contractor's request. If performance of all or
part of the work under this contract is delayed or interrupted by said late
shipment by DPSDO, an adjustment shall be made pursuant to the "GOVERNMENT DELAY
OF WORK" (FAR 52.212-15) clause of the contract.
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(e) The Contractor shall not be responsible for the quality, or quality
control, of printing performed by DPSDO or a printer under contract to DPSDO,
and the Government shall reimburse the Contractor for any costs incurred on
account of replacement of material lost or damaged by DPSDO or a printer under
contract to DPSDO. If such loss or damage of material causes a delay or
interruption of performance of all or any part of the work under this contract,
an adjustment shall be made pursuant to the "GOVERNMENT DELAY OF WORK" clause of
the contract.
(f) The costs of printing, binding, packing and distribution by DPSDO of the
publications and changes described herein (but not the costs of preparing
camera-ready copies and other materials for printing and the costs of
transporting or shipping such materials to DPSDO or a contract printer
designated by DPSDO) shall be borne by the Government.
(g) Procurement of photographic negatives and/or camera-ready copies by the
Contractor is authorized only when the terms of the Joint Committee on Printing
(JCP) Authorization No. 23383 of 25 October 1968 are met.
C-30 PROTECTION OF THE SHIP DURING ADVERSE ENVIRONMENTAL CONDITIONS
The Contractor shall ensure that the ship(s) and all related material at the
Contractor's facilities are protected during conditions of heavy weather, high
winds, heavy snow and icing, high water or similar adverse environmental
conditions. The Contractor shall develop, maintain, and implement as necessary
an "Adverse Environmental Conditions Plan" which prescribes the actions and
procedures and assigns responsibilities for action to be taken in preparation
for and during the period of adverse environmental conditions. The Contractor
shall furnish the plan to the Supervisor and shall make such changes in the plan
as the Supervisor considers necessary to provide for adequate protection of the
ship(s) and the materials and equipment to be installed therein.
C-31 DELETED
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C-32 PROVISIONED ITEMS ORDER - ALTERNATE I (NAVSEA) (MAY 1993)
(Applicable to ITEM 0007)
(a) General. The Contractor agrees that it will furnish the supplies or
services ordered by the Government in accordance with the procedures specified
herein. Orders will be placed by the Contracting Officer, Provisioning Activity
or Administrative Contracting Officer as unilateral or bilateral modifications
to this contract on SF 30, Amendment of Solicitation/Modification of Contract.
Any amounts shown in Section B at time of award for each provisioned line item
are estimated amounts only and are subject to upward or downward adjustment by
the issuing activity. If no amounts are shown, funding will be obligated before
or at time of order issuance. It is understood and agreed that the Government
has no obligation under this contract to issue any orders hereunder.
(b) Priced Orders. For each proposed order, the Contractor agrees that it will
submit a signed SF 1411 (Contract Pricing Proposal) or such other cost or
pricing data as the Contracting Officer may require. Promptly thereafter, the
Contractor and the Contracting Officer shall negotiate the price and delivery
schedule for the proposed order. Upon execution and receipt of the priced order,
the Contractor shall promptly commence the work specified in the order.
(c) Undefinitized Orders. Whenever the Contracting Officer determines that
urgent demands or requirements prevent the issuance of a priced order, he/she
may issue an unpriced order. Such order may be unilateral or bilateral and shall
establish a limitation of Government liability, a maximum ceiling amount, and a
schedule for definitization, as described in subparagraph (e)(2) below. Upon
request the Contractor shall submit a maximum ceiling amount proposal before the
undefinitized order is issued. The maximum ceiling amount is the maximum price
at which the order may be definitized. The Contractor shall begin performing
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the undefinitized order upon receipt, except as provided in paragraph (d) below.
The clause entitled "PRICE CEILING" (DFARS 252.217-7027) shall be included in
any undefinitized order.
(d) Undefinitized Unilateral Orders. (1) For a unilateral undefinitized order,
the Contractor shall within ten calendar days of receipt of the order notify the
Contracting Officer in writing if it takes exception to the ceiling amount
and/or the delivery schedule and shall propose a revised ceiling amount and/or a
revised delivery schedule at that time. For unilateral undefinitized orders to
which the Contractor takes no exception, the Contractor is obligated to perform
just as if it were a fully definitized order.
(2) After receipt of the Contractor's proposal to establish the revised
ceiling amount and/or the revised delivery schedule, the Contracting Officer
shall: (1) adjust the ceiling amount and/or the delivery schedule; (2) advise
the Contractor that the order will be adjusted in a different amount than
proposed by the Contractor; or (3) advise the Contractor that no adjustment will
be made. In the event the Contractor has taken exception to the ceiling amount
and/or the delivery schedule and has submitted a timely proposal in accordance
with the preceding requirement and the Contracting Officer has not accepted the
Contractor's proposal, the Contractor shall not be obligated to perform the
order beyond the point at which it would be entitled to be compensated in an
amount in excess of the Government's limitation of liability contained in the
unilateral order.
(e) Definitization of Undefinitized Orders. (1) The Contractor agrees that
following the issuance of an undefinitized order, it will promptly begin
negotiating with the Contracting Officer the price and terms of a definitive
order that will include: (A) all clauses required by regulation on the date of
the order; (B) all clauses required by law on the date of execution of the
definitive order; and, (C) any other mutually agreeable clauses, terms and
conditions. No later than sixty (60) days after the undefinitized order is
issued, the Contractor agrees to submit a cost proposal with sufficient data to
support the accuracy and derivation of its price; and, when required by FAR,
cost or pricing data, including SF 1411. If additional cost information is
available prior to the conclusion of negotiations, the Contractor shall provide
that information to the Contracting Officer. The price agreed upon shall be set
forth in a bilateral modification to the order. In no event shall the price
exceed the maximum ceiling amount specified in the undefinitized order.
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(2) Each undefinitized order shall contain a schedule for definitization
which shall include a target date for definitization and dates for submission of
a qualifying proposal, beginning of negotiations and, if appropriate, submission
of make-or-buy and subcontracting plans and cost or pricing data. Submission of
a qualifying proposal in accordance with the definitization schedule is a
material element of the order. The schedule shall provide for definitization of
the order by the earlier of:
(i) a specified target date which is not more than 180 days after the
issuance of the undefinitized order. However, up to 180 days after the
Contractor submits a qualifying proposal as defined in DFARS 217.7401; or
(ii) the date on which the amount of funds expended by the Contractor
under the undefinitized order exceed fifty percent (50%) of the order's maximum
ceiling amount, except as provided in subparagraph (f)(3) below.
(3) If agreement on a definitive order is not reached within the time
provided pursuant to subparagraph (e)(2) above, the Contracting Officer may,
with the approval of the Head of the Contracting Activity, determine a
reasonable price in accordance with Subpart 15.8 and Part 31 of the FAR, and
issue a unilateral order subject to Contractor appeal as provided in the
"DISPUTES" clause (FAR 52.233-1). In any event, the Contractor shall proceed
with completion of the order, subject to the "LIMITATION OF GOVERNMENT
LIABILITY" clause (FAR 52.216-24).
(f) Limitation of Government Liability. (1) Each undefinitized order shall set
forth the limitation of Government liability, which shall be the maximum amount
that the Government will be obligated to pay the Contractor for performance of
the order until the order is definitized. The Contractor is not authorized to
make expenditures or incur obligations exceeding the limitation of Government
liability set forth in the order. If such expenditures are made, or if such
obligations are incurred, they will be at the Contractor's sole risk and
expense. Further, the limitation of Government liability shall be the maximum
Government liability if the order is terminated. The "LIMITATION OF GOVERNMENT
LIABILITY" clause shall be included in any undefinitized order.
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(2) Except for undefinitized orders for Foreign Military Sales; purchases
of less than $25,000; special access programs; and Congressionally-mandated
long-lead procurements; and except as otherwise provided in subparagraph (f)(3)
below, the limitation of Government liability shall not exceed fifty percent
(50%) of the ceiling amount of an undefinitized order. In the case of orders
within these excepted categories, however, the procedures set forth herein shall
be followed to the maximum extent practical.
(3) If the Contractor submits a qualifying proposal (as defined in
DFARS 217.7401) to definitize an order before the Contractor has incurred costs
in excess of fifty percent (50%) of the ceiling amount, the Contracting Officer
may increase the limitation of Government liability to up to seventy-five
percent (75%) of the maximum ceiling amount or up to seventy-five percent (75%)
of the price proposed by the Contractor, whichever is less.
(4) If at any time the Contractor believes that its expenditure under
an undefinitized order will exceed the limitation of Government liability, the
Contractor shall so notify the Contracting Officer, in writing, and propose an
appropriate increase in the limitation of Government liability of such order.
Within thirty (30) days of such notice, the Contracting Officer will either (i)
notify the Contractor in writing of such appropriate increase, or (ii) instruct
the Contractor how and to what extent the work shall be continued; provided,
however, that in no event shall the Contractor be obligated to proceed with work
on an undefinitized order beyond the point where its costs incurred plus a
reasonable profit thereon exceed the limitation of Government liability, and
provided also that in no event shall the Government be obligated to pay the
Contractor any amount in excess of the limitation of Government liability
specified in any such order prior to establishment of firm prices.
(g) Initial Spares. The limitations set forth in paragraph (c) and
subparagraphs (e)(2), (f)(2) and (f)(3) do not apply to undefinitized orders
for the purchase of initial spares.
(h) The following Military Standards apply to all orders:
MIL-STD-1561B, Provisioning Procedures, dated 17 November 1984; and
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MIL-STD-1388-2B, DoD Requirements for a
Logistic Support Analysis Record, dated
28 March 1991 and NAVSEA Addendum dated
November 1990.
(i) Terminal Date for Placement of Orders. The Contractor shall not be
obligated to accept any orders placed hereunder beyond 180 days after delivery
of the last end item.
(j) Segregation of Costs. The Contractor shall segregate the costs of
performance of any other work performed by the Contractor.
(k) Ordering. The cognizant ordering activities are designated below:
ITEM ACTIVITY
---- --------
ITEM 0007 SUPSHIP Newport News, VA
C-33 QUALIFICATION OF CONTRACTOR NONDESTRUCTIVE TESTING (NDT)
PERSONNEL (NAVSEA) (MAY 1993)
(a) The Contractor and any NDT subcontractor (as hereinafter defined) shall
utilize for the performance of required Nondestructive Testing (NDT) (which
includes radiography, magnetic particle, liquid penetrant, eddy current,
ultrasonic inspections and visual inspections) only personnel who have been
previously qualified and certified in accordance with MIL-STD-271F(SH) dated 27
June 1986 (including the 1980 edition of SNT-TC-1A). The term "NDT
Subcontractor" is defined to be a first tier subcontractor performing NDT in
conjunction with the production of materials, components, or equipments for the
vessel(s).
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(b) Qualification and Certification of Level III (Examiner) personnel shall be
based on (1) successful completion of appropriate American Society for
Nondestructive Testing Level III Examinations, and (2) successful completion of
specific and practical examinations developed by the Contractor and based on
MIL-STD-271F(SH) and associated fabrication documents. Documentation
pertaining to the qualification and certification of NDT personnel shall be
available to the Contracting Officer for review upon request.
(c) These requirements do not apply with respect to nuclear propulsion plant
systems and other matters under the technical cognizance of SEA 08. Because of
health and safety considerations, such matters will continue to be handled as
directed by SEA 08.
C-34 DELETED
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C-35 QUALITY PROGRAM
The Contractor shall provide and maintain a quality program acceptable to the
Government for supplies and services covered by this Contract. The quality
program shall be in accordance with Military Specification MIL-Q-9858A dated 16
December 1963, except as otherwise provided below:
(a) Reactor Plant Quality Program
(1) The Contractor shall provide and maintain a quality program for
the reactor plant, separate from the quality assurance system for the rest of
this ship, meeting requirements for MIL-Q-9858A EXCEPT AS NOTED BELOW.
(2) The following exceptions and clarifications apply to MIL-Q-9858A
with respect to the reactor plant quality program:
(i) Paragraph 3.6 does not apply.
(ii) The last sentence of paragraph 6.5 does not require a system
for the continuous gathering of data associated with costs and losses in
connection with scrap and rework. However, the Contractor shall furnish such
data in specific cases when requested.
(3) The following additional requirements apply:
(i) The reactor plant quality control organization shall be
independent of the quality control organization responsible for other work, and
also independent of the organization actually performing reactor plant
production work. The reactor plant quality control organization shall also be
responsible for quality control of all Government-furnished reactor plant
equipment from the time of its receipt in the shipyard.
(ii) A reactor plant material control system shall be maintained that
is independent of other shipyard material control systems. Reactor plant
material consists of that material which appears in the non-deviation reactor
plant drawings, which drawings are to be furnished by the Government in
accordance with Section C-2, General Requirement C-15 "Drawings and Other Data".
Reactor Plant Controlled Material (including rejected material) shall be
segregated from other material while it is being stored and handled in the
shipyard. The scope of material designated Reactor Plant Controlled Material
shall be at least
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that specified in NNSD RPCM Procedure A-135. Reactor plant material other than
that defined as Reactor Plant Controlled Material in accordance with Procedure
A-135 shall be controlled in accordance with NNSD RPCM Procedure A-134.
Experience with the quality program may result in the need to add or delete
items from the list of Reactor Plant Controlled Material in order to meet the
intent of MIL-Q-9858A. The Contractor shall inform the procuring activity's
representative of addition or deletion of any reactor plant item from the
Reactor Plant Controlled Material system, and make available to the procuring
activity's representative upon request the technical basis for such additions or
deletions (normally such requests will only be made for deletions), with the
understanding that such additions or deletions are subject to disapproval by the
procuring activity when the additions or deletions do not satisfy the intent of
MIL-Q-9858A.
(iii) Periodic internal audits shall be conducted by the Contractor to
assess the adequacy of individual performance and quality program performance in
providing quality control of reactor plant work, including audits of those areas
of reactor plant work not inspected by reactor plant quality control
organization inspectors. Follow-up audits shall be conducted to assure that the
necessary corrective action, including elimination of the underlying causes of
deficiencies, is taken. The results of the above audits and proposed corrective
action shall be distributed to responsible senior management personnel.
(iv) The reactor plant quality program shall be subject to audit on a
periodic basis by NAVSEA 08 for compliance with the above requirements.
(b) Non-Reactor Plant Quality Program
(1) The quality program requirements of this clause do not extend to
those items covered by MIL-D-1000/2 as set forth in the contract specifications.
(2) The requirements of MIL-Q-9858A shall not apply to
equipment/components except where invoked by applicable equipment/component
specifications referenced in the contract specifications. In the event MIL-Q-
9858A requirements are invoked in the applicable equipment/component
specifications, the following shall apply:
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(i) In cases where two (2) or more potential suppliers, who have
submitted quotations and are otherwise acceptable to the Contractor, have
furnished or are furnishing similar equipment in accordance with the
requirements of MIL-Q-9858A and whose MIL-Q-9858A quality program has been
reviewed and either approved or not disapproved by the Government, MIL-Q-9858A
shall be invoked.
(ii) In cases where a single potential supplier, otherwise
acceptable to the Contractor, has furnished or is furnishing similar equipment
in accordance with the requirements of MIL-Q-9858A and whose MIL-Q-9858A quality
program has been reviewed and either approved or not disapproved by the
Government, MIL-Q-9858A shall be invoked, unless otherwise mutually agreed upon
between the Project Manager and the Contractor. In the event MIL-Q-9858A is not
invoked, the action to be taken by the Contractor to obtain assurance of quality
commensurate to that obtainable by MIL-Q-9858A shall be mutually agreed upon by
the Project Manager and the Contractor. Such action shall include appropriate
combinations of two (2) of the following:
(A) Source survey and evaluation of the supplier's program.
(B) Source inspection.
(C) Objective quality documentation.
(D) Component, subsystem and/or test.
(E) Invoked Military Specification MIL-I-45208A.
(3) The following exceptions and clarifications apply to MIL-Q-9858A with
respect to the non-nuclear plant quality program.
(i) Paragraph 3.6 does not apply.
(ii) The last sentence of paragraph 6.5, does not require a system for
the continuous gathering of data associated with costs and losses in connection
with scrap and rework. However, the Contractor shall furnish such data in
specific cases when requested.
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(c) Inspection System: The inspection system which the Contractor is
required to maintain, as provided in paragraph (f) of the clause of this
Contract entitled "Inspection" shall be in accordance with the requirements of
this clause.
(d) Quality Assurance Management System Meetings
The Contractor agrees to attend quarterly Quality Assurance Management System
Meetings to be held at the Supervisor's office, or, if the Supervisor so elects,
at the Contractor's plant, beginning three months after the effective date of
this contract. The purpose of these meetings is to review the Contractor's
performance to contractual quality program requirements, actions proposed to
correct deficiencies found, if any, progress in correcting the deficiencies
found, if any, and other related matters. The Contractor and the Supervisor
shall agree to a written agenda and the Contractor shall provide copies of all
meeting handouts no later than five (5) working days before the meeting.
(e) Clarifications: MIL-STD-45662, referenced in MIL-Q-9858A Amendment
2 dated March 8, 1985, shall be implemented for all calibrated test and
measurement equipment used for final shipboard test or measurements unless the
equipment is self-checking, normally standardized prior to use, cross-checked by
overlapping ranges or other instruments, or the out-of-tolerance condition does
not adversely affect the test results.
C-36 QUARTERLY PRODUCTION PROGRESS CONFERENCE
The purpose of the Quarterly Production Progress Conference (QPPC) is to
provide a thorough evaluation of the production status and to identify and
resolve problems affecting production schedules, cost, technical and management
problems and timely completion of the ship.
The Contractor shall prepare the recommended Quarterly Production Progress
Conference (QPPC) agenda in writing for this contract. The agenda shall be
forwarded to the Supervisor for review ten working days prior to each
conference. The Contractor shall develop a format in general accordance with
Appendix 9-A of Ship Acquisition Contract Administration Manual to provide for
clarity of presentation for the items listed below. The Contractor agrees to
attend Quarterly Progress Meetings to be held at the discretion of NAVSEA, in
Washington, D.C. at the facilities of the Contractor, or at a mutually agreeable
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facility of a major subcontractor located within the continental United States.
The presentation of the progress report information at the QPPC shall be oral,
supported by graphic aids, and written documentation as necessary. The
Supervisor shall be advised if projection equipment will be required. The report
shall be related to the current Contractor's principal events schedules, and
should contain the following:
(1) Scheduled key events completed and scheduled key events missed
during the previous quarter, with reasons for those missed and action planned to
overcome the delay and recover the Schedule to prevent late delivery of the
ship.
(2) Key events scheduled for the next quarter and a prognosis for
each.
(3) Critical dates of key events which must be met in the next quarter
in order to maintain the delivery date.
(4) Sixty days after award of the contract, the contractor shall
prepare a PERT network showing the paths of key events to be accomplished prior
to delivery. This PERT network shall be updated quarterly. Fragmented PERT
networks of critical systems and/or supporting certain key events shall be
developed by the Contractor in connection with the Contractor's planning effort
and shall be submitted quarterly.
(5) Percentage of completion for labor, material and over-all ship.
(6) The Contractor shall supply a current labor progress curve to
NAVSEA one week prior to the QPPC, showing actual labor progress versus planned
progress.
(7) Status of Contractor Design
---------------------------
(A) Plan Submittal for Government Approval
Number scheduled for initial submittal to date
Number actually submitted
Number approved
Total number of plans
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(B) Plan Issues
-----------
Number scheduled for issue to date
Number actually issued
Number of plans late
Total number of plans
(C) Problems
--------
List of late plans impacting ship schedule
with reason for delinquency
(D) Completion of Tests
-------------------
Total number of tests: Started Completed
------- ---------
Scheduled
Actual
Ahead of schedule
(E) Engineering Hold-ups (Both Government and
--------------------
Contractor Responsible)
1. Number of design hold-ups in effect to date
2. Number of design hold-ups resulting in
delay due to need for GFI
(NOTE: Upon request, a list of drawings
affected and the reason for this
hold-up on each drawing will be
provided).
(8) Contractor Furnished Material
-----------------------------
(A) Components and Material
-----------------------
Total item on MOS
Total item scheduled to be placed (MOS)
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Scheduled MOS item actually placed
Total MOS items delinquent
Estimated Final items on MOS
Percentage of Estimated Final Items
placed to date
(B) Status of Contractor Furnished Material, with
specific reference to those items whose
anticipated delivery will require
rescheduling of principal events.
(9) Government Furnished Material and Information
---------------------------------------------
(A) Government Furnished Material
-----------------------------
A list of those Government Furnished items
for which the promised delivery date is later
than the required-in-yard date and the late
receipt may cause specific principal events
to be missed.
(B) Government Furnished Information (GFI)
--------------------------------------
A listing of outstanding GFI (including
specific data element identification) and the
specific effect on design and/or construction
effort.
(10) Contractor and Government Furnished OBRP
---------------------------------------
SRI "O" OSI TOTAL
--- --- --- -----
Line items required
Line items received
Percentage received
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(11) Technical Manuals--Contractor Furnished
---------------------------------------
(A) Number of Manuals Required-----
(B) Number of Manuals available for use by
SUPSHIP/Ship's Force ------ Includes:
1. Number of Final Manuals Distributed AND
2. Number of Preliminary Manuals submitted to
SOS/Ship-----
NOTES: Excludes Preliminary Manuals for
which Final Manuals have subsequently
been distributed.
(C) Number of Final Manuals which have not been
distributed---------
1. At SOS for approval
2. In process by N.N./Vendor-------
3. At DPSDO for printing
(12) Contract Data Requirements List CDRL DD-1423
--------------------------------------------
Line items scheduled for delivery to date
Line items delivered to date
Line items delinquent
Problem areas identified
(13) Quality Assurance (Non-Nuclear)
-------------------------------
(A) Vendor Evaluation
I. Number of vendor in plant audits this quarter
a. Number with CVN contracts
satisfactory
b. Number with CVN contracts
unsatisfactory
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c. Provide data identifying vendors found
satisfactory, vendors found
unsatisfactory and a brief summary of
findings against each unsatisfactory
vendor.
2. Number of vendors subject to quality
aspect evaluation
(B) Internal Audit Program
1. Number of in-plant (INNS) audits this
quarter
2. Number of unsatisfactory findings per
audit
3. Brief summary of action related to
unsatisfactory findings with respect to
each ship under this contract
(C) Calibration Program
1. Total calibration performed
2. Number of calibrations requiring
correction
3. Percent of calibration requiring
correction
(D) Welding Reject Rate UT RT
1. Long term rate
2. Rate last quarter
3. Rate last month
4. Analysis of significant changes in
data (plus or minus 2%) from one month
to the next, whether an increase or
decrease
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(14) Tank/Compartment Turnover to the Government
-------------------------------------------
(A) Number scheduled for turnover
(B) Number actually turned over
After delivery of the ship, the Contractor shall continue to report
the status of incomplete items to NAVSEA PMS 312, and the Supervisor on a
quarterly basis until final settlement of the contract or as mutually agreed
upon.
This clause does not apply to items under the technical cognizance of
Deputy commander, Nuclear Power Directorate, Naval Sea Systems Command (NAVSEA
08). Production Progress Information will be provided as required by NAVSEA 08.
(15) A meeting of Government and Contractor Business Review Personnel
shall be held on a quarterly basis, following submission of the Contractor's
quarterly Cost Performance Report (CPR) and prior to the quarterly QPPC, to
discuss Cost/Schedule Control System variances and cost experience in relation
to budget and projected end cost. Explanations of the variances should clearly
identify the nature of the problem, the reasons for cost or schedule variance,
impact on the immediate task, impact on the total program and the corrective
action taken. Lastly, in conjunction with the QPPC, the Contractor shall be
responsible for reporting back to, and discussing the summary highlights from
these CPR meetings with the appropriate Government representatives.
C-37 RADIOLOGICAL CONTROLS AND RADIATION HEALTH PROTECTION
Work on or associated with naval nuclear propulsion plants under this
Contract constitutes use of a "utilization facility" in accordance with Sections
91b and 110 of Public Law 83-703, and the Contractor has been authorized to
perform such work by NAVSEA pursuant to NAVSEAINST 9210.12.
The Contractor agrees, therefore, to perform such work in accordance with
procedures which conform to NAVSEA 389-0288 "Radiological Controls for
Shipyards". The provisions of this clause are supplementary to the requirement
in Section C-2, General Requirement C-12 entitled "Department of Labor
Occupational Safety and Health Standards for Shipbuilding".
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C-38 REACTOR PLANT SPECIAL TOOLING AND TEST EQUIPMENT
Whereas the parties of this contract have provided under Contract
N00024-90-E-3501 for the storage, accountability and use of all reactor plant
special tooling and/or special test equipment to which the Government has or
will obtain title under this Contract;
Now, therefore, the parties do agree as follows:
1. All reactor plant special tooling and special test equipment
provided by or acquired for the Government in connection with or under this
Contract which meets the definition contained in the "Schedule" of Contract
N00024-90-E-3501 is hereby transferred to Contract N00024-90-E-3501.
2. The Contractor shall have the right to continue rent free use of
all property transferred from this Contract to Contract N00024-90-E-3501
pursuant to paragraph 1 above, for the performance of work under this
Contract.
3. The Contractor is responsible for scheduling the use of all such
property.
C-39 RECORDING AND MAINTAINING DATA FOR REACTOR PLANT WORK
The Contractor shall record all data and certify by signature the
completion of all actions in connection with the Reactor Plant Work in
accordance with NAVSEAINST 9210.23B. All such data and certification shall
be retained by the Contractor in accordance therewith.
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C-40 SHIPYARD PHYSICAL SECURITY
(a) In furtherance of the responsibility of the Contractor to provide certain
safeguards for its plant and work in process under General Requirement
C-28 "Plant Protection", the Contractor's Shipyard Physical Security Plan,
Rev. 6 dated November 30, 1990 is hereby made a part of this contract. It
identifies the physical security safeguards that the Contractor will maintain
throughout contract performance, and commits the Contractor to make specific
improvements or revisions to shipyard physical security measures responsive to
the standards of the NAVSEA "Physical Security Standards" of 5 September 1984.
(b) It is understood and agreed that any improvements, modifications, or
changes which the Contractor makes to any of its facilities as a result of
the aforementioned shipyard physical security plan are not to be directly
charged to the Government, but are to be capitalized in accordance with the
Contractor's disclosed accounting procedures. In addition, all other shipyard
physical security changes required by this plan, including but not limited to
personnel, equipment, maintenance, etc., are to be charged and accounted for
in accordance with the Contractor's disclosed accounting procedures.
C-41 SPECIAL AGREEMENT REGARDING SWITCHBOARD SUBCONTRACTS
(NAVSEA) (FEB 1991)
(a) The Government has an interest in maintaining a competitive market for
switchboards to be used on U.S. Naval vessels. The requirements of 10 U.S.C.
2507 result in a major component of certain switchboards (i.e. air circuit
breakers) being available from a single domestic source who is also a competitor
for such switchboards. Therefore, the Contractor shall evaluate subcontract
proposals for such switchboards exclusive of air circuit breaker content or on
some other basis that ensures an equitable switchboard competition.
(b) Notwithstanding approval of the Contractor's purchasing system or
the thresholds established in the "Subcontracts" clause the Contractor shall,
in all cases involving subcontracts which contain air circuit breakers for
switchboards, give advance notification to the Contracting Officer and obtain
written consent
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of the Contracting Officer prior to placing any such subcontract. Such advance
notification shall include all information required by the "SUBCONTRACTS (FIXED-
PRICE CONTRACTS)" (FAR 52.244-1) clause.
C-42 STANDARDIZATION
Subject to meeting the requirements of the specifications, to the extent that it
is reasonably practical, feasible and cost effective, the Contractor shall
utilize equipments and components identical to those of the CVN 68 NIMITZ Class
Ships. Where equipments or components are not reasonably available, the
Contractor shall select hull, mechanical, and electrical components in the
following order:
(a) Equipment which meets the requirements of the specifications and is
identical to equipments and components of other Aircraft Carriers.
(b) Equipment which meets the requirements of the specifications and which
appears in NAVSEA Standard Components List for Hull, Mechanical and Electrical
Equipment, NAVSEA S-0300-A-PLL-00-O (standard equipment).
(c) Equipment which meets the requirements of the specifications.
The vessel under this contract shall have the same general arrangement of
fittings, piping, wiring, ship arrangement, and general layout of major
machinery, equipment and systems as other CVN 68 Class vessels unless otherwise
approved by the Naval Sea Systems Command. All shaft tapers, coupling boxes, and
propeller hubs shall be machined to the same templates.
To the greatest extent practicable, the Contractor shall provide for the
interchangeability of components within the propulsion machinery, mechanical
and electrical auxiliaries, interior communications, weapons control, and
electronics equipment.
Among individual components, all similar parts including on-board repair parts,
shall be interchangeable without additional machining or selective assembly and
with a minimum of hand fitting.
The Contractor shall use appropriate procurement techniques to promote this
standardization objective and shall include the substance of this clause in
subcontracts and purchase orders.
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C-43 DELETED
C-44 USE OF JIGS, FIXTURES, MODELS, MOCKUPS OR SIMILAR
NON-RECURRING ITEMS FROM PREVIOUS CVN 68 CLASS CONSTRUCTION
SHIPS
The Contractor shall not be required to duplicate jigs, fixtures, models,
mock-ups, or similar non-recurring items which were required for previous CVN 68
class construction ships and are fit for such use. In like manner for equipment
or components for this contract insofar as such items are of the same design and
built using the same technical information as the equivalent equipment or
components for previous CVN 68 class ships, the Contractor shall not be required
to duplicate special lead unit qualification tests (which term includes shock
tests) required for first units, first units on a contract or order, first ship
of the class, first ship of the contract, or similarly identified units unless
required by the shipbuilding specification for qualification of a new vendor.
C-45 USE OF POWER GRINDERS AND SAWS (NAVSEA) (SEP 1990)
(a) All portable pneumatic grinders or reciprocating saws that are to be used
on reactor plant material or equipment or used within the reactor compartment
shall be equipped with safety lock-off devices. In addition, the Contractor
agrees that all portable pneumatic grinders or reciprocating saws that it
purchases or acquires subsequent to the date of this contract, for use in
performance of this contract in Naval workplace areas shall be equipped with
safety lock-off devices.
(b) A "safety lock-off device" is any operating control which requires positive
action by the operator before the tool can be turned on. The lock-off device
shall automatically and positively lock the throttle in the off position when
the throttle is released. Two consecutive operations by the same hand shall be
required first to disengage the lock-off device and then to turn on the
throttle. The lock-off device shall be integral with the tool, shall not
adversely affect the safety or operating characteristics of the tool, and shall
not be easily removable.
(c) Devices, such as a "dead man control" or "quick-disconnect", which do not
automatically and positively lock the throttle in the off position when the
throttle is released, are not safety lock-off devices.
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C-46 DELETED
C-47 INVENTION RIGHTS
If in the performance of this Contract, the Contractor invents, discovers,
conceives, or first actually reduces to practice a patentable invention, the
entire right, title and interest in said invention shall be assigned to the
Government, subject only to a royalty-free, non-exclusive license in the
Contractor to practice the same. The Contractor will submit annually a report,
including negative reports, of any such patentable inventions.
C-48 EXCUSABLE DELAY
(a) As used in this contract, "excusable delay" means any delay in delivery
beyond the contract delivery date which results from causes described in
paragraph (c) of the clause of this contract entitled "Default", provided such
causes are determined to be beyond the control of and without the fault or
negligence of the Contractor. Upon presentation to the Contracting Officer of
sufficient information or data in support of a written request for excusable
delay, the Contracting Officer will determine the extent of any such excusable
delay and, as appropriate, shall extend the contract delivery date. No
adjustment in the target cost, target price, or ceiling price will be made as a
result of any extension in contract delivery date granted under this clause.
(b) Any dispute arising under this clause shall be determined in accordance
with and subject to the provisions of the "Disputes" clause of this contract.
C-49 PAYMENT OF INVOICES
The parties agree that the Government will promptly make payment upon submission
of invoices by the Contractor in accordance with the provisions of this
contract. Such payment shall be made within the same time intervals from
submission of invoices to receipt of payments by the Contractor as has been the
practice for previous contracts between NAVSEA and Newport News Shipbuilding.
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C-50 PROVISIONS RELATING TO MATERIAL FORMERLY FURNISHED BY THE
GOVERNMENT ON PREVIOUS AIRCRAFT CARRIERS CONTRACTS
Whenever the Contractor is requested or required to provide materials for the
construction of CVN 76 which were provided by the Government as Government
Furnished Material (GFM) on previous aircraft carrier contracts, the Government
agrees that the Contractor can provide those materials to the same criteria that
the Government used when procuring and providing those materials including any
waivers or deviations granted.
C-51 ACCESS TO THE NAVY SUPPLY SYSTEM
(a) Pursuant to the clause of this contract entitled "GOVERNMENT SUPPLY
SOURCES" (FAR 52.251-1) the Contracting Officer hereby authorizes the Contractor
to place orders with the Navy Supply System for materials and equipment or other
supplies necessary to perform the required work. The Contractor shall make
payment on account of materials and equipment and other supplies ordered and/or
received in accordance with the normal requirements of the Naval Supply Systems
Command, but in no event shall payment in full be later than 30 days after
receipt of the NAVSUP Form 1080 provided via the Supervisor to the Contractor
for each order. The Contractor shall pay the Naval Supply System any costs for
materials, equipments, or other supplies obtained including any surcharges
normally charged to any other Naval Supply system user.
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(b) This contract has been priced on the basis that, except as specifically
provided elsewhere in this contract with regards to Government furnished
property, the Contractor shall provide all necessary materials, equipments and
supplies for performance of this contract. If the Contractor uses the Naval
Supply System, it has elected to use the system for its own convenience to meet
its contractual obligations to perform the work under this contract. The Naval
Supply System is considered to be an alternate source or vendor of contractor
furnished material; therefore materials, equipments, or other supplies ordered
and/or obtained from the Naval Supply System are specifically not considered to
be Government furnished material, but are considered to be Contractor furnished
material. The Government makes no representation as to the availability of
materials, equipments, or other supplies for the performance of the work
required under this contract, nor shall unavailability, late delivery, delivery
of non-conforming supplies, higher costs of the Naval Supply System (if any), or
any failure of the Naval Supply System to meet the expectations or requirements
of the Contractor constitute excusable delay or grounds for equitable or any
other adjustment to the contract or relief from the requirement to perform in
accordance with the terms of the contract.
C-52 CLARIFICATION OF "INSURANCE - PROPERTY LOSS OR DAMAGE -
LIABILITY TO THIRD PERSONS" CLAUSE
The following clarification applies to the first "Provided further" provision of
paragraph (a) of Special Contract Requirement H-12, "Insurance--Property Loss of
Damage--Liability to Third Persons":
The risks of loss and damage assumed by the Government addressed in the
second sentence of said paragraph (a) include, but are not limited to,
losses or damages which are consequences of defective workmanship or
defective materials or equipment, or workmanship or materials which do not
conform to the requirements of the contract. The contractor is responsible
for the inspection, repair, replacement, or renewal of such defects
themselves.
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C-53 CONTRACT ADJUSTMENT FOR ENERGY SHORTAGE
In order to mitigate the impact on the Contractor resulting from
substantial interruptions, shortages, reductions, or denials of the following
types of energy supplies, including governmental orders issued because of energy
shortages and which prohibit the use of such energy supplies or regulate hours
or time of work to conserve such supplies (hereinafter referred to as energy
shortages):
(1) Electricity
(2) Fuel Oil
(3) Acetylene Gas
(4) Propane Gas
(5) Coal
(a) An equitable adjustment in the Target Cost (but excluding adjustment
to the Target Profit and Ceiling Price) and contract delivery schedule shall be
made in accordance with the procedures of the "Changes" Clause of this Contract,
except as otherwise provided in this clause, and as set forth below in (c) and
(d) in the event work under this contract is affected by energy shortages due to
causes beyond the control of the Contractor.
(b) Energy shortages shall be deemed to have occurred whenever the
Contractor demonstrates that an energy shortage has occurred and that energy
supplies to the Contractor are or have been insufficient to keep the direct
charge production work force, excluding salaried personnel (hereinafter
referred to as work force), employed on a reasonably productive basis, and that
such energy shortage results in more than three (3) working days of delay as
calculated in (c) and (d) below. "Working days" are Monday thru Friday, but
exclude Contractor recognized holidays.
(c) The number of working days of delay caused by the energy shortages
defined in (b) above shall be determined in the following manner:
(1) At the end of any calendar month in which the Contractor experienced
an energy shortage, establish the total number of working days on
which a reduction by pass-out, lay-off, or equivalent actions
affecting the work force occurred due to such energy shortages.
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(2) At the end of the calendar month involved use the previous fifteen
(15) normal working days which were not affected by the energy
shortage to establish the average manhours incurred per day by the
work force for this contract.
(3) Establish the average manhours incurred per day for the work force for
this contract on those working days affected by an energy shortage
during the calendar month as identified by (c)(1).
(4) The average percent work force reduction for the working days
identified in (c)(l) for this contract shall be determined by
subtracting (c)(3) from (c)(2) and dividing the result by that
established in (c)(2).
(5) At the end of the calendar month involved use the previous fifteen
(15) normal working days identified in (c)(2) above which were not
affected by the energy shortage to establish the average number of
equivalent work force employees (exclusive of overtime) for the total
shipyard.
(6) Establish the average number of equivalent work force employees
passed-out, laid-off or equivalent actions per working day due to
the energy shortage for the total shipyard for the working days
during the calendar month affected by an energy shortage as
identified in (c)(l) above.
(7) The average percent work force reduction for the working days
identified in (c)(l) for the total shipyard shall be determined by
dividing the answer established in (c)(6) by that established in
(c)(5).
(8) The total number of working days of delay occurring in the calendar
month involved shall then be determined by the product of the average
percent work force reduction for either the total shipyard or for this
contract, as determined in (c)(4) and (c)(7), whichever is lesser, and
the total number of working days affected by the energy shortage in
the calendar month as identified in (c)(1).
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(9) The Contractor shall maintain records or reports which show the actual
number or equivalent number of work force employees passed-out, laid-
off or equivalent actions for the total shipyard as a result of an
energy shortage.
The above can be restated as follows:
Number of working days of = (R)(D)
delay for calendar month
where R = average percent work force reduction
as a result of energy shortage.
Either total yard or this contract,
whichever is lesser.
D = Total number of working days for
which reduction of the work force
occurred because of energy shortage
during the calendar month.
(d) No adjustment in the Target Cost or Contract delivery date shall be made
under this clause for any monthly period unless more than three (3) working days
as calculated results from energy shortages in the calendar month involved. If
consecutive working days of delay occur (in excess of three (3) working days)
such that it overlaps calendar months, an adjustment shall be made for the
entire duration of the delay even though three (3) or less working days occurred
in either of the calendar months. The adjustment in target cost for each working
day of delay shall be as follows for the respective calendar years shown:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995: $ 32,900 2000: $609,100
1996: $172,300 2001: $651,400
1997: $370,100 2002: $539,100
1998: $514,600
1999: $598,400
</TABLE>
The contract delivery date shall be adjusted to provide the additional number of
working days determined in (c)(8) if such adjustment is more than three (3)
working days as described in this paragraph.
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(e) It is in the mutual interest of the parties to identify at the
earliest possible time potential energy shortages. Early notification to the
Contracting Officer is necessary in order that timely action may be taken to
minimize the effect of any energy shortage. The Contractor shall give written
notice within ten (10) working days on which the energy shortage first causes
the Contractor to pass-out or lay-off production work force employees and the
Contractor shall not be entitled to an adjustment under this clause due to
energy shortages for any period of time more than ten (10) working days prior
to the date on which the Contractor gives written notice under this clause. The
proposal for adjustment in target cost and delivery schedule, including all
calculations and documentation required in accordance with the provisions of
the contract shall be submitted within forty-five (45) days from the end of the
monthly period affected by an energy shortage which exceeds (3) working days (as
determined by paragraphs (c) and (d) of this clause) or any extension thereof as
the Contracting Officer may-allow. Further, the Contractor will exercise all
reasonable efforts, including exploration into areas of alternate sources of
energy and various methods of conservation of internal shipyard reallocation,
to mitigate the impact of such energy shortages. In the event of notification
of an energy shortage where the lack of energy types described in this clause
would cause any of the Contract work to be adversely impacted or delayed at the
Contractor's plant, the Contracting Officer will use his best efforts to: (1)
provide the necessary priority to enable the Contractor to obtain the shortages
identified, or (2) make such types and amounts of energy available from
Government sources.
(f) Requests for equitable adjustment under this clause shall be in
accordance with Clause H-6 (Documentation of Request for Equitable Adjustment).
(g) The provisions of paragraphs (a) through (f) of this clause shall
not be included in any subcontracts under this contract.
(h) The determination that any delay is not a cause for adjustment
under this clause will not affect or establish the Contractor's right, if any,
to an equitable adjustment in contract delivery schedule for any excusable
delays including those resulting from energy shortages.
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C-54 HYDRA SYSTEM
The contract price is based on the Contractor obtaining the Hydra System in
accordance with the shock requirements of Section 9650-2 of the specifications
at a cost not to exceed $2,733,768. In the event the Hydra System cannot be
obtained at this cost the Contractor shall immediately notify the Government in
writing. In the event the Contractor demonstrates that the actual cost of the
Hydra System exceeds $2,733,768 and complies with all notification requirements
of the contract including Special Contract Requirement H-15 entitled,
"Notification of Changes (FT) Alt I", the Contractor shall be entitled to an
equitable adjustment in accordance with the "Changes" clause.
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SECTION D - PACKAGING AND MARKING
Items 0003, 0004, 0005 and 0006 - All unclassified data shall be prepared for
shipment in accordance with best commercial practice.
Item 0007 - The parts ordered hereunder shall be cleaned, preserved, packaged,
packed and marked in accordance with instructions provided by the Contracting
Officer, provisioning activity or ACO. When not otherwise instructed, spare and
repair parts shall be cleaned, preserved, packaged, packed and marked Level A in
accordance with Military Specification MIL-E-17555H, dated 15 November 1984.
D-1 IDENTIFICATION MARKING OF PARTS (NAVSEA) (MAY 1993)
(a) Identification marking of individual parts within the systems, equipments,
assemblies, subassemblies, components, groups, sets or kits, and of spare and
repair parts shall be done in accordance with applicable specifications and
drawings. To the extent identification marking of such parts is not specified
in applicable specifications or drawings, such marking shall be accomplished in
accordance with the following:
(1) Parts not manufactured to Government specifications shall be
marked in accordance with generally accepted commercial practice.
(2) Parts manufactured to Government specifications shall be marked
as follows:
(i) Electrical Parts - that is, all parts in electrical equipments and
electrical parts when used in equipments which are not electrical in nature
(e.g., electric controls and motors in a hydraulic system) - shall be identified
and marked in accordance with MIL-STD-1285B dated 2 April 1990, or, where
MIL-STD-1285B does not cover such a part, in accordance with MIL-STD-130G dated
11 October 1988. Requirements of MIL-STD-1686b dated 31 December 1992 for
Electrostatic Discharge Control shall be addressed.
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(ii) Electronic Parts - that is, all parts in electronic equipments
and electronic parts when used in equipments which are not electronic in nature
(e.g., electronic fuel controls in some engines) - shall be identified and
marked in accordance with Requirement 67 of MIL-STD-454N dated 30 June 1992.
Requirements of MIL-STD-1686B for Electrostatic Discharge Control shall be
addressed.
(iii) Parts other than electrical or electronic parts (as described
above) shall be identified and marked in accordance with MIL-STD-13OG.
(b) In cases where parts are so small as not to permit identification marking
as provided above, such parts shall be appropriately coded so as to permit ready
identification.
D-2 MARKING AND PACKING LIST(S) (NAVSEA) (MAY 1993)
(a) Marking. Shipments, shipping containers and palletized unit loads shall be
marked in accordance with MIL-STD-129L dated 15 October 1990 with Notice 1 dated
10 January 1992.
(b) Packing List(s). A packing list (DD Form 250 Material Inspection and
Receiving Report may be used) identifying the contents of each shipment,
shipping container or palletized unit load shall be provided by the Contractor
with each shipment in accordance with the above cited MIL-STD. When a contract
line item identified under a single stock number includes an assortment of
related items such as kit or set components, detached parts or accessories,
installation hardware or material, the packing list(s) shall identify the
assorted items.
Where DD Form 1348-1 or DD Form 1348-1A is applicable and an assortment of
related items is included in the shipping container, a packing list identifying
the contents shall be furnished.
(c) Master Packing List. In addition to the requirements in paragraph (b) above,
a master packing list shall be prepared where more than one shipment, shipping
container or palletized unit load comprise the contract line item being shipped.
The master packing list shall be attached to the number one container and so
identified.
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(d) Part Identification. All items within the kit, set, installation hardware or
material shall be suitably segregated and identified within the unit pack(s) or
shipping container by part number and/or national stock number. Refer to the
above cited MIL-STD for markinq of assorted (related-unrelated) items.
D-3 MARKING OF REPORTS (NAVSEA) (SEP 1990)
All reports delivered by the Contractor to the Government under this contract
shall prominently show on the cover of the report:
(1) name and business address of the Contractor
(2) contract number
(3) contract dollar amount
(4) whether the contract was competitively or non-competitively
awarded
(5) sponsor:
------------------------------
(Name of Individual Sponsor)
------------------------------
(Name of Requiring Activity)
-----------------------------
(City and State)
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SECTION E - INSPECTION AND ACCEPTANCE
CLIN 0001 and 0002:
- -------------------
E-1 INSPECTION AND ACCEPTANCE OF VESSEL(S)
The ship shall be constructed, inspected and accepted at the following location:
Newport News Shipbuilding
4101 Washington Avenue
Newport News, Virginia 23607
The procedures for inspection and acceptance of the ship shall be as set forth
in this Section E and the "INSPECTION" and DELIVERY OF COMPLETED VESSEL" clauses
of this contract.
E-2 PRELIMINARY ACCEPTANCE (AT) (NAVSEA) (JAN 1983)
Upon satisfactory completion of the applicable trial requirements and upon
delivery as provided in Section F of this contract, each vessel shall be
preliminarily accepted.
E-3 FINAL ACCEPTANCE (AT) (NAVSEA) (JAN 1983)
Each vessel shall be finally accepted upon the expiration of its guaranty
period.
E-4 GUARANTY PERIOD (FT) (NAVSEA) (JAN 1990)
(a) As used in this contract, the term "defects" includes any and all defects,
deficiencies, deteriorations, and failure in the vessel(s). There shall be a
guaranty period for each vessel beginning at the time of preliminary acceptance
and ending either eight (8) months after completion of the fitting out period of
the vessel, or ten (10) months after preliminary acceptance, whichever first
occurs, unless extended as provided in paragraph (b) below.
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(b) The guaranty period for each vessel shall be extended by the time during
which such vessel is not available for unrestricted service by reason of any
defects for which the Contracting Officer shall determine the Contractor to be
responsible. During said period the vessel, after being fully equipped and armed
and in all respects complete and ready for service, may be finally tried by and
at the expense of the Government under conditions prescribed by the Secretary of
the Navy. The Contractor may, with approval of the Contracting Officer, have an
engineer on board such vessel during such period. Such engineer shall have every
reasonable opportunity to inspect the working of such vessel in all its parts
but shall have no power to direct or control its operation.
E-5 INSPECTION FACILITIES (FT) (NAVSEA) (JAN 1990)
The facilities to be provided pursuant to paragraph (d) of the clause entitled
"INSPECTION OF SUPPLIES--FIXED-PRICE (FT) (JUL 1985) - ALTERNATE I (JUL 1985)
(DEVIATION 89-915 - 29 JUN 1989" (FAR 52.246-2) shall be equal to those provided
by the Contractor for his use for generally similar purposes, and shall include
offices and related equipment; drafting rooms; convenient parking facilities;
equipment for reproduction of such items as plans, booklets, test memoranda and
allowance lists; and telephones connected to the Contractor's and local
telephone system. Toll charges for the Supervisor's calls will be paid by the
Government. In lieu of providing reproduction equipment, the Contractor may
provide reproduction services to the Supervisor. Assistance shall include
services necessary in testing or handling machinery, equipment, and materials
for the purpose of inspection or test.
E-6 LIMITATION OF CONTRACTOR'S LIABILITY FOR CORRECTION OF DEFECTS (FT) (NAVSEA)
(JAN 1990)
The liability of the Contractor as to any vessel for the correction of defects,
as determined pursuant to the "INSPECTION" and "GUARANTY PERIOD" requirements of
this contract, discovered during the guaranty period (other than defects
resulting from fraud or such gross mistakes as amount to fraud) shall be limited
to $10,000,000 of actual incurred cost.
CLIN 0003 and 0006 - Inspection and acceptance of data Item(s) 0003 and 0006
shall be as specified on the attached Contract Data Requirements List(s), DD
Form 1423s, Exhibits "A" and "B" attached hereto.
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CLIN 0004 - The Government may accept, conditionally accept, or reject the
Provisioning Technical Documentation (PTD) within sixty days after its delivery,
or as specified on the applicable CDRL(s). A notice of conditional acceptance
shall state any corrective action required by the Contractor. If PTD is
rejected, the Contractor may be required, at the option of the Government, to
correct any or all of the PTD. The Contractor shall at no additional cost to the
Government make any necessary changes, modifications or corrections to the PTD.
The Government shall take action on the corrected PTD within sixty (60) days
after receipt of corrected PTD. Government action under this requirement shall
not affect or limit any other rights it may have under this contract.
CLIN 0007 - Inspection and acceptance of parts ordered hereunder shall be as
established in each PIO. Unless otherwise stated in the PIO, parts shall be
inspected and accepted at source by a representative of the Contract
Administration Office.
CLAUSES INCORPORATED BY REFERENCE
FAR
SOURCE TITLE AND DATE
- ------ --------------
52.246-2 INSPECTION OF SUPPLIES--FIXED PRICE
and Alt. I (JUL 1985) AND ALTERNATE I (JUL 1985)
(Applicable to Item 0007 only)
52.246-4 INSPECTION OF SERVICES--FIXED PRICE
(FEB 1992)
52.246-16 RESPONSIBILITY FOR SUPPLIES (APR 1984)
CLAUSES INCORPORATED IN FULL TEXT
FAR 52.246-11 HIGHER-LEVEL CONTRACT QUALITY REQUIREMENT (GOVERNMENT
SPECIFICATION) (APR 1984)
(a) Definition. "Contract date," as used in this clause, means the date set
forth for bid opening, or, if this is a negotiated contract or a modification,
the effective date of this contract or modification.
(b) The Contractor shall comply with the specifications titled MIL-Q-9858A, in
effect on the contract date, which is hereby incorporated into this contract.
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SECTION F - DELIVERIES OR PERFORMANCE
Items 0001 and 0002
- -------------------
(a) The Contractor shall deliver the vessel, complete with on-board
repair parts, to the Government dockside at the Contractor's plant in accordance
with the requirements of this contract, including the requirements of Special
Contract Requirement H-5 entitled "Delivery of Completed Vessel", and in
accordance with the following schedule:
DESIGNATION OF VESSEL REQUIRED DELIVERY DATE
- --------------------- ----------------------
CVN-76 December, 2002
The vessel shall be constructed at the Contractor's plant located
at Newport News, Virginia.
The Contractor shall schedule his work on a basis that will permit delivery
of the outfitted ship approximately eight weeks after the builders' (initial)
sea trials and approximately six weeks after the acceptance trial. In this
regard, the Contractor shall submit to the Supervisor of Shipbuilding for
approval a schedule of completion and turn-over of systems, operating spaces and
storerooms to the Ship's Force. This schedule shall provide for necessary
outfitting prior to builders' (initial) sea trials and for completion of all
outfitting prior to delivery.
CLIN 0003 and 0004 - All data to be furnished under this contract shall be
delivered prepaid, unless otherwise specified, to destination(s) at the time(s)
specified in the Contract Data Requirements List(s), DD Form 1423s, Exhibits "A"
and "B" attached hereto.
CLIN 0005 - Technical Manual Requirements shall be in accordance with Contract
Data Requirements List(s), DD Form 1423s, Exhibits "A" and "B" attached hereto.
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CLIN 0007 - Parts shall be delivered in accordance with the delivery schedule
established in each PIO. Unless otherwise stated in the PIO, parts shall be
delivered free of expense to the Government in accordance with instructions
specified in the clause hereof entitled "F.O.B. ORIGIN" (FAR 52.247-29) at or
near the Contractor's plant for shipment at Government expense (normally on
Government bill(s) of lading).
CLAUSES INCORPORATED BY REFERENCE
FAR
SOURCE TITLE AND DATE
- ------ --------------
52.212-13 STOP-WORK ORDER (AUG 1989)
52.212-15 GOVERNMENT DELAY OF WORK (APR 1984)
52.247-29 F.O.B. ORIGIN (JUN 1988)
52.247-52 CLEARANCE AND DOCUMENTATION REQUIREMENTS--SHIPMENTS TO DOD AIR OR
WATER TERMINAL TRANSSHIPMENT POINTS (APR 1984)
52.247-55 F.O.B. POINT FOR DELIVERY OF GOVERNMENT-FURNISHED
PROPERTY (APR 1984)
52.247-58 LOADING, BLOCKING AND BRACING OF FREIGHT CAR
SHIPMENTS (APR 1984)
52.247-61 F.O.B. ORIGIN--MINIMUM SIZE OF SHIPMENTS (APR
1984)
52.247-65 F.O.B. ORIGIN, PREPAID FREIGHT--SMALL PACKAGE
SHIPMENTS (JAN 1991)
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CLAUSES INCORPORATED IN FULL TEXT
FAR 52.212-9 VARIATION IN QUANTITY (APR 1984)
(a) A variation in the quantity of any item called for by this contract will not
be accepted unless the variation has been caused by conditions of loading,
shipping, or packing, or allowances in manufacturing processes, and then only to
the extent, if any, specified in paragraph (b) below.
(b) The permissible variation shall be limited to:
0% percent increase
0% percent decrease
This increase or decrease shall apply to all items.
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SECTION G-CONTRACT ADMINISTRATION DATA
(a) Enter below the Contractor's address for receipt of payment if such address
is different from the address shown on the SF 26 or SF 33, as applicable.
Newport News Shipbuilding and Dry Dock Company
- --------------------------------------------------------------------------------
P.O. Box 79118
- --------------------------------------------------------------------------------
Baltimore, Maryland 21279-0118
- --------------------------------------------------------------------------------
(b) Enter below the address (street and number, city, county, state and zip
code) of the Contractor's facility which will administer the contract if such
address is different from the address shown on the SF 26 or SF 33, as
applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASING OFFICE REPRESENTATIVE: COMMANDER
ATTN: Mr. Jim Lofgren 02215
NAVAL SEA SYSTEMS COMMAND
2531 JEFFERSON DAVIS HWY
ARLINGTON VA 22242-5160
Telephone No. 703/602-75l9
- --------------------------------------------------------------------------------
NAME OF OFFEROR OR CONTRACTOR: Newport News Shipbuilding and
Dry Dock Company
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<TABLE>
<CAPTION>
N00024-95-C-2106
SCHEDULE
SECTION H - SPECIAL CONTRACT REQUIREMENTS
NUMBER TITLE PAGE
------ ----- ----
<S> <C> <C>
H-1 NAVSEA 5252.202-9101 ADDITIONAL DEFINITIONS (FT) ALT II 77
H-2 NAVSEA 5252.228-9104 ADDITIONAL INSURANCE PROVISIONS (FT) 79
H-3 NAVSEA 5252.245-9127 ADDITIONAL PROVISIONS RELATING TO
GOVERNMENT PROPERTY (FT)
H-4 NAVSEA 5252.216-9100 COMPENSATION ADJUSTMENTS (LABOR
AND MATERIAL) (FI) 83
H-5 NAVSEA 5252.246-9128 DELIVERY OF COMPLETED VESSEL (FT) 94
H-6 NAVSEA 5252.233-9103 DOCUMENTATION OF REQUESTS FOR
EQUITABLE ADJUSTMENT (AT) ALT I 97
H-7 NAVSEA 5252.233-9107 EQUITABLE ADJUSTMENTS: WAIVER AND
RELEASE OF CLAIMS (AT) 10
H-8 DELETED 10
H-9 NAVSEA 5252.232-9108 FINAL SETTLEMENT (FT) 10
H-10 NAVSEA 5252.225-9100 FOREIGN SHIPYARD CONSTRUCTION
PROHIBITION (AT) 1C
H-ll NAVSEA 5252.227-9113 GOVERNMENT-INDUSTRY DATA EXCHANGE
PROGRAM 1C
H-12 NAVSEA 5252.228-9105 INSURANCE-PROPERTY LOSS OR
DAMAGE-LIABILITY TO THIRD PERSONS (FT) 1C
H-13 NAVSEA 5252.245-9124 LIENS AND TITLE (FI) lt
H-14 NAVSEA 5252.227-9112 LOGISTIC SUPPORT REQUIREMENT (AT) 1C
H-15 NAVSEA 5252.243-9105 NOTIFICATION OF CHANGES (FT) ALT I lt
H-16 NAVSEA 5252.243-9113 OTHER CHANGE PROPOSALS (FT) ALT I 12
H-17 NAVSEA 5252.232-9105 PAYMENTS (FI)(DEVIATION) 1
H-18 NAVSEA 5252.215-9l06 PRICE ADJUSTMENT FOR CHANGES
IN FEDERAL LAW (FT) 1;
H-19 NAVSEA 5252.227-9100 PROTECTION OF NAVAL NUCLEAR
PROPULSION INFORMATION 1
H-20 DELETED 1:
H-21 NAVSEA 5252.246-9124 SHIPBUILDING SUPPORT OFFICE
SCHEDULES (AT) 1:
H-22 NAVSEA 5252.244-9102 SUBCONTRACTING OF NUCLEAR ENGINEERING
EFFORT (AT) 1:
H-23 NAVSEA 5252.227-9101 TRANSMISSION ABROAD OF EQUIPMENT OR
TECHNICAL DATA RELATING TO THE NUCLEAR
PROPULSION OF NAVAL SHIPS 1
</TABLE>
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<TABLE>
<CAPTION>
SECTION H - SPECIAL CONTRACT REQUIREMENTS (CONTINUED)
NUMBER TITLE PAGE
------ ----- ----
<S> <C> <C> <C>
H-24 DELETED 1
H-25 NAVSEA 5252.227-9114 UNLIMITED RIGHTS IN TECHNICAL
DATA-NUCLEAR PROPULSION PLANT SYSTEMS 1
H-26 NAVSEA 5252.209-9102 WEIGHT CONTROL 13
H-27 NAVSEA 5252.245-9115 RENT-FREE USE OF GOVERNMENT PROPERTY 13
H-28 NAVSEA 5252.231-9109 PRECONTRACT COSTS 13
</TABLE>
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H-1 NAVSEA 5252.202-9l0l ADDITIONAL DEFINITIONS (FT) -
ALTERNATE II (MAY 1993)
As used throughout this contract, the following terms shall have the meanings
set forth below:
(a) DEPARTMENT - means the Department of the Navy.
(b) COMMANDER, NAVAL SEA SYSTEMS COMMAND - means the Commander of the Naval Sea
Systems Command of the Department of the Navy or his duly appointed successor or
duly authorized representative.
(c) NAVSEA 08 - means the Deputy Commander, Nuclear Propulsion Directorate,
Naval Sea Systems Command of the Department of the Navy.
(d) SUPERVISOR - means the cognizant Supervisor of, Shipbuilding, Conversion and
Repair, Department of the Navy.
(e) PROJECT MANAGER (SHAPM)(PMS) - means the PMS 312 Program Manager, or his
duly appointed successor or duly authorized representative, of the Naval Sea
Systems Command of the Department of the Navy.
(f) LEAD SHIPBUILDER, LEAD YARD OR LEAD SHIPYARD - means Newport News
Shipbuilding and Drydock Company in its capacity as Contractor under Contract
No. N00024-67-C-0325 for the construction of the USS NIMITZ (CVN 68).
(g) FOLLOW SHIPBUILDER, FOLLOW YARD OR FOLLOW SHIPYARD - means a prime
contractor performing a contract for the construction of follow ships of the
NIMITZ Class.
(h) LEAD SHIP OR FIRST SHIP OF THE CLASS - means the USS NIMITZ (CVN 68).
(i) FOLLOW SHIP - means any ship of the NIMITZ Class other than the first ship.
(j) ADJUSTMENT IN CONTRACT PRICE - means adjustment in target cost, target
profit, target price and ceiling price or fixed price, as appropriate under the
circumstances and except as otherwise provided in the contract.
(k) DESIGN AGENT - means Newport News Shipbuilding in its capacity as Design
Agent, not in its capacity as shipbuilding contractor.
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(1) NATIONAL STOCK NUMBERS - Whenever the term Federal Item Identification
Number and its acronym FIIN or the term Federal Stock Number and its acronym
FSN appear in the contract, order or their cited specifications and standards,
the terms and acronyms shall be interpreted as National Item Identification
Number (NIIN) and National Stock Number (NSN) respectively which shall be
defined as follows:
1. National Item Identification Number (NIIN). The number assigned to
each approved Item Identification under the Federal Cataloging
Program. It consists of nine numeric characters, the first two of
which are the National Codification Bureau (NCB) Code. The remaining
positions consist of a seven digit non-significant number.
2. National Stock Number (NSN). The National Stock Number (NSN) for an
item of supply consists of the applicable four position Federal Supply
Class (FSC) plus the applicable nine position National Item
Identification Number (NIIN) assigned to the item of supply.
(m) NAVY REORGANIZATION - Pursuant to the reorganization within the Department
of the Navy, effective 1 July 1974, The Naval Sea Systems Command has become the
successor to the Naval Ship Systems Command and the Naval Ordnance Systems
Command. The Naval Ship Systems Command was the successor to the Bureau of
Ships. The Naval Ordnance Systems Command and the Naval Air Systems Command were
the successors to the Bureau of Naval Weapons, which was the successor to the
Bureau of Ordnance and the Bureau of Aeronautics. Accordingly, as appropriate in
view of the foregoing, reference in the contract and in the documents referenced
therein to the Naval Ship Systems Command, the Bureau of Ships, the Naval
Ordnance Systems Command, the Naval Air Systems Command, the Bureau of Naval
Weapons, the Bureau of Ordnance or the Bureau of Aeronautics shall be deemed to
refer to the Naval Sea Systems Command.
(n) REFERENCES TO ARMED SERVICES PROCUREMENT REGULATION OR DEFENSE ACQUISITION
REGULATION - All references in this document to either the Armed Services
Procurement Regulation (ASPR) or the Defense Acquisition Regulation (DAR) shall
be deemed to be references to the appropriate sections of the Federal
Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS).
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(o) REFERENCES TO THE FEDERAL ACQUISITION REGULATION (FAR) - All references to
the FAR in this contract shall be deemed also to include the Defense PAR
Supplement (DFARS), unless clearly indicated otherwise.
H-2 NAVSEA 5252.228-9104 ADDITIONAL INSURANCE
PROVISIONS (FT) (JAN 1990)
(a) The provisions contained in the standard form of Marine Builder's Risk
(Navy Form - Syndicate) policy referred to in paragraph (a) of the requirement
of this contract entitled "INSURANCE--PROPERTY LOSS OR DAMAGE--LIABILITY TO
THIRD PERSONS"..." with leave to fire guns and torpedoes, but no claim to attach
thereto for loss of or damage to the vessel or machinery unless the accident
results in a total loss of a vessel," shall not include, or be construed as
including, any operation conducted under the "General Scope of Work" and
"Specifications" paragraphs of Section C of this contract; and further, the
operations referred to in these aforesaid paragraphs shall not be deemed to be
"warlike operation" as used in the Collision Liability and Protection and
Indemnity Liabilities (Government Syndicate Form) policy referred to in
paragraph (b) of the requirement of this contract entitled "INSURANCE--PROPERTY
LOSS OR DAMAGE--LIABILITY TO THIRD PERSONS". Further, the Contractor shall not
carry Collision Liability and Protection and Indemnity Liabilities insurance
(Government Syndicate Form) referred to in the first sentence of paragraph (b)
of the requirement of this contract entitled "INSURANCE--PROPERTY LOSS OR
DAMAGE--LIABILITY TO THIRD PERSONS" during the period of the performance of
the underway trials required by this contract, and the Government will
indemnify the Contractor against liability (including expenses incidental
thereto) to third persons which would have been covered by the aforesaid
insurance if the Contractor had carried such insurance during the period stated
above; provided, however, that the Contractor shall not be relieved of any other
obligations required by the aforesaid paragraph (b) of the "INSURANCE--PROPERTY
LOSS OR DAMAGE--LIABILITY TO THIRD PERSONS" requirement.
(b) Notwithstanding any provisions to the contrary in paragraph (a) of the
requirement entitled "INSURANCE-PROPERTY LOSS OR DAMAGE-LIABILITY TO THIRD
PERSONS", the assumption by the Government of the risk of loss of or damage to
the vessels and the materials and equipment therefor provided for by the
aforesaid paragraph (a) of the requirement entitled "INSURANCE-PROPERTY LOSS OR
DAMAGE-LIABILITY TO THIRD PERSONS", shall continue until the expiration of the
guaranty periods of the
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N00024-95-C-2106
SCHEDULE
vessels, or until completion of all work under this contract, whichever is
later. The Government does not, however, assume the risk of loss of or damage to
any equipment which results from a defect in a part thereof for which the
Contractor is responsible pursuant to the "PRELIMINARY ACCEPTANCE", "GUARANTY
PERIOD", or "INSPECTION OF SUPPLIES--FIXED-PRICE (FT) (JUL 1985) - ALTERNATE I
(JUL 1985) (DEVIATION 89-915 - 29 JUN 1989)" (FAR 52.246-2) requirements of this
contract. The term "equipment" as used in the preceding sentence means the
largest integrated unit (e.g., component, subassembly, or individual system, as
the case may be) furnished by the same supplier who furnished the part causing
the loss or damage.
(c) Any material furnished by the Government under this contract shall be deemed
to be materials or equipment for the vessels within the meaning of the
"INSURANCE-PROPERTY LOSS OR DAMAGE-LIABILITY TO THIRD PERSONS" requirement
hereof.
(d) It is understood that the operation of firing explosive charges to eject
missiles is an operation conducted under the "General Scope of Work" and
"Specifications" paragraphs of Section C of this contract, and accordingly, this
requirement applies to such operations.
(e) The Government's liability under the last sentence of paragraph (a) of this
requirement, paragraph (b) of the requirement of this contract entitled
"INSURANCE-PROPERTY LOSS OR DAMAGE-LIABILITY TO THIRD PERSONS," and the
Collision Liability and Protection and Indemnity Liabilities Insurance forms set
forth in the pamphlet entitled "Standard Forms of Marine Builders Risk (Navy
Form Syndicate) and War Damage Insurance Policies, Referred to in Vessel
Contracts of the Bureau of Ships" dated 23 November 1942, is subject to the
availability of appropriated funds at the time a contingency occurs. Nothing in
this contract shall be construed as implying that the Congress will, at a later
date, appropriate funds sufficient to meet deficiencies.
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H-3 NAVSEA 5252.245-9127 ADDITIONAL PROVISIONS
RELATING TO GOVERNMENT
PROPERTY (FT) (JAN 1990)
(a) The Contracting Officer may increase the amount of property to be furnished
under this contract and the contract shall be equitably adjusted to reflect such
increase in accordance with procedures of the "CHANGES" clause of the contract.
(b)(l) As to all equipments listed in NAVSEA Form 4205/19 or Schedule A, as
applicable, which will be permanently installed or otherwise will be built into
the vessel(s), the AN nomenclature or other model designations given therein are
to indicate only the basic description of equipments to be furnished and do not
indicate the specific model or manufacturer's equipment that will be furnished.
The Government may furnish, without issuing a change under the "CHANGES" clause
of the contract, other equipments bearing nomenclature and model designations
which further define the specific equipment to be furnished and to further
substitute other equipments with different nomenclature or model designations as
long as they are geometrically congruent dimensionally, and mechanically and
electrically interchangeable with the equipment identified in NAVSEA Form
4205/19 or Schedule A, as applicable.
(2) As to all equipments listed in NAVSEA Form 4205/19 or Schedule A, as
applicable, which are portable in nature and require only means for stowage in
the vessel(s), the AN nomenclature or other model designations given therein are
to indicate only the basic description of the equipments to be furnished. The
Government may furnish, without issuing any change under the "CHANGES" clause of
the contract, other equipments bearing different AN nomenclature or other model
designations as long as the equipments furnished are functionally
interchangeable with the equipments specified in NAVSEA Form 4205/19 or Schedule
A, as applicable, and no changes in ship stowage provisions are required.
(c) Unless otherwise specifically directed by the Supervisor, nonreusable crates
and other nonreusable packaging in which Government Property is delivered to the
Contractor shall become the property of the Contractor upon removal of the
packaged or crated material, in which event such crates and other packaging
shall not be subject to the provisions of the clause of this contract entitled
"GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS) (FT) (DEC 1989) AND ALTERNATE I
(APR 1984)(DEVIATION) (OCT 1993)" (FAR 52.245-2).
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(d) Any packaging or preparation for delivery or for other disposal of
Government Property by the Contractor at the direction or authorization of the
Contracting Officer pursuant to paragraph (i) of the clause of this contract
entitled "GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS)" shall be provided for by
change order and an appropriate adjustment shall be made in the contract price
in accordance with the clause of the contract entitled "CHANGES".
(e)(l) In addition to the equipments listed on NAVSEA Form 4205/19 or Schedule
A, as applicable, the Government may provide installation and checkout (I&C)
spares. The Contractor shall provide segregated stowage and inventory management
for Government furnished I&C spares. These I&C spares will be pre-positioned by
the Government at the shipyard for use by Contractor or Government personnel for
the installation and checkout of Government Furnished Equipment (GFE). The
Contractor shall maintain these spares in a suitable warehouse accessible 24
hours per day during GFE installation and checkout, in accordance with the ship
construction test program. I&C spares do not include parts to support
installation and checkout of reactor plant equipment. Requirements governing
such reactor plant repair parts, known as Shipyard Load List (SLL) parts, are
defined in the ship specification.
(2) The Contractor shall provide proposed I&C storage, inventory management
and issue procedures for Government review and approval. These procedures shall
address the Contractor's methods for receipt inspection, identification of
damage, control of sensitive material, special environmental capabilities,
security and availability of timely status information. The procedures must take
into consideration any special requirements associated with electronic
components such as electrostatic discharge precautions. The procedures should
reference applicable military or commercial standards used in management of I&C
spares. A list of planned I&C spares, estimated volume, and special requirements
will be provided by the Government to allow for warehouse planning.
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H-4 NAVSEA 5252.216-9100 COMPENSATION ADJUSTMENTS
(LABOR AND MATERIAL) (FI)
(JAN 1990)
(a) General
-------
(1) The contract price(s) agreed to by the parties reflect the price levels
of the base periods identified in paragraph (d) below. It is anticipated that
the Contractor's actual costs may vary from the price levels of the base periods
and the parties desire to provide for adjustment to compensation to reflect such
variations. However, regardless of the actual variations in the costs
experienced during the period of performance, adjustments in compensation
because of such variations shall be computed and effected in accordance with the
procedures specified herein.
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(2) Except as hereinafter provided in paragraph (e)(3), adjustments in
compensation shall be made in respect to each individual vessel for each monthly
period commencing September 1994 and ending with the monthly period in which the
actual delivery of the last vessel to be delivered under the contract occurs or
the monthly period in which the "Post Delivery Date" (see paragraph (a)(3)
below) of the last vessel occurs, whichever is later. For the purpose of this
requirement, a "monthly period" or "monthly period involved" shall mean the
Contractor's normal accounting month.
(3) The "Post Delivery Date" for the purpose of this requirement is defined
as a date eiqht (8) months after the contract delivery date of the applicable
vessel set forth in Section F, "DELIVERIES OR PERFORMANCE".
(b) Pricing of Changes
(1) The costs subject to adjustment under this requirement include the
costs of performance of changes or other work for which the contract price(s)
is(are) subject to equitable adjustment pursuant to the "CHANGES" clause or
pursuant to other requirements of the contract. Accordingly, equitable
adjustments to the contract price(s) shall be determined on the basis of actual
and/or projected direct material costs, direct labor costs and indirect costs
de-escalated to price levels of the base periods identified in paragraph (d)
below. The method of de-escalation shall be the same as that set forth in
paragraph (e) for determining compensation adjustments and base costs.
(2) In the event and to the extent that work authorized under the "CHANGES"
clause results or will result in costs being incurred with respect to a vessel
after the monthly period commencing subsequent to the Post Delivery Date of such
vessel (or, in the case of the last vessel to be delivered, the monthly period
commencing subsequent to the actual delivery date if such date occurs after the
Post Delivery Date), the equitable adjustment for such change shall take account
of such costs at their estimated actual value(s) rather than at the base period
value(s) provided for in paragraph (b)(l) above. The costs included in the
aforementioned equitable adjustment(s) shall be adjusted to preclude payment of
any costs reimbursed under this requirement.
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(c) Cost Subject to Compensation Adjustment
---------------------------------------
(1) For the purpose of this requirement, the total allowable costs in the
following categories shall be subject to monthly compensation adjustment:
a Selected employee benefits
1 FICA (indirect costs)
2 State and Federal Workmen's Compensation
(indirect costs)
3 Unemployment Compensation (indirect costs)
4 Disability (indirect costs)
5 Federally Mandated National Health Program
(indirect costs)
6 Federally Mandated changes to hours of work per
week or per day and changes to the payment of
overtime (indirect and direct costs)
b Selected energy costs (indirect costs)
1 Electricity
2 Fuel oils
(i) Bunker C (No. 6)
(ii) Diesel 260 (No. 2 by gallon and drum)
3 Coke
4 Coal
c Ninety-five percent of indirect costs other than
indirect costs in (c) (1) a and b above
d One hundred percent of direct labor costs
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SCHEDULE
e One hundred percent of direct material costs
(2) Within 30 days after the end of each monthly period with respect to
each individual vessel, the Contractor shall submit to the Government: (i) a
certified statement of the costs incurred for that vessel during that monthly
period (monthly costs) and (ii) a certified statement of the total cumulative
costs incurred for that vessel from the effective date of the contract to the
end of that monthly period (total costs). The statement of monthly costs shall
separately identify the direct material costs, the direct labor costs and the
indirect costs. With respect to indirect costs, the statement of monthly costs
shall state separately from all other indirect costs (i) the monthly incurred
selected employee benefit costs of the type identified in paragraph (c)(l)a
above, (ii) the monthly incurred selected energy costs of the type identified in
paragraph (c)(l)b above, and (iii) the ninety-five percent of indirect costs
subject to compensation adjustment.
a The monthly selected employee benefit costs for the vessel involved
shall be the product obtained by multiplying the yard-wide total selected
employee benefit costs of the type identified in paragraph (c)(l)a above by the
amount of total overhead dollars, allocated to each vessel for the monthly
period involved and the product shall be divided by yard-wide total overhead
dollars, for the monthly period involved.
b The monthly incurred selected energy costs for the vessel involved
shall be the product obtained by multiplying the yard-wide total selected energy
costs of the type identified in paragraph (c)(l)b above by the amount of general
overhead dollars, allocated to each vessel for the monthly period involved and
the product shall be divided by the total yard-wide general overhead dollars for
the monthly period involved.
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(3) For the purpose of this requirement:
a "Direct material costs", "direct labor costs", and "indirect costs"
shall have the meaning set forth in Part 31 of the Federal Acquisition
Regulation (FAR) and Part 231 of the Department of Defense FAR Supplement
(DFARS) in effect on the effective date of this contract.
b "Monthly costs" and "total costs" shall include only "incurred
costs" and "allowable costs" as those terms are defined in paragraph (f) of the
requirement entitled "PAYMENTS" except that "incurred costs" for material shall
include the full amounts of all billings received from vendors during the
monthly period involved irrespective of whether the Contractor has paid the full
amount of such billings. Further, on this contract, the imputed cost of
facilities capital shall not be treated as an "incurred cost" and shall be a
separate reimbursement and shall not be included in any target price or ceiling
price and is outside the incentive price revision formula.
(4) The costs identified in this paragraph (c) shall be subject to audit
and inspection by the Contracting Officer in accordance with paragraph (h) of
the requirement entitled "PAYMENTS."
(d) Cost Indices
------------
(1) Selected employee benefits compensation adjustments shall be based on
changes in the monthly average hourly cost of these benefits. For the month
involved, the average hourly cost of the benefits listed in (c)(l)a above shall
be determined by dividing the total costs recorded (including adjustments made
at the end of the accounting year and included in the calculations for the month
of December ) in the Contractor's accounts for the items listed in
(c)(l)a above by the total of direct and indirect labor hours charged to all
product lines and to plant under construction accounts and the result shall be
carried to the same number of decimal places as the index value for the base
period as shown in paragraph (d)(8) below. Monthly average hourly cost is the
index for computing selected employee benefits compensation adjustments under
paragraph (e) below.
(2) Selected energy costs compensation adjustments shall be based on the
following:
a Electricity and fuel oil compensation adjustments shall be based on
changes in the average monthly unit values of those costs. Monthly unit values
for electricity costs and fuel oil costs listed in (c)(l)b above shall be
computed by dividing
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N00024-95-C-2106
SCHEDULE
the total usage amount of each such energy cost element during that monthly
period for the Contractor's entire yard into the total purchase cost billed to
the Contractor for the total usage amount of each such energy cost element and
the result shall be carried to the same number of decimal places as the index
values for the base periods as shown in paragraph (d)(8) below. Average monthly
unit values are the indices for computing electricity and fuel oil compensation
adjustments under paragraph (e) below.
b Coke and coal compensation adjustments under paragraph (e) below
shall be based on changes in the following wholesale price indices published
monthly by the Bureau of Labor Statistics (BLS): Coke shall be based on Code
052, Coke (Foundry By-product), and coal on Code 051, Coal.
(3) Compensation adjustments under paragraph (e) below for 95 percent of
the indirect costs other than indirect costs in (c)(l)a, and b above; and direct
labor costs shall be based on changes in the "Indices of Change in Straight-Time
Average Hourly Earnings for Selected Shipyards for Steel Vessel Construction and
All Regions" (MAY 1987 = 100) (herein sometimes called the "Labor Index")
furnished to the Naval Sea Systems Command by the BLS.
(4) Adjustments in compensation under paragraph (e) below for direct
material costs shall be based on the changes in the "Index for Steel Vessel
Contracts" (1982 = 100) (herein sometimes called the "Material Index") furnished
to the Naval Sea Systems Command by the BLS.
(5) In the event that any of the specified indices for the monthly period
involved are unavailable to the Contractor at the close of that monthly period,
compensation adjustments pursuant to this requirement shall be based upon the
average of monthly changes in the applicable indices for the previous four (4)
months for which indices are available. The average of changes so calculated
shall be added to the applicable index for the immediately preceding monthly
period and the sum shall constitute the index for the monthly period involved.
When the applicable index for the monthly period involved has been made
available, the compensation adjustment for that monthly period shall be
recomputed on the basis of such index, and any additional payment to or
repayment by the Contractor required by such recomputation for that monthly
period shall be reflected in any invoice(s) thereafter submitted for payment
under any requirement of this contract until such amount has been paid, offset
or recouped in full.
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(6) In the event that any of the specified indices for any base period or
any monthly period differs from the index previously available for that period,
the compensation adjustment for the applicable monthly period(s) shall be
recomputed on the basis of such revised index and any additional payment to or
repayment by the Contractor required by such recomputation for that monthly
period(s) shall be reflected in any invoice(s) submitted thereafter for payment
under any requirement of this contract until such amount has been paid, offset
or recouped in full.
(7) The Contractor shall be responsible for the calculations involving the
indices provided for in this paragraph, and said calculations shall be subject
to verification by the Government.
(8) For the purpose of computing compensation adjustments under this
requirement, the following are the applicable base period index values (subject
to adjustment as specified in paragraph (d)(6) above):
<TABLE>
<CAPTION>
Description Base Period Index Value
----------- ----------- -----------
<S> <C> <C>
Selected employee benefits costs 1993 */hour
Selected energy costs:
Electricity December 1993 0.04515/KWH
Bunker C (No. 6) December 1993 0.34463/gal
Diesel 260 (No. 2) December 1993 0.67406/gal
Diesel 260 (No. 2, drum) December 1993 37.0733/55 gal
Coke December 1993
Coal December 1993
95% of indirect costs other December 1993 118.5
than indirect costs in (c)(1)
a and b above; and direct
labor cost
Direct material cost December 1993 126.0
</TABLE>
* Index value for selected employee benefit costs is determined by dividing the
base year total selected employee benefit costs by the base year total labor
hours (direct and indirect) charged to all product lines and to plant under
construction accounts.
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(e) Computation of Compensation Adjustment and Base Cost
(1) For the purpose of computing compensation adjustments under this
requirement, the following computations shall be used for all the categories of
cost specified in paragraph (c)(1).
a For each monthly period commencing prior to the Post Delivery Date
of a vessel, the amount of the applicable category of cost for such vessel
certified on the statement of monthly costs for that monthly period shall be
multiplied by the difference between the value of the applicable index for that
monthly period and the applicable base period index listed in (d)(8) above and
the product thereof shall be divided by the value of the applicable index for
that monthly period and the result, the compensation adjustment for the
applicable category of cost, shall be expressed to the nearest dollar. The
calculation is as follows:
Current Base Current
Month - Period x Month
Index Index Index
------------------------------------------ = Compensation
Current Month Index Adjustment
b For each monthly period commencing (i) subsequent to the Post
Delivery Date of a vessel and (ii) prior to the post or actual delivery date of
the last vessel to be delivered under the contract (whichever date is later),
the value of the applicable index for the monthly period of the Post Delivery
Date of the vessel involved or the value of the applicable index for the monthly
period involved, whichever value is the lesser, shall be the value used in the
computation in (e)(1)a above as the Current Month Index to calculate the
compensation adjustment.
c In the event and to the extent that the contract delivery date for
a vessel is subsequently extended for reasons of Government responsibility or
excusable delay ("excusable delay" means delay for which the Contractor is not
liable as determined by paragraph (c) of the clause of this contract entitled
"DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (FT) (DEVIATION 89-9l5 - 29 JUN 1989)"
(FAR 52.249-8)), the Post Delivery Date for such vessel shall be deemed to be
extended on a day-for-day basis and if, as a result, the Post Delivery Date is
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extended beyond the monthly period involved, the compensation adjustment for the
monthly period(s) involved shall be recomputed on the basis of the value of the
applicable index for the monthly period(s) involved.
d For any monthly period commencing subsequent to the post or actual
delivery date of the last vessel to be delivered under the contract, whichever
date is the later, there shall be no compensation adjustment.
(2) For the purpose of computing Base Cost, the following shall apply:
a For each monthly period commencing prior to the post or actual
delivery date of the last vessel to be delivered under the contract, whichever
date is later, the compensation adjustments computed under (e)(1) above for all
categories of cost for each vessel shall be totaled and subtracted from Total
Monthly Cost for the same vessel and the resulting difference shall constitute
the Base Cost for such vessel for that monthly period.
b For each monthly period commencing subsequent to the post or
actual delivery date of the last vessel to be delivered under the contract,
whichever date is the later, the Total Monthly Costs for a vessel shall
constitute the Base Cost for such vessel for that monthly period.
(3) No adjustment in compensation under this requirement shall be made for
any monthly period for any vessel in the event that the cumulative sum of the
Base Costs incurred for such vessel(s) for all preceding monthly periods exceeds
the Ceiling Price(s) then set forth in this contract; provided, further, that in
the event that the Ceiling Price(s) thereafter is(are) increased, by
modification to this contract, adjustment in compensation under this requirement
shall be made for each monthly period that the cumulative sum of the Base Costs
incurred for such vessel(s) for all preceding monthly periods does not exceed
such increased Ceiling Price(s).
(4) No adjustment in compensation under this requirement shall be made
for any monthly period for any vessel in the event that the specified indices
for the monthly period involved are unavailable solely as a result of the
failure by the Contractor to submit timely, accurate, and complete information
to the BLS
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necessary for their calculation of the indices. Any amount withheld under the
requirements of this paragraph shall be released following the Contractor's
submission of such information.
(5) The amount of the adjustment in compensation for each individual
vessel determined as above (plus or minus) shall be set forth separately in a
Supplemental Agreement to this contract, which also shall set forth the
computation upon which each adjustment in compensation is based.
(6) In the event that any amount shown in any Supplemental Agreement
pursuant to subparagraph (e)(5) in respect to a vessel is a minus figure, such
amount shall be deducted from any invoice(s) presented for payment under any
requirement of this contract until such amount has been offset or recouped in
full.
(f) Payment of Compensation Adjustment. Payments of amounts of compensation
adjustment under this requirement shall be made for each vessel on the basis of
monthly periods. Except as provided in paragraph (f)(3) below, compensation
adjustment payments shall be made provisionally on a biweekly basis as set forth
in (f)(2) below and then adjusted on a monthly basis as set forth in (f)(1)
below. For the purpose of this paragraph (f): a weekly period is the
Contractor's normal accounting week, and a biweekly period is two consecutive
weekly periods.
(1) After execution of the Supplemental Agreement pursuant to paragraph
(e)(5) of this requirement in respect of a monthly period, and upon submission
of proper invoices, the Contractor shall be paid or there shall be deducted for
each vessel the amount set forth in such Supplemental Agreement, less the sum of
the amounts of the provisional compensation adjustments paid or payable on
account of such vessel pursuant to (f)(2) below for biweekly periods, or any
weeks of biweekly periods, falling in the monthly period to which the
Supplemental Agreement applies. Each Supplemental Agreement shall set forth a
biweekly provisional compensation adjustment amount for each vessel for the
purpose of making provisional compensation adjustment payments pursuant to
paragraph (f)(2) below for biweekly periods ending after execution of such
Supplemental Agreement until the next Supplemental Agreement is executed. The
biweekly provisional compensation adjustment amount for each vessel shall be
determined by dividing the amount of the compensation adjustment for the monthly
period involved set forth in the Supplemental Agreement for each vessel by the
number of weekly
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periods in the monthly period to which the Supplemental Agreement applies. The
quotient shall then be multiplied by two and the product shall be the biweekly
provisional compensation adjustment amount.
(2) At the end of every biweekly period, upon submission of proper
invoices, the Contractor shall be paid on account of each vessel the biweekly
provisional compensation adjustment set forth in the most recently executed
Supplemental Agreement.
(3) Any payment under (f)(1) or (f)(2) above shall be deferred to the
extent that the amount of such payment, when added to the total of all payments
previously paid or payable with respect to such vessel under this requirement
and the "PAYMENTS" requirement (other than payments made pursuant to paragraph
(g) of the "PAYMENTS" requirement), would exceed the total cost limitations
which are then applicable to that vessel under the terms of paragraphs (a)(1)
through (a)(4) of the "PAYMENTS" requirement. Deferred payments of compensation
adjustments shall be paid upon submission of subsequent invoices whenever such
payment, when added to the total of all payments previously made with respect to
such vessel under this requirement and the "PAYMENTS" requirement (other than
payments made pursuant to paragraph (g) of the "PAYMENTS" requirement) would not
exceed the total cost limitations which are then applicable to that vessel under
the terms of paragraphs (a)(1) through (a)(4) of the "PAYMENTS" requirement.
After the close of the monthly period during which the last vessel is actually
delivered, any remaining deferred payments for compensation adjustment shall,
upon submission of proper invoices by the Contractor and upon verification
thereof by the Contracting Officer, be promptly paid.
(4) The Government agrees that any request for approval to make progress
payments more frequently than once every two weeks will include a request for
similar approval of more frequent compensation adjustment payments. Upon
approval by cognizant Government authority, this requirement will be modified
accordingly without additional consideration by the Contractor to the Government
for such modifications.
(g) Separate Reimbursement. (1) No adjustment shall be made in the Target
Cost(s), Target Profit(s), Target Price(s) or Ceiling Price(s) on account of
upwards or downwards adjustments in compensation made in accordance with
paragraph (e) of this requirement, and hence said adjustments will be paid
separately
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and are outside the incentive price revision formula provided for in the clause
hereof entitled "INCENTIVE PRICE REVISION--FIRM TARGET (FI) (APR 1984)
(DEVIATION - 16 NOV 1992) (NAVSEA 5252.216-9127)" (FAR 52.216-16).
(2) The amount currently obligated for payment of compensation adjustments
is set forth in the financial accounting data sheet(s). This amount may be
unilaterally adjusted upward or downward by the Government at any time during
the pendency of the contract. Nothing in the preceding two sentences shall be
construed as relieving the Government from any obligations to reimburse the
Contractor for compensation adjustments as set forth in this requirement.
(h) Disputes. Any dispute arising under this requirement shall be determined in
accordance with and subject to the provisions of the clause of this contract
entitled "DISPUTES" (FAR 52.233-1).
H-5 NAVSEA 5252.246-9128 DELIVERY OF COMPLETED VESSEL (FT) (JAN 1983)
The term "vessel" as used in this requirement refers to each of the vessels to
be constructed and delivered under this contract.
(a) The vessel shall not be presented for acceptance trials (as used in this
requirement acceptance trials means acceptance trials or combined acceptance
trials) until it is determined by the Supervisor that the Contractor has
satisfactorily carried out those parts of the builder's trials for which the
Contractor is responsible, including builder's dock and sea trials, and that the
Contractor has:
(i) Corrected all Contractor responsible deficiencies discovered before
completion of all builder's sea trials, unless otherwise agreed to in writing by
the Contracting Officer; and
(ii) Corrected all Contractor responsible deficiencies discovered after
completion of the builder's sea trials which are determined by the Contracting
Officer to be necessary to avoid an adverse effect on the operational capability
of the vessel.
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(b) The Contractor shall be responsible for scheduling an interval of a minimum
of six (6) weeks between the satisfactory completion of acceptance trials and
delivery of the vessel. During this period, the Contractor shall satisfactorily
correct all Contractor responsible deficiencies, whether discovered before,
during, or after completion of acceptance trials, which are determined by the
Contracting Officer to be necessary to avoid an adverse effect on the
operational capability of the vessel.
(c) Prior to delivery of the vessel, to the extent necessary for tests, crew
training, or operations which the Government is to perform and which do not
require the Government to have control of the entire vessel, the Contractor
shall make parts of the vessel available to the Government; to the extent
necessary for tests, crew training, trials or operations which the Government is
to perform and which require the Government to have control of the entire
vessel, such as alongside training, fast cruise and underway trials, the
Contractor shall make the entire vessel available to the Government at dockside,
at the Contractor's plant, for such periods of time as are necessary for such
trials and operations. During all periods of time when the entire vessel is made
available to the Government, the Contractor shall, as requested by the
Government and required by the specifications, provide technical assistance and
provide assistance necessary to correct defects which develop or are discovered
during trials or operations of the vessel. Following the completion of each such
trial or operation, the Government shall return the vessel to the Contractor at
dockside, at the Contractor's plant, for the correction of defects, if any, and
completion of construction in accordance with the terms of this contract.
(d) Upon satisfactory completion (i) of acceptance trials and (ii) of the
correction of deficiencies as provided in paragraph (b) above, the Contractor
shall deliver the vessel to the Government for preliminary acceptance.
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(e) Following preliminary acceptance, the Government may, during the guaranty
period, make the vessel available to the Contractor, at the Contractor's plant,
(i) for correction of defects noted at the time of preliminary acceptance, or
which are discovered during the guaranty period, and (ii) for the performance of
any additional work required by change orders issued pursuant to the "CHANGES"
clause of this contract prior to preliminary acceptance and not theretofore
performed. If the Government elects to make the vessel(s) available to the
Contractor, at the Contractor's plant, for the accomplishment of the above
described post delivery work, the Contractor agrees to accept the vessel and
perform the work. The Contractor also agrees to consider the accomplishment of
additional work during the post-shakedown availability under a standard
Government contract. If the post-shakedown availability period shall begin
during but extend beyond the expiration of the guaranty period, the Government
may during the extended period leave the vessel at the Contractor's plant or
return the vessel thereto for the correction of defects not previously corrected
and for the performance of any additional work required by change orders issued
pursuant to the "CHANGES" clause of this contract prior to preliminary
acceptance and not theretofore performed.
(f) The Contractor shall exercise reasonable care to protect the vessel at all
times until the delivery of the vessel, and thereafter during such times as the
vessel is at the Contractor's plant during the guaranty period or during the
post-shakedown availability period if the latter shall extend beyond the
expiration of the guaranty period, except for periods of time when the entire
vessel is made available to the Government. During such periods, while the
vessel is at the Contractor's plant, the Contractor shall provide assistance to
protect and service the vessel, and shall effect any correction of defects or
performance of uncompleted work, to the extent permitted or required by the
Government.
(g) In accordance with the inspection requirements of the contract, all actions
of the Government pursuant to this requirement shall be performed in such a
manner as to not unduly delay the work.
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H-6 NAVSEA 5252.233-9103 DOCUMENTATION OF REQUESTS FOR
EQUITABLE ADJUSTMENT (AT) -
ALTERNATE I (MAY 1993)
(a) For the purposes of this requirement, the term "change" includes not only a
change made pursuant to a written order designated as a "change order" but also
(i) an engineering change proposed by the Government or the Contractor pursuant
to the "Other Change Proposals" or other requirements of this contract and (ii)
any act or omission to act on the part of the Government in respect of which a
request is made for equitable adjustment under the "CHANGES" clause or any other
article or requirement of this contract.
(b) Whenever the Contractor requests or proposes an equitable adjustment of
$500,000 or more per vessel in respect of a change made pursuant to a written
order designated as a "change order" or in respect of a proposed engineering
change and whenever the Contractor requests an equitable adjustment in any
amount in respect of any other act or omission to act on the part of the
Government, the proposal supporting such request shall include the following
information for each individual item or element of the request:
(1) A description (i) of the work required by the contract before the
change, which has been deleted by the change, and (ii) of the work deleted by
the change which already has been completed. The description is to include a
list of identifiable components, equipment, and other identifiable property
involved. Also, the status of manufacture, procurement, or installation of such
property is to be indicated. Separate description is to be furnished for design
and production work. Items of identifiable raw material, purchased parts,
components and other identifiable hardware, which are made excess by the change
and which are not to be retained by the Contractor, are to be listed for later
disposition;
(2) Description of work necessary to undo work already completed which has
been deleted by the change;
(3) Description of work which is substituted or added by the change. A list
of identifiable components and equipment (not bulk materials or items) involved,
should be included. Separate descriptions are to be furnished for design work
and production work;
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(4) Description of interference and inefficiencies in performing
the change;
(5) Description of disruption attributable solely to the change; which
description shall include the following information:
(i) Description of each identifiable element of disruption and
how work has been, or may be, disrupted;
(ii) The calendar period of time during which disruption
occurred, or may occur;
(iii) Area(s) of the Contractor's operations where disruption
occurred, or may occur;
(iv) Trade(s) or functions disrupted, with a breakdown of
manhours and material for each trade or function;
(v) Scheduling of trades before, during, and after the period of
disruption insofar as such scheduling may relate to or be affected by the
estimated disruption;
(vi) Description of any measures taken to lessen the disruptive
effect of the change.
(6) Delay in delivery attributable solely to the change;
(7) Other work or increased costs attributable to the change;
(8) Supplementing the foregoing, a narrative statement of the nature of the
alleged Government act or omission, when the alleged Government act or omission
occurred, and the "causal" relationship between the alleged Government act or
omission and the claimed consequences therefor, cross-referenced to the detailed
information provided as required above.
(c) Each proposal submitted in accordance with this requirement shall include a
copy of the Contractor's ship's labor budget at the cost class level in effect
as of the date the event began, the cost incurred at the cost level as of the
same date, and the proposed effect of the change at the cost class level.
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(d) It is recognized that an individual request for equitable adjustment may not
include all of the factors listed in subparagraphs (b)(1) through (b)(8) above,
or that the Contractor may not reasonably be able to furnish complete
information on all of the factors listed in subparagraphs (b)(1) through (b)(8)
above. Accordingly, the Contractor is only required to set forth in its request
for equitable adjustment information with respect to those factors which are
relevant to the individual request for equitable adjustment, or in the level of
detail which is reasonably available to the Contractor.
(e) In addition to any information required under paragraph (b) above, each
proposal submitted in support of a claim for equitable adjustment, under any
requirement of this contract, in an amount which requires certified cost or
pricing data, if requested by the Contracting Officer, shall contain a duly
executed Standard Form (SF) 1411 with respect to each individual claim item. The
information furnished shall be in sufficient detail to permit the Contracting
Officer to cross-reference the claimed increased costs, or delay in delivery, or
both, as appropriate, as set forth in the SF 1411, with the information
submitted pursuant to subparagraphs (b)(l) through (b)(8) hereof.
(f) The certification requirements as set forth in the clause of this contract
entitled "CERTIFICATION OF CLAIMS AND REQUESTS FOR ADJUSTMENT OR RELIEF" (DFARS
252.233-7000) shall be complied with.
(g) Pursuant to 10 U.S.C. 2405, no price adjustment to this contract will be
made for any amount set forth in a claim, request for equitable adjustment, or
demand for payment under this contract (or incurred due to the preparation,
submission, or adjudication of any such claim, request, or demand) arising out
of events occurring more than six (6) years before the submission of the claim,
request, or demand. A claim, request, or demand shall be considered to have been
submitted only when the Contractor has provided the certification required by
section 6(c)(1) of the Contract Disputes Act of 1978 (41 U.S.C. 605(c)(1)) and
the supporting data for the claim, request, or demand.
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H-7 NAVSEA 5252.233-9107 EQUITABLE ADJUSTMENTS: WAIVER AND
RELEASE OF CLAIMS (AT) (JAN l983)
(a) Whenever the Contractor, after receipt of a change made pursuant to the
clause of this contract entitled "CHANGES" or after affirmation of a
constructive change under the "NOTIFICATION OF CHANGES" requirement, submits any
claim for equitable adjustment under the foregoing, such claim shall include all
types of adjustments in the total amounts to which the foregoing entitle the
Contractor, including but not limited to adjustments arising out of delays or
disruptions or both caused by such change.
(b) Further, the Contractor agrees (except as the parties may otherwise agree)
that, if required by the Contracting Officer, it will execute a release, in form
and substance satisfactory to the Contracting Officer, as part of the
supplemental agreement setting forth the aforesaid equitable adjustment, and
that such release shall discharge the Government, its officers, agents and
employees, from any further claims including but not limited to further claims
arising out of delays or disruptions or both, caused by the aforesaid change.
H-8 DELETED
H-9 NAVSEA 5252.232-9108 FINAL SETTLEMENT (FT) (JAN 1983)
Upon final acceptance of the vessel(s), or in the event of the termination of
this contract on such terms that none of the vessel(s) is to be completed, then
upon such termination, the Contractor shall be entitled to receive the balance
owing to it under this contract, such payment to be made promptly after the
amount of such balance shall have been determined. The Contractor and each
assignee under an assignment in effect at the time of final settlement shall
execute and deliver at the time of and as a condition precedent to final
payment, a release in form and substance satisfactory to and containing such
exemptions as may be found appropriate by the Contracting Officer, discharging
the Government, its officers, agents and employees of and from liabilities,
obligations and claims arising under this contract. The Contracting Officer may
authorize partial payments on account of any such balance to be made in advance
of final settlement. If this contract shall have been terminated in whole or in
part, any such release shall also contain a release of all claims against the
Government arising out of or by virtue of such termination.
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H-10 NAVSEA 5252.225-9100 FOREIGN SHIPYARD CONSTRUCTION
PROHIBITION (AT) (JAN 1983)
Neither the vessel nor the hull, midbody, or other major fixed structural
component of the vessel shall be constructed in a foreign shipyard.
H-11 NSVSEA 5252.227-9113 GOVERNMENT-INDUSTRY DATA EXCHANGE
PROGRAM (MAY 1993)
(a) The Contractor shall participate in the appropriate interchange of the
Government-Industry Data Exchange Program (GIDEP) in accordance with MIL-STD-
1556B dated 24 February 1986. Data entered is retained by the program and
provided to qualified participants. Compliance with this requirement shall not
relieve the Contractor from complying with any other requirement of the
contract.
(b) The Contractor agrees to insert paragraph (a) of this requirement in any
subcontract hereunder exceeding $500,000.00. When so inserted, the word
"Contractor" shall be changed to "Subcontractor".
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H-12 NAVSEA 5252.228-9100 INSURANCE-PROPERTY LOSS OR DAMAGE-
LIABILITY TO THIRD PERSONS (FT) (JAN 1990)
(a) The Contractor shall not, unless otherwise directed or approved in writing
by the Department, carry or incur the expense of any insurance against any form
of loss of or damage to the vessels or to the materials or equipment therefor to
which the Government has acquired title or which have been furnished by the
Government for installation by the Contractor. The Government assumes the risks
of loss of and damage to the vessels and such materials and equipment which
would have been assumed by the underwriters if the Contractor had procured and
maintained throughout the term of this contract, on behalf of itself and the
Government, insurance with respect to the vessels and such materials and
equipment for full value against pre-keel and post-keel laying risks (i) under
the forms of Marine Builders Risk (Navy Form-Syndicate) policy, including the
rider attached to the "Free of Capture and Seizure" clause thereof, and War
Damage policy, both as set forth in the pamphlet entitled "Standard Forms of
Marine Builders Risk (Navy Form-Syndicate) and War Damage Insurance Policies
referred to in Vessel Contracts to the Bureau of Ships," dated 23 November 1942,
or (ii) under any other policy forms which the Assistant Secretary of the Navy
(R,D&A), Insurance Office shall determine were customarily carried or would have
been customarily carried by the Contractor in the absence of the foregoing
requirement that the Contractor not carry or incur the expense of insurance,
provided, that the Government does not assume any risk with respect to loss or
damage compensated for by insurance or otherwise or resulting from risks with
respect to which the Contractor has failed to procure or maintain insurance, if
available, as required or approved by the Department; provided, further, that
under the above identified policies or under this requirement the Government
does not assume any risk with respect to, and will not pay for any costs of the
Contractor for the inspection, repair, replacement, or renewal of any defects
themselves in the vessel(s) or such materials and equipment due to (A) defective
workmanship, or defective materials or equipment performed by or furnished by
the Contractor or its subcontractors or, (B) workmanship, or materials or
equipment performed by or furnished by the Contractor or its subcontractors
which do(es) not conform to the requirements of the contract, whether or not any
such defect is latent or whether or not any such non-conformance is the result
of negligence; provided, further, that under the above identified policies or
under this requirement the Government does
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not assume the risk of and will not pay for the costs of any loss, damage,
liability or expense caused by, resulting from, or incurred as a consequence of
delay or disruption of any type whatsoever. No requirement of this contract
shall operate to subject the Contractor to a liability for which the Government
has assumed the risk hereunder. Notwithstanding the foregoing, the Contractor
shall bear the first $10,000 of loss or damage from each occurrence or incident
the risk of which the Government otherwise would have assumed under the
requirements of this paragraph.
(b) Unless otherwise directed by the Department, the Contractor shall procure
and thereafter maintain with respect to each of the vessels Collision Liability
and Protection and Indemnity Liabilities Insurance (Government-Syndicate Form),
as set forth in the aforesaid 23 November 1942 pamphlet, if available, in an
amount equal to (i) eighty percent (80%) of the sum of the target price of the
vessel and an amount estimated by the Department to represent the value of
materials and equipment furnished by the Government for installation by the
Contractor, or (ii) Two Million Dollars ($2,000,000), whichever shall be less.
The Government will indemnify the Contractor against liabilities (including
expenses incidental thereto) to third persons which, but for the limitation on
amount specified in this paragraph, would have been covered by such Collision
Liability and Protection and Indemnity Liabilities Insurance, and which are not
compensated for by insurance or otherwise, provided such liabilities are
represented by final judgments or by settlements approved in writing by the
Department. The Contractor shall not, however, be so indemnified against
liabilities with respect to which the Contractor has failed to procure or
maintain insurance, if available, as required or approved by the Department. The
Contractor shall promptly notify the Department of each suit or action filed and
each claim made against which the Contractor may be entitled to indemnification
under this paragraph. The Contractor shall furnish the Department with copies of
all papers received with respect to each suit, action or claim and, if requested
by the Department, shall authorize representatives of the Government to settle,
or direct or take charge of the defense of, such suit, action or claim. In the
absence of such request, the Contractor shall diligently proceed with such
defense. The Government's liability under this paragraph(b) and the Collision
Liability and Protection and Indemnity Liabilities Insurance forms set forth in
the pamphlet entitled "Standard Forms of Marine Builders Risk (Navy Form
Syndicate) and War Damage Insurance Policies, referred to in Vessel Contracts of
the Bureau
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of Ships, dated 23 November 1942, is subject to the availability of appropriated
funds at the time a contingency occurs. Nothing in this contract shall be
construed as implying that the Congress will, at a later date, appropriate funds
sufficient to meet deficiencies.
(c) The cost of the insurance required by paragraph (b) of this requirement is
included in the target price and the cost of all other insurance which may be
required or approved pursuant to this clause will be considered allowable costs
under this contract. If the Department should require or approve the
cancellation of any such insurance, the Contractor will promptly pay to the
Government the amount of all unearned premiums refunded to the Contractor, but
only to the extent that such premiums shall have been reimbursed to the
Contractor by the Government or included in the pricing structure of the
contract (firm fixed price or incentive type arrangement, as applicable).
(d) All insurance which is or may be required or approved pursuant to this
requirement shall be in such form, in such amounts, for such periods of time,
and with such insurers as the Department may from time to time require or
approve, provided the Contractor shall be named as an insured and shall be
entitled to payment of any loss or damage as its interests may appear. The
policies or certificates of insurance shall be deposited with the Assistant
Secretary of the Navy (R,D&A), Insurance Office, or as the Department may
otherwise direct.
(e) In the event of loss of or damage to any of the vessels or any of
the materials or equipment therefor which may result in a claim against the
Government under the insurance requirements of this contract, the Contractor
promptly shall notify the Contracting Officer of such loss or damages, and the
Contracting Officer may, without prejudice to any other right of the Government,
either:
(i) Order the Contractor to proceed with replacement or repair in which
event the Contractor shall effect such replacement or repair. The Contractor
shall submit to the Contracting Officer a request for reimbursement of the cost
of such replacement or repair together with such supporting documentation as the
Contracting Officer may reasonably require, and shall identify such request as
being submitted under this insurance requirement. If the Government determines
that the risk of such loss or damages is within the scope of the risks assumed
by the Government under this requirement, the Government will reimburse the
Contractor for the reasonable, allowable cost
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of such replacement or repair, plus a reasonable profit, less the deductible
amount specified in paragraph (a) of this requirement. Payments by the
Government to the Contractor under this insurance requirement are outside the
scope of and shall not affect the pricing structure of the contract (firm fixed
price or incentive type arrangement, as applicable), and are additional to the
compensation otherwise payable to the Contractor under this contract; or
(ii) In the event the Contracting Officer decides that the loss or damage
shall not be replaced or repaired,
(A) Modify the contract appropriately consistent with the reduced
requirements reflected by the unreplaced or unrepaired loss or damage, or
(B) Terminate the construction of any part or all of the vessel(s)
under the clause of this contract entitled "TERMINATION FOR CONVENIENCE OF THE
GOVERNMENT (FIXED-PRICE)" (FAR 52.249-2).
(f) The coverage provided by this requirement is extended geographically to
include material or equipment to which the Government has acquired title or
which has been furnished by the Government and is located in the following
contractor facilities or in transit between facilities:
Newport News Shipbuilding Newport News Shipbuilding
4101 Washington Avenue Washington Office
Newport News, Virginia 23607 Airport Plaza #1, Suite 1100
2711 South Jefferson Davis Hwy
Arlington, Virginia 22202
The Contractor may request the Contracting Officer to extend the geographical
coverage of this requirement to newly acquired or leased facilities which are to
be used in the performance of this contract.
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H-13 NAVSEA 5252.245-9124 LIENS AND TITLE (FI) (JAN 1990)
(a) Any and all partial payments made hereunder on account of the vessels and
the materials and equipment therefor shall be secured, when made, by a lien in
favor of the Government upon such material and equipment on account of all
payments so made, except to the extent that the Government, by virtue of any
other requirement of this contract, or otherwise, shall have valid title to such
material and equipment as against other creditors of the Contractor. If such
property is not identified by marking or segregating, the Government shall be
deemed to have a lien upon a proportionate part of any mass of property with
which such property is commingled. Any lien provided for by virtue of this
requirement is paramount to all other liens under the provisions of an Act
approved 22 August 1911 (Pub. Law No. 41, 62d Cong., 37 Stat. 32; 10 U.S.C.
Sec 7521). Upon completion and delivery of the vessels, said lien shall be
discharged as to any materials and equipment which have not been included in
the vessels and which are no longer required therefor.
(b) The Contractor shall immediately discharge or cause to be discharged any
lien or rights in rem of any kind, other than in favor of the Government, which
at any time exists or rises with respect to the machinery, fittings, equipment
or materials for the vessels. If any such lien or right in rem is not
immediately discharged, the Government may discharge or cause to be discharged
said lien or right in rem at the expense of the contractor.
(c) Title to the vessels under construction shall be in the Government and
title to all materials and equipment acquired for each vessel shall vest in the
Government upon delivery thereof to the plant of the Contractor or other place
of storage selected by the Contractor, whichever of said events shall first
occur; provided, that the Supervisor may, by written direction, require that
title shall vest in the Government upon delivery of such materials and equipment
to the carrier for transportation to the plant of the Contractor or other place
of storage selected by the Contractor. The amount of any freight charges,
transportation, taxes or other costs which would have been paid by the
Contractor, either directly or as an element of any subcontract cost, and which
the Contractor shall not be required to pay as a result of such earlier vesting
of title and any use of Government bills of lading, shall be determined and
treated as though resulting from a change order and the contract price reduced
accordingly. Upon completion of the contract, or at such earlier date as may be
fixed by the Contracting Officer, the Contractor
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shall submit, in a form acceptable to the Contracting Officer, inventory
schedules covering all items of property not consumed in the performance of this
contract (including any resulting scrap) or not theretofore delivered to the
Government. The Contractor shall deliver or make such other disposal of such
property as may be directed or authorized by the Contracting Officer. The
Contracting Officer, in lieu of directing or authorizing delivery or disposal of
such property, may authorize the Contractor to take title to all or any part of
such property, except for materials and equipment which were furnished by the
Government and except for models, mockups, plans and other items which the
Contractor is expressly required to construct, prepare or furnish to the
Government (all of which shall remain the property of the Government). In the
event the Contracting Officer authorizes the Contractor to take title to all or
any part of such property, the Contractor shall credit the cost incurred in the
performance of this contract by an amount equal to the fair market value of such
property. In the event the Contracting Officer directs or authorizes the
delivery or disposal of such property, any costs incurred by the Contractor in
delivering or disposing of such property shall be included in the total final
costs incurred or to be incurred and shall be included in the total final price
determined pursuant to the clause of this contract entitled "INCENTIVE PRICE
REVISION--FIRM TARGET (FI) (APR 1984) (DEVIATION - 16 NOV 1992) (NAVSEA
5252.216-9l27)" (FAR 52.216-16). Recoverable scrap from such property shall be
reported in accordance with such procedure and in such form as the Contracting
Officer may direct. The net proceeds of any such disposal shall be credited to
the Government and shall be paid in such manner as the Contracting Officer may
direct. For the purpose of this requirement, "net proceeds" means actual amount
collected from such sale of disposal less sales, collection fees and other
reasonable related expenses.
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H-14 NAVSEA 5252.227-9112 LOGISTIC SUPPORT REQUIREMENT (AT)
(JAN 1990)
(a) This requirement applies whenever the contract specifications, by reference
to a Military Specification or otherwise, specify repair parts or stock
components (hereinafter called "repair parts") for a ship component or item of
equipment.
(b) With respect to ship components or equipments manufactured other than in
the United States or Canada, the Contractor agrees that, in addition to any
other data required by this contract, it will furnish under this contract
sufficient data so that the repair parts can be reproduced in the United States
or Canada unless the suppliers of the ship components or equipments shall have
made arrangements satisfactory to the Contractor and approved by the Contracting
Officer for the manufacturing of repair parts in the United States or Canada.
For the purpose of this requirement, "sufficient data" shall mean detail
drawings and other technical information sufficiently extensive in detail to
show design, construction, dimensions, and operation or function, manufacturing
methods or processes, treatment or chemical composition of materials, plant
layout and tooling. All data shall be in the English language and according to
the United States system of weights and measures, and drawings for components,
assemblies, subassemblies and parts protected by U.S. patents shall contain a
prominent notation to that effect fully identifying the patent or patents
involved, and bearing the number of this contract.
(c) In order to satisfy the requirements of paragraph (b), above, unless the
supplier of the ship components or equipments shall have made arrangements,
satisfactory to the Contractor and approved by the Contracting Officer, for the
manufacture of such repair parts in the United States or Canada, the Contractor
shall include in all subcontracts for the purchase of ship components or
equipments from foreign sources a clause, acceptable to the Contracting Officer,
granting to the United States Government for a period of seven (7) years,
"Government Purpose License Rights" (GPLR) (as defined in paragraph (a)(14) of
the clause of this contract entitled "RIGHTS IN TECHNICAL DATA AND COMPUTER
SOFTWARE" (DFARS 252.227-7013) in all technical data necessary to manufacture
spare and repair parts for such components or equipments.
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H-15 NAVSEA 5252.243-9105 NOTIFICATION OF CHANGES (FT) -
ALTERNATE I (JAN 1983)
(a) Definitions. As used in this requirement, the term "Contracting Officer"
does not include any representative of the Contracting Officer whether or not
such representative is acting within the scope of his authority nor does it
include any other individuals or activities that in any way communicate with the
Contractor. As used in this requirement, the term "conduct" includes both
actions and failures to act, and includes the furnishing of, or the failure to
furnish, any item under any provision of this contract.
(b) Notice. The primary purpose of this requirement is to obtain prompt
reporting of any conduct which the Contractor considers would constitute or
would require a change to this contract. The parties acknowledge that proper
administration of this contract requires that potential changes be identified
and resolved as they arise. Therefore, except for changes identified as such in
writing and signed by the Contracting Officer, the Contractor shall notify the
Contracting Officer of any conduct which the Contractor considers would
constitute or would require a change to this contract. Such notice shall be
provided promptly, and in any event within thirty (30) calendar days from the
date the Contractor identifies any such conduct. The Notice shall be written and
shall state, on the basis of the most accurate information available to the
Contractor:
(i) The date, nature, and circumstances of the conduct regarded
as a change;
(ii) The name, function, and activity of the individuals directly
involved in or knowledgeable about such conduct;
(iii) The identification of any documents and the substance of any oral
communication involved in such conduct;
(iv) The particular elements of contract performance for which the
Contractor might seek an equitable adjustment under this requirement, including:
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(1) What ship(s) have been or might be affected by the potential
change;
(2) To the extent practicable, labor or materials or both which have
been or might be added, deleted, or wasted by the potential
change;
(3) To the extent practicable, the Contractor's preliminary order of
magnitude estimate of cost and schedule effect of the potential
change; and
(4) What and in what manner are the particular technical requirements
or contract requirements regarded as changed.
(c) Continued Performance. Except as provided in paragraph (f) below, following
submission of notice, the Contractor shall take no action to implement a
potential change until advised by the Contracting Officer in writing as provided
in (d) below, unless the potential change was previously directed by the
Contracting Officer, in which case the Contractor shall conform therewith.
Nothing in this paragraph (c) shall excuse the Contractor from proceeding with
contract work other than implementation of the potential change or from
proceeding in accordance with directions issued by the Contracting Officer.
(d) Government Response. The Contracting Officer shall promptly, and in any
event within twenty-one (21) calendar days after receipt of Notice, respond
thereto in writing. In such response, the Contracting Officer shall either:
(i) Confirm that the conduct of which the Contractor gave notice would
constitute a change, and when necessary, direct the mode of further performance,
or;
(ii) Countermand any conduct regarded by the Contractor as a change, or;
(iii) Deny that the conduct of which the Contractor gave notice would
constitute a change and, when necessary, direct the mode of further performance,
or;
(iv) In the event the Contractor's notice information is inadequate to
make a decision under (i), (ii) or (iii) above, advise the Contractor what
additional information is required. Failure of the Government to respond within
the time required above shall be deemed a countermand under (d)(ii).
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(e) Equitable Adjustments. Equitable adjustments for changes confirmed or
countermanded by the Contracting Officer shall be made in accordance with the
clause of this contract entitled "CHANGES", or any other requirement of this
contract which provides for an equitable adjustment.
(f) Special Procedures. Paragraph (c) provides that the Contractor is to take no
action to implement a potential change pending the Contracting Officer's
response to the Contractor's notice of the potential change, except where
specifically directed by the Contracting Officer. In special situations,
however, where
(1) The circumstances do not allow sufficient time to notify the
Contracting Officer of the facts prior to the need to proceed with the work,
and;
(2) The work must proceed to avoid hazards to personnel or property or to
avoid additional cost to the Government, the Contractor may proceed with work in
accordance with the potential change. In such special situations, the Contractor
shall advise the Contracting Officer in writing within ten (10) days of the
conduct giving rise to the potential change that the Contractor has proceeded
and shall describe the nature of the special situation which required proceeding
prior to notification. Within thirty (30) calendar days of the conduct giving
rise to the potential change, the Contractor shall provide notice as required in
(b) above. The Contracting Officer shall respond as set forth in (d) above. If
the Contracting Officer determines that the conduct constitutes a change and
countermands it, the Contractor shall be entitled to an equitable adjustment for
performance in accordance with that change prior to the countermand including
performance resulting from the countermand.
(g) When the Contractor identifies any conduct which may result in delay to
delivery of the ship(s), the Contractor shall promptly so inform the Contracting
Officer thereof prior to providing the notice required by paragraph (b) above.
(h) Despite good faith best efforts, occasions may arise in which the Contractor
does not provide notice within the time periods specified in paragraphs (b) and
(f) above. Accordingly, prior to the end of the first and third quarters of each
calendar year through the period of performance of this contract, beginning with
the third quarter of 1995, the Contractor shall deliver to the Government an
executed bilateral contract modification, in the format set forth in Exhibit "A"
to this
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requirement, covering the six month period of time ending with the second and
fourth quarters, respectively, of the preceding year, with such specific
exceptions, if any, as are identified by the Contractor. If the Contractor cites
specific exceptions to the release, the Contractor shall concurrently provide
the Contracting Officer with notice, containing the information set forth in
paragraph (b) of this requirement, for each item excepted from the release.
However, the release required by this requirement shall not make unallowable any
costs which are otherwise allowable under any other requirement of this
contract.
Within sixty (60) days of receipt of the release, the Contracting Officer
shall sign and return a copy of the release to the Contractor. If the
Contracting Officer fails to execute and return the release within the required
time, then the release shall be deemed to be void and of no effect for the
period involved.
(i) If the release in accordance with paragraph (h) above is not provided to the
Government by the Contractor in the time required, the Contracting Officer may
execute the release as set forth in Exhibit "A" and send it to the Contractor.
If the Contractor fails to execute the release and return it to the Government
(with any specific exceptions) within sixty (60) days of receipt thereof, the
required release shall then be deemed effective as if signed by the Contractor.
Exhibit A to the Requirement entitled "NOTIFICATION OF CHANGES"
- ---------------------------------------------------------------
This modification reflects the agreement of the parties to the mutual full and
final releases for the consequences of that conduct (as conduct is defined in
the requirement entitled "NOTIFICATION OF CHANGES"), described below, except the
conduct identified in Attachment A hereto is excluded and not covered by the
terms of this release.
1. Except for the conduct listed in Attachment A by either party, neither the
Contractor nor the Government shall be entitled to any equitable adjustment or
to money damages and/or other relief for any conduct, as specified below.
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2. In consideration of the foregoing the parties hereby agree to the following
release:
a. The Government, for itself, its assigns, vendors, suppliers, and
contractors, hereby remises, releases, and forever discharges the Contractor,
its officers, agents and employees from any and all entitlement of the
Government to equitable adjustment of the contract price and delivery schedule
due to conduct under this contract, which occurred on or before *.
b. The Contractor, for itself, its successors, assigns, vendors, suppliers,
and subcontractors, hereby remises, releases and forever discharges the
Government, its officers, agents and employees from (i) any and all entitlement
of the Contractor to equitable adjustment of the contract cost and fee and/or
delivery schedule of this contract or of any other Government contract (with
this or any other Contractor) or any contract between the Contractor and any
third party by reason of any conduct which increases the Contractor's cost or
time of performance of work under this contract and meets the following
conditions (1) known to the Contractor, (2) occurred on or before * and (3) the
Contractor failed to give notice prior to date of this release, and (ii) any and
all liabilities to the Contractor for money damages and/or other relief for the
impact of any such conduct, upon this contract or any other Government contract
(with this or any other Contractor) or any contract between the Contractor and
any third party.
* - Insert the date of the last day of the applicable period.
H-16 NAVSEA 5252.243-9113 OTHER CHANGE PROPOSALS (FT) -
ALTERNATE I (JAN 1990)
(a) The Contracting Officer, in addition to proposing engineering changes
pursuant to other requirements of this contract, and in addition to issuing
changes pursuant to the clause of this contract entitled "CHANGES", may propose
other changes within the general scope of this contract as set forth below.
Within forty-five (45) days from the date of receipt of any such proposed
change, or within such further time as the Contracting Officer may allow, the
Contractor shall submit the proposed scope of work, plans and sketches, and its
estimate of: (A) the cost, (B) the weight and moment effect, (C) effect on
delivery dates of the vessel(s), and (D) status of work on the vessels affected
by the proposed change. The proposed scope of work and estimate of cost shall be
in such form and supported by such reasonably detailed information as the
Contracting Officer
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may require. Within sixty (60) days from the date of receipt of the Contractor's
estimate, the Contractor agrees to either (A) enter into a supplemental
agreement covering the estimate as submitted, or (B) if the estimate as
submitted is not satisfactory to the Contracting Officer, enter into
negotiations in good faith leading to the execution of a bilateral supplemental
agreement. In either case, the supplemental agreement shall cover an equitable
adjustment in the contract price, including an equitable adjustment for the
preparatory work set forth above, scope, and all other necessary equitable
adjustments. The Contractor's estimate referred to in this subparagraph shall be
a firm offer for sixty (60) days from and after the receipt thereof by the
Contracting Officer having cognizance thereof, unless such period of time is
extended by mutual consent.
(b) Pending execution of a bilateral agreement or the direction of the
Contracting Officer pursuant to the "CHANGES" clause, the Contractor shall
proceed diligently with contract performance without regard to the effect of any
such proposed change.
(c) In the event that a change proposed by the Contracting Officer is not
incorporated into the contract, the work done by the Contractor in preparing the
estimate in accordance with subparagraph (a) above shall be treated as if
ordered by the Contracting Officer under the "CHANGES" clause. The Contractor
shall be entitled to an equitable adjustment in the contract price for the
effort required under subparagraph (a), but the Contractor shall not be entitled
to any adjustment in delivery date. Failure to agree to such equitable
adjustment in the contract price shall be a dispute within the meaning of the
clause of this contract entitled "DISPUTES" (FAR 52.233-1).
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H-17 NAVSEA 5252.232-9105 PAYMENTS (FI) (JAN 1990)
(DEVIATION) (DEC 1994)
(a) Computation of Payments.
(1) Until such time as physical progress in the performance of the work on
a vessel is twenty-five percent (25%) complete, the Government, upon submission
by the Contractor of invoices certified by the Contractor as hereinafter
provided, will promptly make payments, on account of the total contract price,
at ninety-five percent (95%) of the amount determined by multiplying the
allocated total contract price of such vessel by the percentage of physical
progress in the performance of work on such vessel as certified by the
Contractor subject to the approval of the Supervisor; provided, that no such
payment shall be made in an amount which when added to the total of all payments
previously made with respect to such vessel under (i) paragraph (a) of this
clause and (ii) the "COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)" clause
exceeds one hundred fourteen percent (114%) of the allowable costs certified by
the Contractor on the related invoice to have been incurred in the performance
of work on such vessel.
(2) After the percentage of physical progress in the performance of work
on a vessel has reached twenty-five percent (25%) and until such time as
physical progress in the performance of work on a vessel is fifty percent (50%)
complete, the Government, upon submission by the Contractor of invoices
certified by the Contractor as hereinafter provided, will promptly make
payments, on account of the total contract price, of ninety-seven percent (97%)
of the amount determined by multiplying the allocated total contract price of
such vessel by the percentage of physical progress in the performance of work on
such vessel as certified by the Contractor subject to the approval of the
Supervisor; provided, that no such payment shall be made in an amount which when
added to the total of all payments made previously with respect to such vessel
under (i) paragraph (a) of this clause and (ii) the "COMPENSATION ADJUSTMENTS
(LABOR AND MATERIAL)" clause exceeds one hundred fifteen percent (115%) of the
allowable costs certified by the Contractor on the related invoice to have been
incurred in the performance of work on such vessel.
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(3) After the percentage of physical progress in the performance of work
on a vessel has reached fifty percent (50%) and until such time as physical
progress in the performance of work on a vessel is seventy-five percent (7S%)
complete, the Government, upon submission by the Contractor of invoices
certified by the Contractor as hereinafter provided, will promptly make
payments, on account of the total contract price, of ninety-eight and one half
percent (98.5%) of the amount determined by multiplying the allocated total
contract price of such vessel by the percentage of physical progress in the
performance of work on such vessel as certified by the Contractor subject to the
approval of the Supervisor; provided, that no such payment shall be made in an
amount which when added to the total of all payments made previously with
respect to such vessel under (i) paragraph (a) of this clause and (ii) the
"COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)" clause exceeds one hundred
sixteen percent (116%) of the allowable costs certified by the Contractor on the
related invoice to have been incurred in the performance of work on such vessel.
(4) After the percentage of physical progress in the performance of work
on a vessel has reached seventy-five percent (75%), the Government, upon
submission by the Contractor of invoices certified by the Contractor as
hereinafter provided, will promptly make payments, on account of the total
contract price, of ninety nine and one quarter percent (99.25%) of the amount
determined by multiplying the allocated total contract price of such vessel by
the percentage of physical progress in the performance of work on such vessel as
certified by the Contractor subject to the approval of the Supervisor; provided,
that no such payment shall be made in an amount which when added to the total of
all payments made previously with respect to such vessel under (i) paragraph (a)
of this clause and (ii) the "COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)"
clause exceeds one hundred seventeen and one quarter percent (117.25%) of the
allowable costs certified by the Contractor on the related invoice to have been
incurred in the performance of work on such vessel.
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(b) Billing Price.
(1) For the purpose of this clause, until the establishment of the total
final price in accordance with paragraph (d) of the "INCENTIVE PRICE REVISION
(FIRM TARGET)" clause, the term "total contract price" means the billing price;
initially the billing price shall be the initial total contract target price,
and thereafter the billing price shall be revised as provided in paragraph
(b)(2) below. After establishment of the total final price in accordance with
paragraph (d) of the "INCENTIVE PRICE REVISION (FIRM TARGET)" clause, the
billing price shall be the total final price so established.
(2) Within fifteen (15) days after each calendar quarter the Contractor
shall submit in writing a proposed revised billing price which shall be
established as follows:
(i) The Contractor shall certify to the Contracting Officer the
percentage of physical progress in the performance of the contract as a whole as
of the end of the calendar quarter. Such percentage of physical progress shall
be expressed as a decimal carried to four decimal places and shall be subject to
the approval of the Supervisor.
(ii) The revised billing price shall be the sum of a projected
final cost, and a projected profit, computed as follows:
(A) A projected final cost shall be computed by (i) determining
the cumulative sum of the base costs as of the end of the calendar quarter,
established in accordance with the "COMPENSATION ADJUSTMENTS (LABOR AND
MATERIAL)" clause, and (ii) dividing the sum thereof by the percentage of
physical progress certified and approved as set forth in subparagraph (i) above.
(B) A projected profit shall be determined by applying to the
projected final cost the incentive formula set forth in paragraph (d)(2) of the
"INCENTIVE PRICE REVISION (FIRM TARGET)" clause, provided, that in no event
shall the revised billing price exceed the ceiling price of the contract.
(iii) The revised billing price determined as stated above shall be
set forth separately in a supplemental agreement to this contract, which also
shall set forth the computations upon which the revision of the billing price is
based.
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(iv) Any revision of the billing prices shall not affect the
determination of the total final price under paragraph (d) of the "INCENTIVE
PRICE REVISION (FIRM TARGET)" clause. After execution of the contract
modification referred to in subparagraph (d)(3) of said clause, the total amount
paid or to be paid on all invoices or vouchers shall be adjusted to reflect the
total final price, and any additional payments, refunds, or credits resulting
therefrom shall be promptly made.
(c) Allocated Total Contract Price of Each Vessel. For the purpose
of this clause, the allocated total contract price of each vessel shall be
established by multiplying the total contract price by a percentage, expressed
as a decimal carried to four decimal places, equal to that fraction whose
numerator is the original unit target price of the vessel and whose denominator
is the original total target price. The resulting dollar amount shall be rounded
to the nearest one hundred thousand dollar ($100,000), upward or downward;
provided that in no event shall the sum of the allocated total contract price of
the vessel exceed the total contract price. The aforesaid percentages of each
vessel shall be revised, by contract modification, in the event that either:
(i) Equitable adjustments to the unit target price of the vessel result in
unit target price of a substantially different proportion to the total target
price than previously provided for under this subparagraph (c) or
(ii) Incurred costs indicate that a revision to the percentages is
appropriate, provided, however, any such revision shall not be made more
frequently than at the end of a calendar quarter unless the total contract price
is limited to the contract ceiling price and the contract ceiling price is
adjusted during a calendar quarter.
(d) Invoices. Invoices may be submitted every two weeks, but not more
frequently; provided, however, that if after contract award more frequent
progress payments are approved by cognizant Government authority, this provision
shall be modified accordingly without additional consideration by the Contractor
to the Government for such modification. No payment will be required to be made
upon invoices aggregating less than five thousand dollars ($5,000). The
Contractor shall certify on each invoice:
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(1) The percentage of physical progress in the performance of work on the
vessel as a decimal carried to four places; and
(2) The allowable costs incurred in the performance of the work on the
vessel as of the date the invoice is submitted. Such certification shall provide
for cost category reporting in accordance with the Contractor's normal
accounting system and shall be broken down into direct material, direct labor
and indirect costs.
(e) Physical Progress and Weighting Factors.
(1) Within sixty (60) days after contract award the Contractor shall
submit a progressing system description for review and approval by the
Contracting Officer. Upon approval of such system, progress payments shall be in
accordance with the approved system. Subsequent revisions to the approved system
shall be submitted to the Contracting Officer for approval prior to
implementation.
(2) The mutually agreed upon weighting factors for the categories of labor
and material for each vessel are set forth in Attachment D to this contract. The
weighting factors shall be revised quarterly concurrent with the billing price
revisions specified in paragraph (b). Notwithstanding the above, revision of
weighting factors may be requested by either party when factual data indicate
that the weighting factors then in use are no longer representative of the
actual labor and material distribution. Revisions of weighting factors shall be
supported by detailed de-escalated (estimated final) direct material, direct
labor and indirect costs and additional data concerning the cause of the change
in the weighting factors. Any change in the weighting factors shall be set forth
in a supplemental agreement to this contract.
(f) Incurred Costs. For the purpose of this clause "incurred costs"
are those costs identified through the use of the accrual method of accounting,
as supported by the records maintained by the Contractor and which are allowable
in accordance with Part 31 of the Federal Acquisition Regulation in effect on
the effective date of this contract and include only:
(1) Costs for items or services purchased directly for the contract
which are paid as well as incurred, as shown by payment made by cash, check, or
other form of actual payment; and
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(2) Costs incurred, but not necessarily paid, for materials issued
from the Contractor's stores inventory and placed in the production process for
use on the contract, for direct labor, for direct travel, for other direct in-
house costs and for properly allocable and allowable overhead (indirect) costs,
all as shown by records maintained by the Contractor for the purpose of
obtaining payment under Government contracts, provided that the Contractor is
not delinquent in payment of costs of contract performance in the ordinary
course of business; and
(3) With respect to allocated and allowable costs of pension
contributions, when pension contributions are paid by the Contractor to the
retirement fund less frequently than quarterly, accruals of the costs of these
pension contributions shall be excluded from Contractor's incurred costs until
such costs are paid. If pension contributions are paid on a quarterly or more
frequent basis, accruals of such costs may be included in the Contractor's
incurred costs, provided that the pension contributions are paid to the
retirement fund within thirty (30) days after the close of the period covered by
the payment. If payments are not paid within such thirty (30) day period,
pension contributions shall be excluded from the Contractor's incurred cost
until payment therefor has been made.
(4) Incurred costs shall not include any costs which are required under
any provision of this contract (other than the "COMPENSATION ADJUSTMENT (LABOR
AND MATERIAL)" clause) to be reimbursed or paid by the Government to the
Contractor or by the Contractor to the Government other than through an
equitable adjustment in the contract price. If an overpayment is made relative
to this paragraph (f), interest shall be charged at the prevailing per annum
rate established by the Secretary of the Treasury, pursuant to Public Law 92-41,
from the date such overpayment is made (date of Government check) until the date
the overpayment is fully recovered.
(g) Retentions.
(1) Upon preliminary acceptance of each vessel and upon the
submission of properly certified invoices, the Government will pay to the
Contractor the amount withheld under paragraph (a) of this clause in respect of
that vessel in excess of a performance reserve in the amount of $5,000,000 per
vessel. If at any time it shall appear to the Government that the amount of
performance reserve may be insufficient to meet the cost to the Government of
finishing any unfinished work under the
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contract for which the Contractor is responsible, or of correcting defects for
which the Contractor is responsible which are discovered prior to preliminary
acceptance or during the guaranty period of any vessel, the Government may, in
making payments under this clause, deduct or withhold such additional amounts as
it may determine to be necessary to render such reserve adequate; provided, that
any additional amounts deducted or withheld on account of defects which are
discovered during the guaranty period of the vessel shall not exceed the limit
of the Contractor's liability as set forth in the clause entitled "LIMITATION OF
CONTRACTOR'S LIABILITY FOR CORRECTION OF DEFECTS", reduced by the amounts of the
cost incurred by the Contractor for work on such vessel because of Contractor
responsible deficiencies which are discovered during the guaranty period of the
vessel. The performance reserve will be paid six (6) months after completion of
the fitting out period of the vessel, or eight months after preliminary
acceptance, whichever first occurs, less an amount mutually agreed upon for work
not performed, if any.
(2) The Government may, in its discretion, make payments prior to final
settlement on account of the reserve established under this clause, subject to
such conditions precedent as the Contracting Officer may prescribe.
(3) The Government shall, at the time of final settlement, in accordance
with the provisions of the clause entitled "FINAL SETTLEMENT", pay the
Contractor the balance owing to it under the contract promptly after the amount
of such balance shall have been determined.
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(h) Certifications and Audits. At any time or times prior to final payment
under this contract, the Contracting Officer may have any invoices and
statements or certifications of costs audited. The Contracting Officer may
require the Contractor to submit, or make available for examination by the
Contracting Officer or his designated representative, the supporting
documentation upon which invoices, statements, or certifications of costs are
based. Each payment theretofore made shall be subject to reduction as necessary
to reflect the exclusion of amounts included in the invoices or statements or
certifications of costs which are found by the Contracting Officer, on the basis
of such audit, not to constitute allowable costs. Any payment may be reduced for
overpayments, or increased for underpayments on preceding invoices.
(i) Contract facilities capital cost of money shall be invoiced every
two weeks on an interim basis, using the latest available cost of money factor.
At the end of each calendar year, an adjustment will be made to the interim
billings based on the actual cost of money factors applicable to that year.
The cost of money is not included in incurred cost and shall be a separate
reimbursement and shall not be included in any target price or ceiling price
and is outside the incentive price revision formula provided for in the clause
hereof entitled "Incentive Price Revision (Firm Target)".
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H-18 NAVSEA 5252.215-9106 PRICE ADJUSTMENT FOR CHANGES IN
FEDERAL LAW (FT) (JAN 1990)
(a) Definitions
(1) For the purpose of this requirement:
(i) The term "Currently Applicable Federal Laws" is defined to mean
and include only the statutes listed below, amendments thereto, and regulations
thereunder, promulgated by Federal authorities as in effect on November 17,
1994.
(A) Contract Work Hours and Safety Standards Act
(B) Occupational Safety and Health Act of 1970
(C) Atomic Energy Act of 1954
(D) National Environmental Policy Act of 1969
(E) Clean Air Act and the following amendments thereto:
(1) Clean Air Act Amendments of 1966;
(2) Clean Air Act Amendments of 1970; and
(3) Clean Air Act Amendments of 1977; and
(4) Clean Air Act Amendments of 1990.
(F) Federal Water Pollution Control Act Amendments of 1972 and
the following amendments thereto:
(1) Clean Water Act of 1977; and
(2) Water Quality Act of 1987; and
(3) Oil Pollution Act of 1990
(G) Refuse Act of 1899
(H) Noise Control Act of 1972
(I) Toxic Substances Control Act
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(J) Solid Waste Disposal Act and the following amendments
thereto:
(1) Resource Conservation and Recovery Act of 1976;
(2) Solid Waste Disposal Act Amendments of 1980; and
(3) Hazardous and Solid Waste
Amendments of 1984.
(K) Marine Protection, Research and Sanctuaries
Act of 1972
(L) Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 and
the following amendment thereto:
(1) Superfund Amendments and
Reauthorization Act of 1986.
(M) Act to Prevent Pollution from Ships (1980)
(N) Hazardous Materials Transportation
Act and the following amendment thereto:
(1) Hazardous Materials Transportation
Act Amendments of 1976
(O) Emergency Planning and Community Right to
Know Act of 1986.
(ii) The term "New Federal Law" is defined to mean a new Federal
Statute enacted subsequent to November 17, 1994 pertaining to (1) workplace
conditions affecting employees or the public, or (2) environmental standards and
requirements, and regulations thereunder promulgated by Federal authorities.
(iii) The term "change" shall be deemed to mean the amendment or
repeal of any Currently Applicable Federal Law or New Federal Law or regulations
promulgated thereunder by Federal authorities.
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(b) If, at any time after the effective date of this contract, a New Federal
Law is enacted or a change is made to a Currently Applicable Federal Law or a
New Federal Law or regulations thereunder promulgated by Federal authorities,
and compliance with such new law or change directly results in an increase or
decrease in the Contractor's cost of performance of this contract, the contract
price(s) shall be adjusted as provided in paragraph (c) below. No such
adjustment shall be made for contract costs incurred or projected to be incurred
during the two (2) year period after the effective date of this contract.
(c) The price adjustment provided for in paragraph (b) above shall be made, in
the same amount, in each of the Target Cost(s), the Target Price(s), and the
Ceiling Price(s) or Fixed Price(s) of this contract, as appropriate, and shall
include only the properly allowable and allocable direct and indirect costs of
additional labor and materials directly resulting from compliance with the new
law or with the change, but shall not include:
(i) Costs of delay, disruption, or acceleration of performance;
(ii) Increases or decreases in prices charged by subcontractors or
suppliers; or
(iii) Costs of additional facilities or of any portion thereof
constructed or acquired after November 17, 1994 unless such
additional facilities or the portion thereof have been
constructed or acquired by the Contractor solely in order to
comply with a New Federal law or a change in Currently Applicable
Federal Laws or New Federal Laws, or regulations thereunder
promulgated by Federal authorities.
The price adjustment shall consider and exclude any tax, depreciation, or other
special allowances provided to the Contractor in the New Federal Law or change
for compliance therewith. No adjustment shall be made in the Profit or Delivery
Schedule of the contract, provided, however, that the Contractor's right, if
any, to extension of the delivery schedule under any other requirement of this
contract shall not be prejudiced thereby. No adjustment shall be made unless a
New Federal Law or a change directly causes an increase or decrease in the
Contractor's cost of performance of this contract in excess of $125,000 per
ship.
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(d) The Contractor shall promptly notify the Contracting Officer, in writing,
of the enactment of New Federal Laws or of a change that reasonably may be
expected to result in an adjustment under the provisions of this requirement.
(e) Requests for price adjustments hereunder shall be made in accordance
with the procedures of the requirement entitled "DOCUMENTATION OF REQUESTS FOR
EQUITABLE ADJUSTMENT".
H-19 NAVSEA 5252.227-9100 PROTECTION OF NAVAL NUCLEAR
PROPULSION INFORMATION (JAN 1986)
(a) During the performance of this contract Naval Nuclear Propulsion
Information (NNPI) may be developed or used. Naval Nuclear Propulsion
Information is defined as that information and/or hardware concerning the
design, arrangement, development, manufacturing, testing, operation,
administration, training, maintenance, and repair of the propulsion plans of
Naval Nuclear Powered Ships including the associated shipboard and shore-based
nuclear support facilities. Appropriate safeguards must be proposed by the
Contractor and approved by the Contracting Officer for Security for the
safeguarding from actual, potential or inadvertent release by the Contractor, or
any subcontractor, of any Naval Nuclear Propulsion Information in any form,
classified or unclassified. Such safeguards shall ensure that only Governmental
and Contractor parties, including
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SCHEDULE
subcontractors, that have an established need-to-know, have access in order to
perform work under this contract, and then only under conditions which assure
that the information is properly protected. Access by foreign nationals or
immigrant aliens is not permitted. A foreign national or immigrant alien is
defined as a person not a United States citizen or a United States National.
United States citizens representing a foreign government, foreign private
interest or other foreign nationals, are considered to be foreign nationals for
industrial security purposes and the purpose of this restriction. In addition,
any and all issue or release of such information beyond such necessary parties,
whether or not ordered through an administrative or judicial tribunal, shall be
brought to the attention of the Contracting Officer for Security.
(b) The Contracting Officer for Security shall be immediately notified of any
litigation, subpoenas, or requests which either seek or may result in the
release of Naval Nuclear Propulsion Information.
(c) In the event that a court or administrative order makes immediate review by
the Contracting Officer for security impractical, the Contractor agrees to take
all necessary steps to notify the court or administrative body of the Navy's
interest in controlling the release of such information through review and
concurrence in any release.
(d) The Contracting Agency reserves the right to audit contractor facilities
for compliance with the above restrictions.
(e) Exceptions to these requirements may only be obtained with prior approval
from the Commander, Naval Sea Systems Command (Contact SEA 09T1).
H-20 DELETED
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H-21 NAVSEA 52S2.246-9124 SHIPBUILDING SUPPORT OFFICE
SCHEDULES (AT) (JAN 1983)
The U.S. Navy Shipbuilding Support Office, which is responsible within the
Department for providing central scheduling for ship programs, may, but shall
not be obligated to, promulgate from time to time Master Program Schedules and
other documents relating to the design, material procurement for, and orderly
erection of the vessel(s). Such schedules and documents, if promulgated, are
intended to facilitate integration of all work required in connection with the
vessels, and other vessels, if any, in the same ship program and to serve as a
planning aid for the Contractor and its agents, but such schedules and documents
shall not alter or increase the obligations of the Government and the use
thereof or adherence thereto is not a requirement of this contract. Neither the
promulgation of such schedules and documents nor any use thereof by the
Contractor or its agent shall in any way relieve the Contractor of its
obligation to complete and deliver the vessel(s) by the date and in accordance
with the other requirements set forth in this contract or affect responsibility
for any delays.
H-22 NAVSEA 5252.244-9102 SUBCONTRACTING OF NUCLEAR
ENGINEERING EFFORT (SEP 1990)
(a) The Contractor and the Navy intend that all nuclear engineering effort
under this contract be performed by employees of the Contractor or persons under
the supervision of employees of the Contractor at the Contractor's facilities or
at the construction site. If, however, the Contractor considers that
subcontracting some nuclear engineering effort, which will not be under the
supervision of employees of the Contractor at the Contractor's facilities or at
the construction site, is necessary to meet the Contractor's contractual
requirements, then notwithstanding and in addition to any other requirement of
this contract, the Contractor shall submit a written request for technical
approval to NAVSEA 08. The request to subcontract nuclear engineering effort
shall state the reasons why the subcontracting is necessary, why the effort
cannot be performed by the Contractor's personnel or persons under the
supervision of employees of the Contractor at the Contractor's facilities or at
the construction site, the expected number of man/hours, cost and nature of the
subcontracted effort, period of performance, and the name and qualifications of
the vendor to perform the subcontracted effort. NAVSEA 08 shall approve or
disapprove the request in writing. The Contractor agrees not to subcontract any
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SCHEDULE
nuclear engineering effort which will not be under the supervision of employees
of the Contractor at the Contractor's facilities or at the construction site
without obtaining the express written technical approval of NAVSEA 08.
(b) For the purpose of this requirement, the term "nuclear engineering effort"
includes engineering, drafting, and related technical support effort under
NAVSEA 08 technical cognizance.
H-23 NAVSEA 5252.227-9101 TRANSMISSION ABROAD OF EQUIPMENT OR
TECHNICAL DATA RELATING TO THE
NUCLEAR PROPULSION OF NAVAL SHIPS
(SEP 1990)
(a) The supplies specified to be delivered under this contract relate to the
nuclear propulsion of naval ships.
(b) Equipment and technical data defined as Naval Nuclear Propulsion
information (NNPI) under NAVSEAINST 5511.32A shall not be disclosed to foreign
nationals.
(c) For other than equipment and technical data defined as NNPI in paragraph
(b) above, except with the prior written consent of the Contracting Officer, or
his designated representative, the Contractor shall not, at any time during or
after the performance of this contract, transmit or authorize the transmittal of
any equipment or technical data, as defined in paragraph (d) below, (1) outside
the United States, or (2) irrespective of location, (i) to any foreign national,
not working on this contract or any subcontract hereunder (ii) to any foreign
organization (including foreign subsidiaries and affiliates of the Contractor),
(iii) to any foreign Government, or (iv) to any international organization.
(d) As used in this requirement, the following terms shall have the following
definitions:
(1) "United States" means the States, the District of Columbia, Puerto
Rico, American Samoa, the Virgin Islands, Guam, and any areas subject to the
complete sovereignty of the United States;
(2) "equipment" means all supplies of the kind specified to be
delivered under this contract, all component parts thereof, and all models of
such supplies and component parts; but "equipment" does not include standard
commercial supplies and component parts, and models thereof;
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(3) "technical data" means all professional, scientific, or technical
information and data produced or prepared for the performance of this contract,
or on or for the operation, maintenance, evaluation, or testing of any contract
item, whether or not the information and data were specified to be delivered
under this contract including, without limitation, all writings, sound
recordings, pictorial reproductions, and drawings or other graphical
representations; but "technical data" does not include such information and data
on standard commercial supplies and component parts to the extent that the
information and data do not relate to the use, operation, maintenance,
evaluation and testing of such supplies and component parts in or in connection
with any item, or component parts thereof, specified to be delivered under this
contract.
(e) The Contractor agrees to insert in all subcontracts under this contract
provisions which shall conform substantially to the language of this
requirement, including this paragraph (e).
(f) Notwithstanding any other provisions of this requirement, this requirement
shall not apply (1) where the transmittal or authorization for the transmittal
of equipment or technical data is to be made pursuant to a contract or agreement
to which the United States is a party; and (2) where the transmittal is to be of
equipment or technical data which the Contracting Officer, or his designated
representative, has declared in writing to the Contractor to be thereafter
exempt from this requirement.
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H-24 DELETED
H-25 NAVSEA 5252.227-9114 UNLIMITED RIGHTS IN TECHNICAL
DATA-NUCLEAR PROPULSION PLANT
SYSTEMS (SEP 1990)
(a) Pursuant to subparagraph (b)(1) of the clause entitled "RIGHTS IN TECHNICAL
DATA AND COMPUTER SOFTWARE" (DFARS 252.227-7013), it is agreed that all
technical data pertaining to nuclear propulsion plant systems under the
technical cognizance of the Deputy Commander, Nuclear Propulsion Directorate,
Naval Sea Systems Command (SEA 08), which is specified to be delivered pursuant
to this contract, shall be delivered with unlimited rights, provided, however,
that nothing in the clause shall be deemed to require any subcontractor of any
tier under this contract to deliver or furnish with unlimited rights any
technical data which he is entitled to deliver with limited rights pursuant to
said "RIGHTS IN TECHNICAL DATA AND COMPUTER SOFTWARE" clause.
(b) It is further agreed that promptly after delivery of the vessel, or after
any termination of all work under this contract, the Contractor shall submit a
letter report to the Nuclear Propulsion Directorate, Naval Sea Systems Command
(SEA 08) listing and providing a brief description of all items of technical
data pertaining to the reactor plant(s) of the vessel(s) developed or prepared
under this contract which were not specified to be delivered pursuant to this
contract. The Contractor shall furnish in the Contractor's format and at the
cost of reproduction, with unlimited rights, copies of items of technical data
so reported or which should have been reported, as the Government may require in
writing from time to time and at any time. However, nothing in this requirement
shall require the Contractor to retain any item of such technical data beyond
the period provided for in this contract, including the specifications, and
other documents incorporated by reference, applicable to the item or type of
technical data involved.
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H-26 NAVSEA 5252.209-9102 WEIGHT CONTROL (SEP 1990)
(a) In accordance with the procedures set forth in Section 9290-1 of the
Specifications, the Contractor shall enter into an agreement with the Government
as to the Accepted Weight Estimate (AWE) for the ship under this contract, and
such agreement shall be set forth in a Supplemental Agreement. The AWE values
for combat load displacement and vertical center of gravity above bottom of
keel. (KG) are the baseline for measuring Contractor responsibility within the
meaning of this clause. The aforementioned AWE values shall be equal to or less
than the following Not-to-Exceed (NTE) values:
Contractor Responsible Combat Load Displacement 99.830 long tons
Contractor Responsible KG 46.92 feet
It is further agreed that the foregoing NTE values for the Combat Load condition
include all adjustments required as a result of the effects of the
specifications noted in Section C of the contract.
In addition, it is agreed that the trim and list tolerances for the combat load
condition are as follows:
Trim 24 inches forward or aft
List 0.50 degrees port or starboard
(b) The net weight and moment effect of every change incorporated into this
contract shall be agreed upon and set forth in the Supplemental Agreement.
(c) One month prior to the date of performance of the inclining experiment, the
net weight and moment differences to Government Furnished Material (GFM) since
the AWE, that were beyond the control of the Contractor, excluding effect of
contract changes, shall be agreed upon and set forth in a Supplemental
Agreement. All weight and moment differences to GFM resulting from the
correction of data for which accurate information was available prior to the AWE
or from the relocation of GFM at the discretion of the Contractor are considered
to be within the control of the Contractor.
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(d) If the Contractor proposes changes in the contract plans or specifications
solely for the purpose of meeting the values of displacement, KG, trim, or list
as set forth in paragraph (a) above, and if the Contracting Officer approves,
the parties shall enter into a Supplemental Agreement implementing such changes
and such Supplemental Agreement shall adjust the contract price and delivery
schedule pursuant to the "Changes" clause except that no increase in the cost of
or time for performance of the contract shall be considered in arriving at the
adjustment for such changes. Any Supplemental Agreements issued pursuant to this
paragraph shall reflect the weight and moment effect of the changes and shall be
reported as required for other contract modifications. However, the net weight
and moment effect of any changes made under this paragraph shall not be
considered in calculating the Contractor responsible values under paragraph (e)
below. Notwithstanding the foregoing, when Value Engineering proposals initiated
and recommended by the Contractor are authorized by contract modification, fifty
percent (50%) of the savings of the weight and moment effect of any such Value
Engineering Change shall not be considered in calculating the Contractor
responsible values under paragraph (e) below.
(e) The Contractor shall be responsible for the delivery of the ship with a
displacement and KG of no more than the AWE values specified in paragraph (a)
above for the combat load condition plus the values agreed upon for the Contract
Modifications and weight growth of Government Furnished Material and Government
Controlled Material. In addition, the Contractor shall be responsible for the
delivery of the ship within a trim and list for the combat load condition, as
specified in paragraph (a) above. If required, up to 650 long tons of Contractor
controlled ballast may be used to achieve the list and trim specified in
paragraph (a) above. However, the installation of such ballast shall be agreed
upon between the Contractor and the Contracting Officer and the Contractor shall
be entitled to an equitable adjustment in accordance with the "Changes" clause.
If the Government elects not to authorize installation of any or all of the 650
long tons of Contractor controlled ballast, the Contractor is still entitled to
use, in the weight reports, up to the 650 long tons of Contractor controlled
ballast, to meet the list and trim requirements specified in paragraph (a). The
Contractor will not be responsible for the net total adverse effect on such trim
or list caused by Contract Modifications and weight growth of Government
Furnished Material and Government Controlled Material.
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(f) Within the first six months after contract award, the Contractor may
request a one time adjustment to the NTE values (including trim and list) and
the allowable ballast. The Contractor's request shall provide technical
justification for the proposed adjustments and it shall be accompanied by a
Contractor's Independent Weight Estimate (CIWE). Changes to the NTE values and
the allowable ballast shall be agreed upon and set forth in a Supplemental
Agreement.
H-27 NAVSEA 5252.245-9115 RENT-FREE USE OF GOVERNMENT PROPERTY
(SEP 1990)
The Contractor may use on a rent-free, non-interference basis, as necessary for
the performance of this contract, the Government property accountable under
Contract(s) N00024-90-E-3501 and N00024-88-C-2055. The Contractor is responsible
for scheduling the use of all property covered by the above referenced
contract(s) and the Government shall not be responsible for conflicts, delays,
or disruptions to any work performed by the Contractor due to use of any or all
of such property under this contract or any other contracts under which use of
such property is authorized.
H-28 NAVSEA 5252.231-9109 PRECONTRACT COSTS (SEP 1990)
Allowable costs under this contract shall include all costs incurred by the
Contractor in connection with the work covered by this contract during the
period from and including 22 September 1994 to the date of this contract, as
would have been allowable and allocable pursuant to the terms of this contract
as if this contract had been in effect during said period; provided, however,
that such costs shall not in the aggregate exceed $8,000,000 unless such amount
is increased in writing by the Contracting Officer (which amount is included in
the estimated cost(s) of this contract).
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<TABLE>
<CAPTION>
SECTION I - CONTRACT CLAUSES
SECTION I-1 - CLAUSES INCORPORATED BY REFERENCE
I. FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES:
FAR
SOURCE TITLE AND DATE
- ------ --------------
<C> <S>
52.202-1 DEFINITIONS (SEP 1991)
52.203-1 OFFICIALS NOT TO BENEFIT (APR 1984)
52.203-3 GRATUITIES (APR 1984)
52.203-5 COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES TO THE
GOVERNMENT (JUL 1985)
52.203-7 ANTI- KICKBACK PROCEDURES (OCT 1988)
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR
IMPROPER ACTIVITY (SEP l99O)
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN
FEDERAL TRANSACTIONS (JAN 1990) (Applies if
this contract exceeds S100,000.)
52.204-2 SECURITY REQUIREMENTS (APR 1984)
52.208-1 REQUIRED SOURCES FOR JEWEL BEARINGS AND
RELATED ITEMS (APR 1984)
52.209-1 QUALIFICATION REQUIREMENTS (OCT 1988)
52.209-6 PROTECTING THE GOVERNMENT'S INTEREST WHEN
SUBCONTRACTING WITH CONTRACTORS DEBARRED,
SUSPENDED, OR PROPOSED FOR DEBARMENT (NOV
1992)
Fixed-Price Supply (Negotiated) 24 January 1994
Updated through FAC 90-18 and DAC 91-5
</TABLE>
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<TABLE>
<CAPTION>
FAR
SOURCE TITLE AND DATE
- ------ --------------
<C> <S>
52.210-5 NEW MATERIAL (APR 1984)
52.210-7 USED OR RECONDITIONED MATERIAL, RESIDUAL
INVENTORY, AND FORMER GOVERNMENT SURPLUS
PROPERTY (APR 1984)
52.212-8 DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS (SEP 1990)
52.215-1 EXAMINATION OF RECORDS BY COMPTROLLER GENERAL (FEB 1993)
52.215-2 AUDIT--NEGOTIATION (FEB 1993)
52.215-22 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING
DATA (JAN 1991)
52.215-23 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA--
MODIFICATIONS (DEC 1991)
52.215-24 SUBCONTRACTOR COST OR PRICING DATA (DEC 1991)
52.215-25 SUBCONTRACTOR COST OR PRICING DATA--MODIFICATIONS (DEC 1991)
52.215-26 INTEGRITY OF UNIT PRICES (APR 1991)
52.215-26 INTEGRITY OF UNIT PRICES (APR 1991) AND ALTERNATE I (APR 1991)
and Alt I
52.215-27 TERMINATION OF DEFINED BENEFIT PENSION PLANS (SEP 1989)
52.215-30 FACILITIES CAPITAL COST OF MONEY (SEP 1987)
52.215-33 ORDER OF PRECEDENCE (JAN 1986)
52.215-39 REVERSION OR ADJUSTMENT OF PLANS FOR POST-RETIREMENT BENEFITS
OTHER THAN PENSIONS (PRB) (JUL 1991)
</TABLE>
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<TABLE>
<CAPTION>
FAR
SOURCE TITLE AND DATE
- ------ --------------
<C> <S>
52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS AND
SMALL DISADVANTAGED BUSINESS CONCERNS (FEB
1990)
52.219-9 SMALL BUSINESS AND SMALL DISADVANTAGED
BUSINESS SUBCONTRACTING PLAN (JAN 1991)
52.219-13 UTILIZATION OF WOMEN-OWNED SMALL BUSINESSES (AUG 1986)
52.219-16 LIQUIDATED DAMAGES--SMALL BUSINESS
SUBCONTRACTING PLAN (AUG 1989)
52.220-3 UTILIZATION OF LABOR SURPLUS AREA CONCERNS (APR 1984)
52.220-4 LABOR SURPLUS AREA SUBCONTRACTING PROGRAM (APR 1984)
52.222-1 NOTICE TO THE GOVERNMENT OF LABOR DISPUTES (APR 1984)
52.222-3 CONVICT LABOR (APR 1984)
52.222-20 WALSH-HEALEY PUBLIC CONTRACTS ACT (APR 1984)
52 222-26 EQUAL OPPORTUNITY (APR 1984)
52.222-28 EQUAL OPPORTUNITY PREAWARD CLEARANCE OF
SUBCONTRACTS (APR 1984) (Applies if this
contract is $1,000,000 or more.) (As used in
the foregoing clause, the term "Contracting
Officer" shall be deemed to mean the
"Administrative Contracting Officer (ACO)".)
52.222-35 AFFIRMATIVE ACTION FOR SPECIAL DISABLED AND
VIETNAM ERA VETERANS (APR 1984)
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS
(APR 1984)
</TABLE>
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<TABLE>
<CAPTION>
FAR
SOURCE TITLE AND DATE
- ------ --------------
<C> <S>
52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED
VETERANS AND VETERANS OF THE VIETNAM ERA (JAN
1988)
52.223-2 CLEAN AIR AND WATER (APR 1984)
52.223-3 HAZARDOUS MATERIAL IDENTIFICATION AND
MATERIAL SAFETY DATA (NOV 1991)
52.223-6 DRUG-FREE WORKPLACE (JUL 1990)
52.225-10 DUTY-FREE ENTRY (APR 1984) (Applies if this
contract exceeds $100,000.)
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES (MAY 1992)
52.226-1 UTILIZATION OF INDIAN ORGANIZATIONS AND
INDIAN-OWNED ECONOMIC ENTERPRISES (AUG 1991)
52.227-1 AUTHORIZATION AND CONSENT (APR 1984)
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND
COPYRIGHT INFRINGEMENT (APR 1984)
52.227-10 FILING OF PATENT APPLICATIONS--CLASSIFIED
SUBJECT MATTER (APR 1984)
52.229-4 FEDERAL, STATE, AND LOCAL TAXES (NON-COMPETITIVE CONTRACTS)
(JAN 1991)
52.229-5 TAXES--CONTRACTS PERFORMED IN U.S. POSSESSIONS OR PUERTO
RICO (APR 1984)
52.230-2 COST ACCOUNTING STANDARDS (AUG 1992)
52.230-4 CONSISTENCY IN COST ACCOUNTING PRACTICES
(AUG 1992)
</TABLE>
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FAR
SOURCE TITLE AND DATE
- ------ --------------
52.230-5 ADMINISTRATION OF COST ACCOUNTING STANDARDS
(AUG 1992)
52.232-1 PAYMENTS (APR 1984)
(Not applicable to CLINS 0001 - 0006)
52.232-8 DISCOUNTS FOR PROMPT PAYMENT (APR 1989)
52.232-9 LIMITATION ON WITHHOLDING OF PAYMENTS (APR 1984)
52.232-11 EXTRAS (APR 1984)
52.232-16 PROGRESS PAYMENTS (JUL 1991) (Applies if the
Contractor is other than a Small Business
Concern.) (N/A to CLINs 0001 - 0006)
52.232-17 INTEREST (JAN 1991)
52.232-23 ASSIGNMENT OF CLAIMS (JAN 1986)
52.232-25 PROMPT PAYMENT (MAR 1994)
52.232-28 ELECTRONIC FUNDS TRANSFER PAYMENT METHODS
(APR 1989)
52.233-1 DISPUTES (MAR 1994) AND ALTERNATE I (DEC 1991)
and Alt I
52.233-3 PROTEST AFTER AWARD (AUG 1989)
52.242-1 NOTICE OF INTENT TO DISALLOW COSTS (APR 1984)
52.242-2 PRODUCTION PROGRESS REPORTS (APR 1991)
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FAR
SOURCE TITLE AND DATE
- ------ --------------
52.242-10 F.O.B. ORIGIN--GOVERNMENT BILLS OF LADING OR
PREPAID POSTAGE (APR 1984)
52.242-11 F.O.B. ORIGIN--GOVERNMENT BILLS OF LADING OR
INDICIA MAIL (FEB 1993)
52.242-12 REPORT OF SHIPMENT (REPSHIP) (DEC 1989)
52.242-13 BANKRUPTCY (APR 1991)
52.243-1 CHANGES--FIXED PRICE (AUG 1987)
52.244-1 SUBCONTRACTS (FIXED-PRICE CONTRACTS) (APR
1991)
52.244-5 COMPETITION IN SUBCONTRACTING (APR 1984)
52.246-2 GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS)
and ALT I (DEC 1989) AND ALTERNATE I (APR 1984)
(DEVIATION) (OCT 1993) (The language "special
tooling accountable to the contract is
subject to the provisions of the special
tooling clause and not the provisions of the
Government Property (Fixed-Price Contracts)
clause" in paragraph 52.245-2(c) is waived
for a period of one year, ending 16 October
1994, or until the FAR is changed, whichever
occurs first.)
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<TABLE>
<CAPTION>
FAR
SOURCE TITLE AND DATE
- ------ --------------
<S> <C>
52.246-23 LIMITATION OF LIABILITY (APR 1984)
52.246-24 LIMITATION OF LIABILITY--HIGH VALUE ITEMS (APR 1984)
52.246-25 LIMITATION OF LIABILITY--SERVICES (APR 1984)
52.247-1 COMMERCIAL BILL OF LADING NOTATIONS (APR 1984)
52.247-34 F.O.B. DESTINATION (NOV 1991)
52.247-48 F.O.B. DESTINATION--EVIDENCE OF SHIPMENT (APR 1984)
52.247-54 DIVERSION OF SHIPMENT UNDER F.O.B.
DESTINATION CONTRACTS (MAR 1989)
52.247-63 PREFERENCE FOR U.S.-FLAG AIR CARRIERS (APR 1984)
52.247-64 PREFERENCE FOR PRIVATELY OWNED U.S.-FLAG
and ALT I COMMERCIAL VESSELS (APR 1984) AND ALTERNATE I
(APR 1984)
52.248-1 VALUE ENGINEERING (MAR 1989) (Applies if this
contract equals or exceeds $100,000.)
52.249-2 TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED PRICE)
(APR 1984) (Applies if this contract exceeds $100,000.)
52.249-8 DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (APR 1984)
52.250-1 INDEMNIFICATION UNDER PUBLIC LAW 85-804 (APR 1984)
52.251-1 GOVERNMENT SUPPLY SOURCES (APR 1984)
52.253-1 COMPUTER GENERATED FORMS (JAN 1991)
</TABLE>
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II. DEFENSE FAR SUPPLEMENT (48 CFR CHAPTER 2) CLAUSES:
<TABLE>
<CAPTION>
DFARS SOURCE TITLE AND DATE
- ------------ --------------
<S> <C>
252.203-7000 STATUTORY PROHIBITIONS ON COMPENSATION TO
FORMER DEPARTMENT OF DEFENSE EMPLOYEES (DEC
1991) (Applies if this contract exceeds
$100,000.)
252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT (APR 1993)
252.203-7002 DISPLAY OF DOD HOTLINE POSTER (DEC 1991)
(Applies if this contract exceeds
$5,000,000.)
252.203-7003 PROHIBITION AGAINST RETALIATORY PERSONNEL
ACTIONS (APR 1992) (Applies if this contract
exceeds $500,000.)
252.204-7000 DISCLOSURE OF INFORMATION (DEC 1991)
252.204-7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT
(APR 1992)
252.205-7000 PROVISION OF INFORMATION TO COOPERATIVE
AGREEMENT HOLDERS (DEC 1991) (Applies if this
contract exceeds $500,000.)
252.208-7000 INTENT TO FURNISH PRECIOUS METALS AS
GOVERNMENT-FURNISHED MATERIAL (DEC 1991)
252.209-7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO
ON-SITE INSPECTION UNDER THE INTERMEDIATE
RANGE NUCLEAR FORCES (INF) TREATY (DEC 1991)
252.210-7003 ACQUISITION STREAMLINING (DEC 1991)
252.215-7000 PRICING ADJUSTMENTS (DEC 1991)
252.215-7001 AVAILABILITY OF CONTRACTOR RECORDS (DEC 1991)
252.215-7002 COST ESTIMATING SYSTEM REQUIREMENTS (DEC
1991)
</TABLE>
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<TABLE>
<CAPTION>
DFARS SOURCE TITLE AND DATE
- ------------ --------------
<S> <C>
252.219-7003 SMALL BUSINESS AND SMALL DISADVANTAGED
BUSINESS SUBCONTRACTING PLAN (DoD CONTRACTS)
(MAY 1993)
252.219-7005 INCENTIVE FOR SUBCONTRACTING WITH SMALL
BUSINESS AND SMALL DISADVANTAGED
BUSINESS, HISTORICALLY BLACK COLLEGES AND
UNIVERSITIES AND MINORITY INSTITUTIONS
(DEC 1991)
252.219-7008 PILOT MENTOR-PROTEGE PROGRAM (OCT 1992)
252.222-7001 RIGHT OF FIRST REFUSAL OF EMPLOYMENT--CLOSURE
OF MILITARY INSTALLATIONS (APR 1993)
252.223-7004 DRUG-FREE WORK FORCE (SEP 1988)
252.225-7001 BUY AMERICAN ACT AND BALANCE OF PAYMENTS
PROGRAM (JAN 1994)
252.225-7002 QUALIFYING COUNTRY SOURCES AS SUBCONTRACTORS
(DEC 1991)
252.225-7008 SUPPLIES TO BE ACCORDED DUTY-FREE ENTRY (DEC
1991) (Applies when FAR 52.225-10 is
applicable.)
252.225-7009 DUTY-FREE ENTRY--QUALIFYING COUNTRY END
PRODUCTS AND SUPPLIES (DEC 1991)
252.225-7010 DUTY-FREE ENTRY--ADDITIONAL PROVISIONS (DEC
1991)
252.225-7012 PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES
(MAY 1994)
</TABLE>
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<TABLE>
<CAPTION>
DFARS SOURCE TITLE AND DATE
- ------------ --------------
<S> <C>
252.225-7014 PREFERENCE FOR DOMESTIC SPECIALTY METALS (DEC
1991)
252.225-7014 PREFERENCE FOR DOMESTIC SPECIALTY METALS (DEC 1991) AND
and Alt I ALTERNATE I (DEC 1991)
252.225-7016 RESTRICTION ON ACQUISITION OF ANTIFRICTION
BEARINGS (APR 1993)
252.225-7017 PREFERENCE FOR UNITED STATES AND CANADIAN VALVES AND MACHINE
TOOLS (APR 1992)
252.225-7019 RESTRICTION ON ACQUISITION OF FOREIGN ANCHOR
AND MOORING CHAIN (DEC 1991)
252.225-7022 RESTRICTION ON ACQUISITION OF POLYACRYL-
ONITRILE (PAN) BASED CARBON FIBER (DEC 1991)
252.225-7025 FOREIGN SOURCE RESTRICTIONS (APR 1993)
252.225-7026 REPORTING OF CONTRACT PERFORMANCE OUTSIDE THE
UNITED STATES (APR 1993) (Applies if this
contract exceeds $500,000 or is modified to
exceed $500,000.)
252.225-7029 RESTRICTION ON ACQUISITION OF AIR CIRCUIT
BREAKERS (DEC 1991)
252.225-7031 SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992)
252.225-7032 WAIVER OF UNITED KINGDOM LEVIES (OCT 1992)
252.227-7013 RIGHTS IN TECHNICAL DATA AND COMPUTER
SOFTWARE (OCT 1988)
252.227-7018 RESTRICTIVE MARKINGS ON TECHNICAL DATA (OCT 1988)
252.227-7027 DEFERRED ORDERING OF TECHNICAL DATA AND
COMPUTER SOFTWARE (APR 1988)
</TABLE>
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DFARS SOURCE TITLE AND DATE
- ------------ --------------
252.227-7029 IDENTIFICATION OF TECHNICAL DATA (APR 1988)
252.227-7030 TECHNICAL DATA--WITHHOLDING OF PAYMENT (OCT 1988)
252.227-7031 DATA REQUIREMENTS (OCT 1988)
252.227-7036 CERTIFICATION OF TECHNICAL DATA CONFORMITY (MAY 1987)
252.227-7037 VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL DATA (APR 1988)
252.231-7000 SUPPLEMENTAL COST PRINCIPLES (DEC 1991)
252.231-7001 PENALTIES FOR UNALLOWABLE COSTS (MAY 1994)
252.232-7004 DOD PROGRESS PAYMENTS RATES (NOV 1993) Not
applicable to CLINs 0001 - 0006)
252.232-7006 REDUCTION OR SUSPENSION OF CONTRACT PAYMENTS UPON FINDING
OF FRAUD (AUG 1992)
252.233-7000 CERTIFICATION OF CLAIMS AND REQUESTS FOR ADJUSTMENT OR RELIEF
(MAY 1994)
252.234-7001 COST/SCHEDULE CONTROL SYSTEM (DEC 1991)
252.235-7003 FREQUENCY AUTHORIZATION (DEC 1991)
252.239-7000 PROTECTION AGAINST COMPROMISING EMANATIONS (DEC 1991)
252.242-7000 POSTAWARD CONFERENCE (DEC 1991)
252.242-7003 APPLICATION FOR U.S. GOVERNMENT SHIPPING DOCUMENTATION/
INSTRUCTIONS (DEC 1991)
252.242-7004 MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM
(DEC 1991) (Applies if this contract provides progress payments,
unless it is set aside exclusively for a small business or small
disadvantaged business concern.)
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DFARS SOURCE TITLE AND DATE
- ------------ --------------
252.243-7000 ENGINEERING CHANGE PROPOSALS (MAY 1994)
252.243-7001 PRICING OF CONTRACT MODIFICATIONS (DEC 1991)
252.246-7000 MATERIAL INSPECTION AND RECEIVING REPORT (DEC 1991)
252.246-7001 WARRANTY OF DATA (DEC 1991)
252.249-7001 NOTIFICATION OF SUBSTANTIAL IMPACT ON EMPLOYMENT (DEC 1991)
(Applies if this contract equals or exceeds $5 million.)
252.251-7000 ORDERING FROM GOVERNMENT SUPPLY SOURCES (DEC 1991)
- --------------------------------------------------------------------------------
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SECTION I-2 - CLAUSES INCORPORATED IN FULL TEXT
FAR 52.203-9 REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY--
MODIFICATION (NOV 1990)
(a) Definitions. The definitions set forth in FAR 3.104-4 are hereby
incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the Contracting Officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer or
employee responsible for the modification proposal shall execute the following
certification:
CERTIFICATE OF PROCUREMENT INTEGRITY--MODIFICATION (NOV 1990)
- -------------------------------------------------------------
(1) I, _______________________ (Name of certifier), am the officer or
employee responsible for the preparation of this modification proposal and
hereby certify that, to the best of my knowledge and belief, with the exception
of any information described in this certification, I have no information
concerning a violation or possible violation of subsection 27(a), (b), (d), or
(f) of the Office of Federal Procurement Policy Act, as amended* (41 U.S.C.
423), (hereinafter referred to as "the Act"), as implemented in the FAR,
occurring during the conduct of this procurement ____________________ (Contract
and modification number).
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify
that to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of _____________________ (Name of Offeror) who
has participated personally and substantially in the preparation or submission
of this proposal has certified that he or she is familiar with, and will comply
with, the requirements of subsection 27(a) of the Act, as implemented in the
FAR, and will report immediately to me any information concerning a violation or
possible violation of subsections 27(a), (b), (d), or (f) of the Act, as
implemented in the FAR, pertaining to this procurement.
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(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity--Modification
(Continuation Sheet), ENTER "NONE" IF NONE EXISTS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Signature of the officer or employee responsible for the modification proposal
and date)
- --------------------------------------------------------------------------------
(Typed name of the officer or employee responsible for the modification
proposal)
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED
STATES CODE, SECTION 1001.
(End of certification)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the contractor. If a Contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e., prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified that
section 27 has been reinstated. These certifications shall be maintained by the
Contractor for a period
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of 6 years from the date a certifying employee's employment with the company
ends or, for an agency, representative, or consultant, 6 years from the date
such individual ceases to act on behalf of the contractor.
(e) The certification required by paragraph (c) of this clause is a material
representation of fact upon which reliance will be placed in executing this
modification.
FAR 52.216-16 INCENTIVE PRICE REVISION--FIRMS TARGET (FI) (APR 1984)
(DEVIATION -- 16 NOV 1992) (NAVSEA 5252.216-9127)
(Applicable to CLINS 0001 - 0006)
(a) General. The supplies or services identified in Sections B and C are
subject to price revision in accordance with the provisions of this clause;
provided, that in no event shall the total final price of such items exceed the
total ceiling price as set forth in Section B of the contract. Any supplies or
services which are to be ordered separately under, or otherwise added to, this
contract, and which are to be subject to price revision in accordance with the
provisions of this clause, shall be identified as such in a modification to this
contract.
(b) Definition of Cost. For the purposes of this contract, "cost" or "costs"
means allowable cost in accordance with Part 31 of the Federal Acquisition
Regulation (FAR) and Part 231 of the Department of Defense FAR Supplement
(DFARS) as in effect on the date of this contract.
(c) Submission of Data. Within ninety (90) days after the end of the month in
which the Contractor has delivered the last unit of supplies and completed the
services called for by those items referred to in paragraph (a) above, the
Contractor shall submit, on Standard Form (SF) 1411 or other form as the
Contracting Officer may require, (i) a detailed statement of all costs incurred
up to the end of that month in performing all work under such items, (ii) an
estimate of costs of such further performance, if any, as may be necessary to
complete performance of all work with respect to such items, and (iii) a list
identifying to the extent practicable residual inventory and the estimated value
thereof. The detailed statement of all costs incurred shall be decreased by the
net increase in compensation adjustments established in accordance with the
"COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)" clause or shall be increased by
the net decrease in such compensation adjustments, as the case may be.
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(d) Price Revision. Upon submission of the data required by paragraph (c)
above, the Contractor and the Contracting Officer shall promptly establish the
total final price in accordance with the following:
(1) On the basis of the information required by paragraph (c) above,
together with any other pertinent information, there shall be established by
negotiation the total final cost incurred or to be incurred for the supplies
delivered (or services performed) and accepted by the Government, which are
subject to price revision. The contract may have provisions contained in the
specifications, or other documents incorporated in this contract by reference or
in the Schedule or Contract Clauses hereof designating services to be performed
or materials to be furnished by the Contractor at his expense, or without cost
to the Government, or with costs to be borne by the Contractor. Such costs may
be included in the final negotiated cost of this contract, provided, however,
that after the total final price has been established in accordance with this
clause, such services shall be performed and such materials shall be furnished
at no increase in said total final price.
(i) The "COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)" clause.
(ii) Any other provision of this contract which provides for an amount
to be reimbursed or paid to the Contractor by the Government or to be refunded
or paid by the Contractor to the Government, other than through an adjustment of
the contract price, including the following:
(A) Paragraphs (b), (c), and (e) of the clause of this contract
entitled "INSURANCE-PROPERTY LOSS OR DAMAGE-LIABILITY TO THIRD PERSONS".
(B) The clause of this contract entitled "ADDITIONAL INSURANCE
PROVISIONS".
(C) The clause of this contract entitled "Indemnification under
Public Law 85-804 (FAR 52.250-1)".
(2) The total final price shall be established by adjusting the total
final negotiated cost by an amount for profit or loss determined as follows:
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WHEN THE TOTAL FINAL THE AMOUNT FOR PROFIT
NEGOTIATED COST IS: OR LOSS IS:
Equal to the total target cost------ Total target profit.
Greater than the total target cost-- Total target profit less twenty percent
(20%) of the amount by which the total
final negotiated cost exceeds the total
target cost.
Less than the total target cost----- Total target profit plus twenty percent
(20%) of the amount by which the total
final negotiated cost is less than the
total target cost.
(3) The total final price of the items referred to in paragraph (a)
above shall be evidenced by a modification to this contract signed by the
Contractor and the Contracting Officer. Such price shall not be subject to
revision notwithstanding any changes in the cost of performing the contract,
with the following exceptions:
(i) insofar as the parties may agree in writing, prior to the
determination of the total final price, (A) to exclude any specific elements of
cost from the total final price and (B) to a procedure to provide subsequent
disposition of such elements; and
(ii) to the extent any adjustment or credit is explicitly permitted or
required by this or any other clause of this contract.
(e) Subcontracts. No subcontract placed under this contract shall provide for
payment on a cost-plus-a-percentage-of-cost basis.
(f) Disagreements. If the Contractor and the Contracting Officer fail to agree
upon the total final price within sixty (60) days after the date on which the
data required by (c) above are to be submitted, or within such further time as
may be specified by the Contracting Officer, such failure to agree shall be
deemed to be a dispute within the meaning of the "DISPUTES" clause of this
contract and the Contracting Officer shall promptly issue a decision thereunder.
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N00024-95-C-2106
(g) Termination. If this contract is terminated prior to establishment of the
total final price, prices of supplies or services subject to price revision
under this clause shall be established pursuant to this clause for (i) completed
supplies accepted by the Government and services performed and accepted by the
Government, and (ii) in the event of a partial termination, supplies and
services which are not terminated. The termination shall be otherwise
accomplished pursuant to other applicable clauses of this contract.
(h) Equitable Adjustment Under Other Clauses. If an equitable adjustment in the
contract price is made under any other clause of this contract before the total
final price is established, the adjustment shall be made in the total target
cost and may be made in the ceiling price, the total target profit or both. If
such an adjustment is made after the total final price is established,
adjustment shall be made only in the total final price.
(i) Exclusion From Target Price and Total Final Price. Whenever any clause of
this contract provides that the contract price does not or will not include an
amount for a specific purpose, such provision shall mean that neither any target
price nor the total final price includes or will include any amount for such
purpose.
(j) Separate Reimbursement. The cost of performance of an obligation that any
clause of this contract expressly provides is at Government expense shall not be
included in any target price or in the total final price, but shall be
reimbursed separately.
(k) Taxes. As used in the "FEDERAL, STATE, AND LOCAL TAXES" clause of this
contract or any other clause of this contract that provides for certain taxes
or duties to be included in, or excluded from, the contract price, the term
"contract price" includes the total target price, or if it has been established,
the total final price. When a provision in such clause requires that the
contract price be increased or decreased as a result of changes in the
obligation of the Contractor to pay or bear the burden of certain taxes or
duties, such increase or decrease shall be made in the total target price and,
in the same amount, the ceiling price or, if it has been established, in the
total final price, so as not to affect the Contractor's profit or loss on this
contract.
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FAR 52.225-17 BUY AMERICAN ACT--SUPPLIES UNDER EUROPEAN
COMMUNITY AGREEMENT (JAN 1994)
(This clause applies if this contract exceeds $182,000.)
(a) Definitions. As used in this clause--
"Components" means those articles, materials, and supplies incorporated
directly into the end products.
"Domestic end product" means (1) an unmanufactured end product mined or
produced in the United States, if the cost of its components mined, produced,
or manufactured in the United States exceeds 50 percent of the cost of all its
components. Components of foreign origin of the same class or kind as the
products referred to in subparagraphs (c)(2) or (3) of this clause shall be
treated as domestic. Scrap generated, collected, and prepared for processing
in the United States is considered domestic.
"End products" means those articles, materials, and supplies to be acquired
for public use under this contract.
"European Community (EC) country" means Belgium, Denmark, Federal Republic
of Germany, France, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, and the United Kingdom.
"EC end product" means an article that (a) is wholly the growth, product,
or manufacture of an EC country, (b) in the case of an article which consists in
whole or in part of materials from another country or instrumentality has been
substantially transformed into a new and different article of commerce with a
name, character, or use distinct from that of the article or articles from it
was so transformed. The term includes services (except transportation services)
incidental to its supply; provided that the value of those incidental services
does not exceed that of the product itself. It does not include service
contracts as such.
(b) The Buy American Act (41 U.S.C. 10) provides that the Government give
preference to domestic end products. In addition, the Memorandum of
Understanding between the United States and the European Community on Government
Procurement provides that offers of EC end products will be evaluated without
regard to the Buy American Act.
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N00024-95-C-2106
(c) The Contractor shall deliver only domestic end products or EC end products,
except those--
(1) For use outside the United States;
(2) That the government determines are not mined, produced, or
manufactured in the United States in sufficient, and reasonably available
commercial quantities of a satisfactory quality;
(3) For which the agency determines that domestic preference would be
inconsistent with the public interest; or
(4) For which the agency determines the cost to be unreasonable (see
section 25.105 of the Federal Acquisition Regulation).
(d) If this contract contains the clause at 52.225-21, Buy American Act--North
American Free Trade Agreement (NAFTA) Implementation Act--Balance of Payments
Program, the Contractor may deliver NAFTA country end products, notwithstanding
the prohibition in paragraph (c).
FAR 52.246-2 INSPECTION OF SUPPLIES--FIXED PRICE (FT) (JUL 1985)
- -- ALTERNATE I (JUL 1985) (DEVIATION 89-915 - 29 JUN 1989)
(Applicable to CLIN 0001 through CLIN 0006)
(a) All "supplies" (which term when used throughout this clause includes
without limitation raw materials, components, intermediate assemblies, and end
products) shall be subject to inspection and test by the Government, to the
extent practicable at all times and places including the period of manufacture
or construction, and in any event prior to final acceptance of the vessel(s).
(b) Supplies rejected prior to Preliminary Acceptance as not conforming to this
contract, and any Contractor responsible defects discovered during the guaranty
period shall, at the election of the Department be replaced or corrected either
by the Department or by the Contractor. The Department will, whenever
practicable, afford the Contractor an opportunity to examine the defective
supplies before they are replaced or corrected. Supplies or lots of supplies
which have been rejected or required to be corrected shall be removed, if
permitted or required by the Contracting Officer, or corrected in place by and
at the expense of the Contractor promptly after notice, and shall not thereafter
be tendered for acceptance unless the former rejection or requirement of
correction is disclosed. Prior to the establishment of the total final price,
the cost of replacement or correction shall be considered as a cost incurred,
or to be
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incurred, for the purpose of negotiating the total final negotiated cost under
the "INCENTIVE PRICE REVISION--FIRM TARGET (FI) (APR 1984) (DEVIATION - 16 NOV
1992) (NAVSEA 5252.216-9127)" (FAR 52.216-16), if applicable, clause of this
contract. After the establishment of the total final price, all replacements or
corrections made by the Contractor shall be accomplished at no increase in the
total final price. If the Contractor fails either promptly to remove such
supplies or lots of supplies which are required to be removed, or promptly to
replace or correct such supplies or lots of supplies, the Government either
(i) may by contract or otherwise replace or correct such supplies, and
equitably reduce any target price, or, if it is established, the total
final price of this contract; or (ii) may terminate this contract for
default as provided in the clause of this contract entitled "DEFAULT
(FIXED-PRICE SUPPLY AND SERVICE)" (FAR 52.249-8). Unless the Contractor
corrects or replaces such supplies within the required delivery schedule,
the Contracting Officer may require the delivery of such supplies, and
equitably reduce any target price or, if it is established, the total final
price of this contract. Failure to agree to such equitable reduction shall
be a dispute within the meaning of the clause of this contract entitled
"DISPUTES" (FAR 52.233-1).
(c) The cost of any replacement or correction for which the Contractor is
responsible shall be borne by the Contractor, except that the liability of the
Contractor for the correction of defects discovered during the guaranty period
(other than defects resulting from fraud or such gross mistakes as amount to
fraud) shall be limited as set forth in the requirement entitled "LIMITATION OF
CONTRACTOR'S LIABILITY FOR CORRECTION OF DEFECTS". An increase in the contract
price on account of any replacement or correction for which the Contractor is
not responsible shall be determined pursuant to the requirement of this contract
entitled "CHANGES".
(d) If any inspection or test is made by the Government on the premises of the
Contractor or a subcontractor, the Contractor, without additional charge, shall
provide all reasonable facilities and assistance for the safety and convenience
of the Government inspectors in the performance of their duties. If Government
inspection or test is made at a point other than the premises of the Contractor
or a subcontractor, it shall be at the expense of the Government except as
otherwise provided in the contract; provided, that in case of rejection the
Government shall not be liable for any reduction in value of samples used in
connection with such inspection or test. All inspections and
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tests by the Government shall be performed in such a manner as not to unduly
delay the work. The Government reserves the right to charge to the Contractor
any additional cost of Government inspection and test when supplies are not
ready at the time such inspection and test is required by the Contractor or when
reinspection or retest is necessitated by prior rejection. Failure to inspect
and accept or reject supplies shall neither relieve the Contractor from
responsibility for such supplies as are not in accordance with the contract
requirements nor impose liability on the Government therefor.
(e) The inspection and test by the Government of any supplies or lots thereof
does not relieve the Contractor from any responsibility regarding defects or
other failures to meet the contract requirements which may be discovered prior
to final acceptance. Final acceptance shall be conclusive except for fraud or
gross mistakes amounting to fraud.
(f) The Contractor shall provide and maintain an inspection system acceptable to
the Government prior to start of construction and which shall be in effect at
the start of each phase of the construction of each vessel. Records of all
inspection work by the Contractor shall be kept complete and available to the
Government during the performance of this contract and for such longer period as
may be specified elsewhere in this contract.
(g) The Commander, Naval Sea Systems Command shall determine the responsibility
of the Contractor under this clause.
FAR 52.246-18 WARRANTY OF SUPPLIES OF A COMPLEX NATURE (APR 1984) (NAVSEA
VARIATION) (MAY 1993)
(Applicable to CLIN 0007)
(a) Definitions. As used in this clause:
(1) Design and manufacturing requirements" include drawings,
specifications, statements of work, structural and engineering plans, and
manufacturing particulars, including precise measurements, tolerances,
processes, materials, and finished product tests;
(2) "Essential performance requirements" means the operating capabilities
and maintenance and reliability characteristics specified in the specification
and/or statement of work; "essential performance requirements" does not include
performance characteristics that are described as goals or objectives;
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(3) "Alternate source contractor" means a contractor which did not develop
the portion of the design requiring redesign;
(4) A unit shall be considered to have been "manufactured" when it has been
accepted by the Government (either finally or conditionally); and
(5) "At no additional cost to the United States" means at no increase in
target price or ceiling price.
(b) Notwithstanding inspection and/or acceptance by the Government of the
supplies furnished under this contract, any term or condition of this contract
concerning the conclusiveness thereof, or any other term or condition of this
contract, the Contractor warrants:
(1) That line item(s) 0007 will conform to the design and manufacturing
requirements of the contract;
(2) That line item(s) 0007 at the time of acceptance by the Government,
will be free from all defects in materials and workmanship; and
(3) That line item(s) 0007 will conform to the essential performance
requirements of the contract; provided, however, that with respect to
Government-furnished property, the Contractor's above-stated warranties shall
extend only to its proper installation, unless the Contractor performs some
modification or other work on such property, in which case the Contractor's
warranties shall extend to such modification or other work.
(c) The Contractor shall not be responsible under these warranties for any
failure of line item(s) to meet the conditions specified in (b)(1), (b)(2) or
(b)(3), above, which is discovered more than Two Years from the date of
acceptance. In determining whether the failure was discovered prior to the
expiration of the specified period, conditional acceptance shall not be
considered to be acceptance. Rather, conditionally accepted supplies shall be
considered to have been accepted as of the date the Contractor is notified by
the Contracting Officer, in writing, that the condition has been satisfied or
waived.
(d) Notwithstanding any other term or condition contained in this contract, in
the event of a failure to comply with any of the warranties provided herein, the
Contractor shall, at the election of the Government:
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(1) Promptly take such action as may be necessary (e.g., repair, replace
and/or redesign) to correct or, if so directed by the Government, partially
correct the defect responsible for the failure at no additional cost to the
United States. However, for alternate source contractors, redesign shall not be
a remedy available to the Government if the alternate source contractor has not
manufactured, at the time of agreement on the price of line item(s), the first
ten percent of the eventual total production quantity anticipated to be acquired
from that alternate source contractor;
(2) Pay costs reasonably incurred by the United States in takinq such
corrective action; or
(3) Provide an equitable adjustment in target price and ceiling price in
lieu of full correction of the failure.
(e) In seeking the remedies specified in (d)(1), (d)(2) or (d)(3) above, the
Government may elect to exercise any one or combination of the specified
remedies.
(f) Any supplies or parts thereof corrected or furnished in replacement shall be
subject to the conditions of this clause to the same extent as supplies
initially delivered. This warranty shall be equal in duration to that set forth
in paragraph (c) of this clause and shall run from the date of final acceptance
of the corrected or replaced supplies.
(g) The Contractor shall prepare and furnish to the Government data and reports
applicable to any correction required under this clause (including the revision
and updating of all affected data called for under this contract) at no
additional cost to the United States. If the Contractor fails to prepare and
furnish such data and/or reports or should the Government elect not to secure
such data from the Contractor or another source, the Contractor shall pay costs
reasonably incurred by the Government in acquiring such data and/or reports, or
the Government shall be entitled to an equitable adjustment in target price and
ceiling price.
(h) When items covered by these warranties are returned to the Contractor
pursuant to this clause, the Contractor shall pay the transportation costs and
bear the risk of loss or damage from the place of delivery specified in the
contract (irrespective of the f.o.b. point or point of acceptance) to the
Contractor's plant and return to said place of delivery.
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(i) The Contractor shall be notified in writing of any breach of the warranties
set forth in paragraph (a) above within 60 days after discovery of the breach.
The failure of the Contracting Officer to provide timely notice of the breach,
however, shall not diminish the rights the Government would otherwise have under
this clause or any other term or condition of this contract.
(j) Notwithstanding any disagreement regarding the existence of a warranty
breach, the Contractor shall promptly comply with any partial corrective action.
In the event it is later determined that there was no warranty breach, the
target price and ceiling price shall be equitably adjusted.
(k) The warranty provisions herein of this clause do not cover combat damage,
liability for loss, damage, or injury to third parties, or consequential
damages.
(l) The rights and remedies of the Government provided in this clause are in
addition to and do not limit any rights the Government may have under any other
requirement of the contract. Disputes arising under this clause will be resolved
in accordance with the clause entitled "DISPUTES" (FAR 52.233-1).
(m) The failure of the Government to assert its right under this clause with
respect to any particular breach or breaches of a warranty provided herein shall
not waive or otherwise diminish the Government's rights with respect to any
subsequent breach of a warranty.
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FAR 52.249-8 DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (FT)
(APR 1984) (DEVIATION 89-915 - 29 JUN 1989)
Modify the clause as follows:
(a) Wherever the word 'supplies' is used, it shall include 'vessels'.
(b) At the end of paragraph (b), add the following:
'In addition to its other remedies, the Government may, with respect to
work terminated as permitted in this clause, proceed with the completion of
the vessels and supplies at such plant or plants, including that of the
Contractor, as may be designated by the Contracting Officer. If the vessels
are to be completed at the Contractor's plant, the Government may use all
tools, machinery, facilities and equipment of the Contractor determined by
the Contracting Officer to be necessary for that purpose. If the cost to
the Government of the vessels and supplies therefor so procured or
completed (after adjusting such cost to exclude the effect of changes in
the plans and specifications made subsequent to the date of termination)
exceeds the price fixed for such vessels and supplies under this contract
(after adjusting such price on account of changes in the plans and
specifications made prior to the date of termination) the Contractor, or
its surety, if any, shall be liable for such excess.'
(c) In the first sentence of paragraph (c), after the word 'costs', insert the
phrase 'or other damages'.
(d) In the first sentence of paragraph (e), after the word 'title', insert the
phrase '(insofar as not previously transferred)'."
FAR 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the
same force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
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FAR 52.252-6 AUTHORIZED DEVIATIONS IN CLAUSES (APR 1984)
(a) The use in this solicitation or contract of any Federal Acquisition
Regulation (48 CFR Chapter 1) clause with an authorized deviation is indicated
by the addition of "(DEVIATION)" after the date of the clause.
(b) The use in this solicitation or contract of any Defense FAR Supplement (48
CFR Chapter 2) clause with an authorized deviation is indicated by the addition
of "(DEVIATION)" after the name of the regulation.
DFARS 252.225-7008 SUPPLIES TO BE ACQUIRED DUTY-FREE ENTRY (DEC 1991)
In accordance with paragraph (a) of the Duty-Free Entry clause and/or paragraph
(b) of the Duty-Free Entry--Qualifying Country End Products and supplies clause
of this contract, the following supplies are accorded duty-free entry:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DFARS 252.242-7001 CERTIFICATION OF INDIRECT COSTS (DEC 1991)
(a) The Contractor shall--
(1) Certify any proposal to establish or modify billing rates or to
establish final indirect cost rates;
(2) Use the format set forth in paragraph (c) of this clause to certify;
and
(3) Have the certificate signed by an individual of the Contractor's
organization at a level no lower than a vice president or chief financial
officer of the business segment of the Contractor that submits the proposal.
(b) Failure by the Contractor to submit a signed certificate, as described in
this clause, shall result in payment of indirect cost at rates unilaterally
established by the Government.
(c) The certificate of indirect costs shall read as follows:
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CERTIFICATE OF INDIRECT COSTS
This is to certify that to the best of my knowledge and belief:
1. I have reviewed this indirect cost proposal;
2. All costs included in this proposal (identify date) to establish
billing or final indirect cost rates for (identify period covered by rate) are
allowable in accordance with the requirements of contracts to which they apply
and with the cost principles of the Department of Defense applicable to those
contracts;
3. This proposal does not include any costs which are unallowable under
applicable cost principles of the Department of Defense, such as (without
limitation): advertising and public relations costs, contributions and
donations, entertainment costs, fines and penalties, lobbying costs, defense of
fraud proceedings, and goodwill; and
4. All costs included in this proposal are properly allocable to Defense
contracts on the basis of a beneficial or causal relationship between the
expenses incurred and the contracts to which they are allocated in accordance
with applicable acquisition regulations.
I declare under penalty or perjury that the foregoing is true and correct.
Firm:
-----------------------------------------
Signature:
-----------------------------------------
Name of Corporate Official:
-----------------------------------------
Title:
-----------------------------------------
Date of Execution:
-----------------------------------------
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DFARS 252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA (DEC 1991)
(a) Definitions. As used in this clause--
(1) "Components" means articles, materials, and supplies incorporated
directly into end products at any level of manufacture, fabrication or assembly
by the Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air
Force, Marine Corps, and defense agencies.
(3) "Foreign flag vessel" means any vessel that is not a U.S.-
flag vessel.
(4) "Ocean transportation" means any transportation aboard a ship,
vessel, boat barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman, distributor, or
vendor at any level below the prime contractor whose contractual obligation to
perform results from, or is conditioned upon, award of the price contract and
who is performing any part of the work or other requirement of the prime
contract.
(6) "Supplies" means all property, except land and interests in land,
that is clearly identifiable for eventual use by or owned by the DoD at the time
of transportation by sea.
(i) An item is clearly identifiable or eventual use by the DoD if, for
example, the contract documentation contains a reference to a DoD contract
number or a military destination.
(ii) "Supplies" include (but is not limited to) public works,
buildings and facilities; ships; floating equipment and vessels of every
character, type, and description, with parts, subassemblies, accessories, and
equipment; machine tools, material; equipment; stores of all kinds; end items;
construction materials; and the components of the foregoing.
(7) "U.S.-flag vessel" means a vessel of the United States or belonging to
the United States, including any vessel registered or having national status
under the laws of the United States.
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(b) The Contractor shall employ U.S.-flag vessels in the transportation by sea
of any supplies to be furnished in the performance of this contract. The
Contractor and its subcontractors may request that the Contracting Officer
authorize shipment in foreign-flag vessels, or designate available U.S.-flag
vessels, if the Contractor or a subcontractor believes that--
(1) U.S.-flag vessels are not available for timely shipment;
(2) The freight charges are excessive or unreasonable; or
(3) Freight charges are higher than charges to private persons for
transportation of like goods.
(c) The Contractor must submit any request for use of other than U.S.-flag
vessels in writing to the Contracting Officer at least 45 days prior to the
sailing date necessary to meet its delivery schedule. The Contracting Officer
will process requests submitted after such date(s) as expeditiously as possible,
but the Contracting Officer's failure to grant approvals to meet the shipper's
sailing date will not of itself constitute a compensable delay under this or any
other clause of this contract. Requests shall contain a minimum--
(1) Type, weight, and cube of cargo;
(2) Required shipping date;
(3) Special handling and discharge requirements;
(4) Loading and discharge points;
(5) Name of shipper and consignee;
(6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag vessels,
including points of contact (with names and telephone numbers) with at least two
(2) U.S.-flag carriers contacted. Copies of telephone notes, telegraphic and
facsimile messages or letters will be sufficient for this purpose.
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(d) The Contractor shall, within thirty (30) days after Shipment covered by
this clause, provide the Contracting Officer and the Division of National Cargo,
Office of Market Development, Maritime Administration, U.S. Department of
Transportation, Washington, DC 20590, one copy of the rated on board vessel
operating carrier's ocean bill of lading, which shall contain the following
information--
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
(5) Port of loading;
(6) Port of final discharge;
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
(e) The Contractor agrees to provide with its final invoice under this contract
a representation that to the best of its knowledge and belief--
(1) No ocean transportation was used in the performance of this contract:
(2) Ocean transportation was used and only U.S.-flag vessels were used for
all ocean shipments under this contract;
(3) Ocean transportation was used, and the Contractor had the written
consent of the Contracting Officer for all non-U.S.-flag ocean transportation;
or
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(4) Ocean transportation was used and some or all of the shipments were
made on non-U.S.-flag vessels without the written consent of the Contracting
Officer. The Contractor shall describe these shipments in the following form:
ITEM CONTRACT
DESCRIPTION LINE ITEMS QUANTITY
Total
(f) If the final invoice does not include the required representation, the
Government will reject and return it to the Contractor as an improper invoice
for the purposes of the Prompt Payment clause of this contract. In the event
there has been unauthorized use of non-U.S.-flag vessels in the performance of
this contract, the Contracting Officer is entitled to equitably adjust the
contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph (g), in
all subcontracts under this contract, which exceed the small purchase limitation
of section 13.000 of the Federal Acquisition Regulation.
FAR 8UPP 252.247-7024 NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA (DEC
1991)
(a) The Contractor has indicated by the response to the solicitation provision,
Representation of Extent of Transportation by Sea, that it did not anticipate
transporting by sea any supplies. If, however, after the award of this contract,
the Contractor learns that supplies, as defined in the Transportation of
Supplies by Sea clause of this contract, will be transported by sea, the
Contractor--
(1) Shall notify the Contracting Officer of that fact; and
(2) Hereby agrees to comply with all the terms and conditions of the
Transportation of Supplies by Sea clause of this contract.
(b) The Contractor shall include this clause, including this paragraph (b),
revised as necessary to reflect the relationship of the contracting parties, in
all subcontracts hereunder.
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DFARS 252.249-7002 NOTIFICATION OF PROPOSED PROGRAM TERMINATION OR REDUCTION
(AUG 1993)
(a) Within two weeks after the Government notifies the Contractor that this
contract may be adversely affected by a program termination or reduction, the
Contractor shall provide notice of such proposed termination or reduction to--
(1) Each representative of the Contractor's employees whose work is
directly related to the contract; or
(2) If there is no such representative at that time, each such employee;
(3) The State dislocated worker unit or office described in Section
311(b)(2) of the Job Training Partnership Act (29 U.S.C. 1661(b)(2)) and the
chief elected official of the unit or general local government within which the
adverse effect may occur; and
(4) Each affected subcontractor.
(b) If the proposed program termination or reduction is likely to result in
plant closure or mass layoff, the notice provided an employee under paragraph
(a) of this clause shall have the same effect as a notice of termination to the
employee for the purposes of determining whether such employee is eligible for
training, adjustment assistance, and employment services under section 325 or
325A of the Job Training Partnership Act. If the Contractor has specified that
the proposed program termination or reduction is not likely to result in plant
closure or mass layoff, the employee shall only be eligible to receive services
under section 314(b) and paragraphs (1) through (14), (16), and (18) of section
314(c) of the Job Training Partnership Act.
(c) If the Government subsequently withdraws a notice issued in accordance with
paragraph (a) of this clause, the Contractor within two weeks after receipt of
the withdrawal notice shall provide notice of the withdrawal to--
(1) The representatives, employees, offices, officials, and subcontractors
specified in paragraph (a) of this clause; and
(2) Each grantee under section 325 or 325(A) of the Job Training
Partnership Act, as the case may be, providing training, adjustment assistance,
and employment services to each employee described in this paragraph.
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(d) An employee who receives notice of withdrawal shall not be eligible for
training, adjustment assistance, and employment services under section 325 of
the Job Training Partnership Act, or section 325A of such Act, as the case may
be, beginning on the date the employee receives such notice.
(e) The Contractor shall insert the substance of this clause in all
subcontracts of $500,000 or more.
NAPS 5252.243-9001 REQUIREMENTS FOR ADEQUATE SUPPORTING DATA AND CERTIFICATION
OF ANY CLAIM, REQUEST FOR EQUITABLE ADJUSTMENT, OR DEMAND FOR PAYMENT (NOV 1991)
(a) This contract is subject to 10 U.S.C. 2405; therefore, no price adjustment
will be made under this contract for an amount set forth in a claim, request for
equitable adjustment, or demand for payment (or incurred due to the preparation,
submission, or adjudication of any such claim, request, or demand) arising out
of events occurring more than six (6) years before the submission of the claim,
request, or demand.
(b) A claim, request for equitable adjustment, or demand for payment is
considered to be submitted on the date the contractor's submission is received
by the contracting officer accompanied by adequate supporting data for the
claim, request or demand, and the certification required by Section 6(c)(1) of
the Contract Disputes Act, if the claim, request or demand is over $50,000.
(c) Adequate supporting data includes data which is adequate to apprise the
contracting officer of the underlying facts and the theory upon which the
contractor relies in support of its entitlement--to a price adjustment. Adequate
supporting data is that data which fulfills these purposes in accordance with
the requirements of the Contract Disputes Act. A submission containing the
following information will be deemed to have been submitted with adequate
supporting data:
(1) A narrative statement of the nature of the event(s), the time when the
event(s) occurred (including the factual basis supporting the contractor's
designation of the time the event(s) occurred), and the causal relationship
between the event(s) and the impact on the cost of performance of the contract,
including a description of how the event(s) affected scheduled performance;
(2) A description of the relevant effort the contractor was required to
perform in the absence of the event(s);
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(3) A description of the relevant effort the contractor was actually
required or will be required to perform;
(4) A description of components, equipment, and other property involved;
(5) A cost breakdown of the additional effort by element in accordance
with the contractor's normal procedures for pricing of changes;
(6) A description of all property which will no longer be needed by the
contractor;
(7) A description of any delay caused by the event(s);
(8) A description of any disruption caused by the event(s).
(d) Certification of the claim, request for equitable adjustment, or demand for
payment is required if the requested price adjustment is over $50,000. The
certification requirements are those set forth in the CDA and implementing
regulations.
(e) For the purpose of this clause, the following terms have the meanings set
forth below.
(1) "Claim" means a written demand or written assertion by the contractor
seeking, as a matter of right, a price adjustment under the contract. The theory
upon which the contractor seeks the price adjustment does not determine whether
a particular matter is a claim. The term includes a submission asserting any
theory supporting a price adjustment, including but not limited to constructive
change, breach of contract or mistake, which, if valid, would result in
contractor entitlement to a price adjustment. A voucher, invoice or other
routine request for payment that is not in dispute when submitted is not a
claim. A claim does not include a request for equitable adjustment or demand for
payment as defined below.
(2) "Demand for payment" means a written demand for payment, the granting
of which results in a price adjustment under the contract. A demand for payment
does not include a routine request for payment in accordance with the payment
terms of the contract.
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(3) "Events" means the Government action(s), Government inaction(s),
Government conduct, or occurrence(s) which give rise to the contractor's claim,
request for equitable adjustment, or demand for payment. The term events does
not require the incurrence of costs and/or performance of additional work
resulting from the action(s), inaction(s), conduct or occurrence(s) except where
a contractor's commencement of the correction of defective GFI/GFP constitutes
the final occurrence. For the purpose of this subpart, the date of the final
Government action, Government inaction, Government conduct or occurrence is the
date on which the six year period commences.
(4) "Know or should have known" includes the totality of the combined
actual and constructive knowledge of all agents or employees (including a
subcontractor, its agents and employees, where and to the extent a subcontractor
is involved).
(5) "Price adjustment" means an increase in the fixed price, target price,
ceiling price, or final price of a fixed price type contract, or an increase in
the fee structure of a cost reimbursement type contract, or monetary damages or
other payment resulting from a contractor claim, request for equitable
adjustment, or demand for payment. An adjustment to the sharing ratio or to any
other pricing formula, procedure or provision, which has the effect of
increasing the fixed price, target price, ceiling price, final price, or fee of
the contract, is a price adjustment. A schedule adjustment, whether requested as
part of a submission seeking a price adjustment or as the sole relief, or an
adjustment for any matter which, pursuant to the terms of the contract is
separate from or not included in the fixed price contract or the fee structure
of a cost reimbursement contract, is not a price adjustment. The bilateral
definitization of a maximum-price modification within the maximum price is not a
price adjustment. A routine invoice or other request for payment or
reimbursement in accordance with the terms of the contract, even if in dispute,
which, if paid, would not result in an increase in the price of the contract is
not a price adjustment. For the purpose of this subpart, relief granted pursuant
to a request for extraordinary contractual relief under Public Law 85-804 does
not constitute a price adjustment.
(6) "Request for equitable adjustment" means a written request for a price
adjustment under the contract.
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FAR 52.223-3 HAZARDOUS MATERIAL IDENTIFICATION AND MATERIAL
SAFETY DATA (NOV 1991)
(a) "Hazardous material", as used in this clause, includes any material defined
as hazardous under the latest version of Federal Standard No. 313 (including
revisions adopted during the term of the contract).
(b) The offeror must list any hazardous material, as defined in paragraph (a) of
this clause, to be delivered under this contract. The hazardous material shall
be properly identified and include any applicable identification number, such as
National Stock Number or Special Item Number. This information shall also be
included on the Material Safety Data Sheet submitted under this contract.
Material Identification No.
(If none, insert "None")
------------------------ ---------------------
------------------------ ---------------------
------------------------ ---------------------
(c) The apparently successful offeror, by acceptance of the contract, certifies
that the list in paragraph (b) of this clause is complete. This list must be
updated during performance of the contract whenever the Contractor determines
that any other material to be delivered under this contract is hazardous.
(d) The apparently successful offeror agrees to submit, for each item as
required prior to award, a Material Safety Data Sheet, meeting the requirements
of 29 CFR 1910.1200(g) and the latest version of Federal Standard No. 313,
whether or not the apparently successful offeror is the actual manufacturer of
these items. Failure to submit the Material Safety Data Sheet prior to award may
result in the apparently successful offeror being considered nonresponsible and
ineligible for award.
(e) If, after award, there is a change in the composition of the items(s) or a
revision to Federal Standard No. 313, which renders incomplete or inaccurate the
data submitted under paragraph (d) of this clause or the certification submitted
under paragraph (c) of this clause, the Contractor shall promptly notify the
Contracting Officer and resubmit the data.
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(f) Neither the requirements of this clause nor any act or failure to act by the
Government shall relieve the Contractor of any responsibility or liability for
the safety of Government, Contractor, or subcontractor personnel or property.
(g) Nothing contained in this clause shall relieve the Contractor from complying
with applicable Federal, State, and local laws, codes, ordinances, and
regulations (including the obtaining of licenses and permits) in connection with
hazardous material.
(h) The Government's rights in data furnished under this contract with respect
to hazardous material are as follows:
(1) To use, duplicate and disclose any data to which this clause is
applicable. The purposes of this right are to--
(i) Apprise personnel of the hazards to which they may be exposed in
using, handling, packaging, transporting, or disposing of hazardous materials;
(ii) Obtain medical treatment for those affected by the material; and
(iii) Have others use, duplicate, and disclose the data for the
Government for these purposes.
(2) To use, duplicate, and disclose data furnished under this clause,
in accordance with subparagraph (h)(1) of this clause, in precedence over any
other clause of this contract providing for rights in data.
(3) The Government is not precluded from using similar or identical data
acquired from other sources.
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SECTION I-3 ALTERATIONS IN CONTRACT (APR 1984)(FAR 52.252-4)
Portions of this contract are altered as follows:
A. FAR (48 CFR Chapter I) CLAUSES are altered as follows:
1. Clause 52.248-1 entitled "VALUE ENGINEERING": is modified by adding the
following paragraph:
"(n) This clause does not apply to any work under this contract in connection
with the nuclear propulsion plant, its associated components and systems which
are under the technical cognizance of NAVSEA Code 08."
2. Clause 52.250-1, entitled "INDEMNIFICATION UNDER PUBLIC LAW 85-804 (APR
1984)", add the following paragraph:
"(i) For the purposes of this clause, risks nuclear in nature are defined as
those risks attributable to the radioactive, toxic explosive, or other hazardous
properties of 'special nuclear material', 'by-product material', or 'source
material', as such materials are defined in the Atomic Energy Act of 1954, as
amended."
3. "For purposes of this contract, 'taxes' as covered by the clause entitled
'FEDERAL, STATE, AND LOCAL TAXES (NON-COMPETITIVE CONTRACTS)(JAN 1991)' shall be
deemed to include any Federally mandated Value Added, Ad Valorem, or similar tax
implemented during the period of performance of this contract. Therefore, the
Contractor shall be entitled to an equitable adjustment in accordance with the
provisions of this clause for any such implementation of a Federally mandated
Value Added, Ad Valorem, or similar tax during the period of performance of this
Contract which results in an increase or decrease in the Contractor's cost of
performing the work under this contract."
4. Clause 52.243-1, entitled "CHANGES -- FIXED PRICE (AUG 1987)", insert "45
days" wherever "30 days" appears.
5. Clause 252.227-7030 entitled "TECHNICAL DATA - WITHHOLDING OF PAYMENT (OCT
1988), in paragraphs (a) and (b), the maximum withholding is established as
"$500,000.00."
173
<PAGE>
N00024-95-C-2106
SECTION J-LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
This contract consists of the following parts and the attachments described in
Paragraph J-1 hereof:
I. The Schedule
II. Contract Clauses
III. List of Documents, Exhibits and Other Attachments
J-1 The Attachments forming a part of this contract are as follows:
Contract Data Requirements List, DD Form 1423, Exhibit "A" 173 pages,
Exhibit "B" 18 pages, and Exhibit "C" 6 pages.
Attachment A, Financial Accounting Data Sheet - 1 page.
Attachment B, Subcontracting Plan For Small Business and Small
Disadvantaged Business Concerns - 8 pages.
Attachment C, CVN 76 Specification, NAVSEA S9CVN-CK-SBS-010/(U) CVN 76
dated 1 July 1994 forwarded to NNS under NAVSEA letter (Ser. 02215/1339)
dated 27 July 1994; Change Package 1 forwarded to NNS under NAVSEA letter
(Ser. 02215/1407) dated 7 November 1994; Change Package 2 forwarded to NNS
under NAVSEA letter (Ser. 02215/1409) dtd 10 November 1994; and Change
Package 3 forwarded to NNS under NAVSEA letter (Ser. 02215/1474) dtd 18
November 1994.
Attachment D, Weighting Factors - 1 page.
Attachment E, Contract Security Classification DD Form 254 - (DD 254
Attachments provided under separate cover) - 2 pages.
Schedule A, Revision 0, 11-18-94 List of Government Furnished Equipment for
CVN 76 - 67 pages.
Schedule B, Not Applicable.
Schedule C, Not Applicable.
Schedule D, Compartment Turnover Agreement for CVN 76 - 9 pages.
Schedule E, Ships Force Work Agreement, for CVN 76 - 4 pages.
Schedule F, List of Facility Requirements for the Crew, for CVN 76 - 1
page.
CVN 76 Schedule X, Design Budget - 18 pages.
174
<PAGE>
EXHIBIT 12
THE BUSINESSES OF NEWPORT NEWS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------- --------------------------
(UNAUDITED) (UNAUDITED)
1996 1995 1995 1994 1993 1992 1991
------- ------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations......................... $ 37 $ 41 $ 73 $ 95 $111 $ 143 $ 135
Add:
Interest, net of interest
capitalized...................... 17 20 29 30 36 42 23
Portion of rentals representative
of interest factor............... 1 2 5 5 5 7 7
Preferred stock dividend
requirements of majority-owned
subsidiaries..................... 0 0 0 0 0 0 0
Income tax expense and other taxes
on income........................ 27 29 58 75 78 64 68
Amortization of interest
capitalized...................... 0 0 0 0 0 0 0
Undistributed (earnings) losses of
affiliated companies in which
less than 50% voting interest is
owned............................ 0 0 0 0 0 0 0
------- ------- ---- ---- ---- ----- -----
Earnings as defined............... $ 82 $ 92 $165 $205 $230 $ 256 $ 233
======= ======= ==== ==== ==== ===== =====
Interest, net of interest
capitalized........................ $ 17 $ 20 $ 29 $ 30 $ 36 $ 42 $ 23
Interest capitalized................ 1 1 2 1 1 1 3
Portion of rentals representative of
interest factor.................... 1 2 5 5 5 7 7
Preferred stock dividend
requirements of majority-owned
subsidiaries on a pre-tax basis.... 0 0 0 0 0 0 0
------- ------- ---- ---- ---- ----- -----
Fixed charges as defined.......... $ 19 $ 23 $ 36 $ 36 $ 42 $ 50 $ 33
======= ======= ==== ==== ==== ===== =====
Ratio of earnings to fixed charges.. 4.32 4.00 4.58 5.69 5.48 5.12 7.06
======= ======= ==== ==== ==== ===== =====
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF NEWPORT NEWS SHIPBUILDING INC.
Newport News Shipbuilding and Dry Dock Company, a Virginia Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Business
of Newport News Shipbuilding, Inc. Combined Financial Statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 85
<ALLOWANCES> 0
<INVENTORY> 54
<CURRENT-ASSETS> 419
<PP&E> 1,552
<DEPRECIATION> 732
<TOTAL-ASSETS> 1,380
<CURRENT-LIABILITIES> 438
<BONDS> 360
<COMMON> 0
0
0
<OTHER-SE> 272
<TOTAL-LIABILITY-AND-EQUITY> 1,380
<SALES> 0
<TOTAL-REVENUES> 1,756
<CGS> 0
<TOTAL-COSTS> 1,599
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 131
<INCOME-TAX> 58
<INCOME-CONTINUING> 73
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Business
of Newport News Shipbuilding, Inc. Combined Financial Statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 125
<ALLOWANCES> 0
<INVENTORY> 49
<CURRENT-ASSETS> 473
<PP&E> 1,570
<DEPRECIATION> 746
<TOTAL-ASSETS> 1,452
<CURRENT-LIABILITIES> 432
<BONDS> 377
<COMMON> 0
0
0
<OTHER-SE> 349
<TOTAL-LIABILITY-AND-EQUITY> 1,452
<SALES> 0
<TOTAL-REVENUES> 915
<CGS> 0
<TOTAL-COSTS> 834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 64
<INCOME-TAX> 27
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
