<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997.
REGISTRATION NO. 333-20285
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEWPORT NEWS SHIPBUILDING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3730 74-1541566
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
4101 WASHINGTON AVENUE
NEWPORT NEWS, VIRGINIA 23607
(757) 380-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN B. CLARKSON, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
NEWPORT NEWS SHIPBUILDING INC.
4101 WASHINGTON AVENUE
NEWPORT NEWS, VIRGINIA 23607
(757) 380-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JERRY J. BURGDOERFER, ESQ. GERARD M. MEISTRELL, ESQ.
JENNER & BLOCK CAHILL GORDON & REINDEL
ONE IBM PLAZA 80 PINE STREET
CHICAGO, IL 60611 NEW YORK, NY 10005
(312) 222-9350 (212) 701-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
----------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 13, 1997, UNLESS EXTENDED
Newport News Shipbuilding Inc., a Delaware corporation ("NNS"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange (i) $1,000 principal
amount of its new 8 5/8% Senior Notes due 2006 (the "New Senior Notes") for
each $1,000 principal amount of its outstanding 8 5/8% Senior Notes due 2006
(the "Old Senior Notes"), of which $200,000,000 aggregate principal amount is
outstanding and (ii) $1,000 principal amount of its new 9 1/4% Senior
Subordinated Notes due 2006 (the "New Senior Subordinated Notes," and together
with the New Senior Notes, the "New Notes") for each $1,000 principal amount
of its outstanding 9 1/4% Senior Subordinated Notes due 2006 (the "Old Senior
Subordinated Notes," and together with the Old Senior Notes, the "Old Notes")
of which $200,000,000 aggregate principal amount is outstanding. The form and
terms of the New Senior Notes and the New Senior Subordinated Notes are
substantially identical to the form and terms of the Old Senior Notes and the
Old Senior Subordinated Notes, respectively, except that the New Notes will
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"). All references herein to the "Notes" shall be references to
the Old Notes and/or the New Notes, whichever was, is or will be outstanding
in the particular context. See "The Exchange Offer" and "Description of the
New Notes."
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 11, 1997
<PAGE>
The New Senior Notes will be issued under the Senior Note Indenture (as
defined) and the New Senior Subordinated Notes will be issued under the Senior
Subordinated Note Indenture (as defined). See '"Description of the New Notes."
The New Notes will be fully and unconditionally guaranteed on a joint and
several basis by all direct and indirect Material Subsidiaries (as defined) of
NNS. Presently, the Guarantors are Newport News Shipbuilding and Dry Dock
Company and NNS Delaware Management Company, which, together with any
subsequent Guarantors, are collectively referred to as "Guarantors." See
"Description of the New Notes--Guarantees of the New Senior Notes and the New
Senior Subordinated Notes."
NNS will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on March 13, 1997, unless
extended by NNS in its sole discretion (the "Expiration Date"). Tenders of Old
Notes may be withdrawn prior to the Expiration Date. Old Notes may be tendered
only in integral multiples of $1,000 principal amount. See "The Exchange
Offer."
The Old Notes were sold on November 21, 1996 in a transaction exempt from
registration under the Securities Act. Payment for the Old Notes was made by
J.P. Morgan Securities Inc., CS First Boston Corporation, Morgan Stanley & Co.
Incorporated, BA Securities, Inc. and NationsBanc Capital Markets, Inc. (the
"Initial Purchasers") on November 26, 1996 (the "Closing Date"). The New Notes
are being offered to satisfy certain obligations of the Company under the
Registration Rights Agreements (as defined) relating to the Old Notes. See
"The Exchange Offer--Purpose and Effect of the Exchange Offer." New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by the holders thereof (other than
any holder which is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer" and "Plan of Distribution."
The Notes constitute securities for which there is no established trading
market. Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Notes could
be adversely affected. No assurance can be given as to the liquidity of the
trading market for either the Old Notes or the New Notes. See "Rick Factors."
Interest on the New Notes shall accrue from the last June 1 or December 1
(an "Interest Payment Date") on which interest was paid on the Old Notes so
surrendered, or, if no interest has been paid on such Old Notes, from November
26, 1996. No interest will be paid on Old Notes accepted for exchange.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE EXCHANGE OFFER IS NOT BEING
MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF
OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
ii
<PAGE>
UNTIL MARCH 24, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus 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 "intend," "intends," "intended," "goal," "estimate," "estimates,"
"expect," "expects," "expected," "project," "projects," "projected,"
"projections," "plans," "anticipate," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future" "believe," "believes" and "scheduled" and
in many cases are followed by a cross reference to "Risk Factors."
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 materially 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
delivery or production schedules and designs and manufacturing processes thus
impairing the Company's efforts to deliver its products on time or to reduce
production costs and cycle time or realize in a timely manner some or all of
the benefits of such reductions; (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 Securities and Exchange Commission (the "Commission").
----------------
AVAILABLE INFORMATION
NNS and the Guarantors have filed with the Commission a Registration
Statement on Form S-4 under the Securities Act for the registration of the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits
and schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to NNS,
the Guarantors and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and financial
statements and notes filed as a part thereof. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with
iii
<PAGE>
the Commission as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Any reports, proxy statements and other information filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices in
Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and in
New York, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material may also be obtained by mail from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants who file electronically
with the Commission. In addition, such reports, proxy statements and other
information can be inspected at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, on which exchange the common stock of the
Company is listed.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary of certain information is qualified in its entirety by,
and should be read in connection with, the more detailed and other information
and financial statements appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the term "Company" refers (i) for periods prior to
the Shipbuilding Distribution (as defined), to Newport News Shipbuilding and
Dry Dock Company ("Newport News") and the other consolidated subsidiaries
through which Tenneco Inc. ("Tenneco," now known as El Paso Tennessee Pipeline
Co.) conducted its shipbuilding business (the "Shipbuilding Business") during
such periods, and (ii) for periods after the Shipbuilding Distribution, to NNS
and its consolidated subsidiaries, including Newport News. Capitalized terms
used but not defined in this Prospectus Summary are defined elsewhere in this
Prospectus.
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 nine months ended September 30, 1996, the Company had net sales of
$1,756 million and $1,437 million, respectively, and EBITDA (as defined) of
$227 million and $165 million, respectively. In addition, at September 30, 1996
the Company had $3.7 billion of 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 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. At the urging of the Navy, the Company and Electric
Boat Corporation have recently been exploring the possibility of entering into
a teaming agreement with respect to the NSSN submarine program.
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 overhaul. Currently the Company is completing
the overhaul of 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
1
<PAGE>
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 although there can be no assurances as to
the number or value of contracts awarded.
The Company's 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 Chairman, President and Chief Executive Officer of the
Company, who has 30 years of experience, the Company's senior executives
average 10 years of shipbuilding experience.
The Company's principal executive offices are located at 4101 Washington
Avenue, Newport News, Virginia; telephone: (757) 380-2000.
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 $196 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 selectively
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
2
<PAGE>
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 three 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 has 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 to pursue awards for the
construction of such ships. Although there can be no assurance that it will be
awarded the construction work or other future aspects of the project, on
January 10, 1997 this alliance was one of three teams awarded $15 million
contracts to provide a functional design for the Arsenal Ship. 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.
THE SHIPBUILDING DISTRIBUTION
Prior to December 11, 1996 ("Distribution Closing Date"), NNS was a wholly-
owned subsidiary of Tenneco. As part of a series of transactions which were
closed on December 11, 1996, Tenneco and its existing subsidiaries including
New Tenneco Inc. ("New Tenneco," now known as Tenneco Inc.) restructured,
divided and separated their various businesses and assets so that, among other
things, substantially all of their shipbuilding business was owned by NNS and
its subsidiaries and thereafter all of the common stock of NNS (the "NNS Common
Stock") was distributed (the "Shipbuilding Distribution") to holders of common
stock of Tenneco ("Tenneco Common Stock") on the basis of one share of NNS
Common Stock for every five shares of Tenneco Common Stock. The Shipbuilding
Distribution and related transactions are collectively referred to as the
"Distribution Transaction." Upon completion of the Distribution Transaction,
NNS became an independent, publicly-held holding company (trading symbol "NNS")
which conducts substantially all of its operations through its direct and
indirect consolidated subsidiaries, including Newport News.
In connection with the Distribution Transaction and to provide for working
capital needs, NNS issued the Old Notes and entered into a $415 million secured
senior 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 utilized the proceeds of the
Old Notes, the 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 consolidated debt of
Tenneco ("Tenneco Consolidated Debt") and (ii) $14 million in payment of
certain fees and expenses incurred in connection with the Senior Credit
Facility and the Old Notes. See "Description of the Senior Credit Facility."
3
<PAGE>
SOURCES AND USES OF FUNDS
The following table shows the use of proceeds of the Old Notes and the other
sources and uses of funds in connection with the Distribution Transaction as of
the Distribution Closing Date.
<TABLE>
<CAPTION>
In millions
SOURCES OF FUNDS
- ----------------
<S> <C>
Term Loan............................ $200
Revolving Credit Facility (a)........ 14
Old Senior Notes..................... 200
Old Senior Subordinated Notes........ 200
----
Total............................... $614
====
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
- -------------
<S> <C>
Dividend to Tenneco............................... $600
Transaction costs................................. 14
----
Total............................................ $614
- -------- ====
</TABLE>
(a) On a pro forma basis at September 30, 1996, $201 million of aggregate
principal amount would be unused and available for borrowing as follows:
$111 million for advances and letters of credit and $90 million for standby
letters of credit.
4
<PAGE>
THE EXCHANGE OFFER
Registration Rights Agreements.. The Old Notes were sold on November 21, 1996
in a transaction exempt from registration un-
der the Securities Act. Payment for the Old
Notes was made on the Closing Date. In con-
nection therewith, NNS and the Guarantors ex-
ecuted and delivered, for the benefit of the
holders of the Old Senior Notes, the Senior
Notes Registration Rights Agreement dated as
of November 26, 1996 (the "Senior Registra-
tion Rights Agreement") and for the benefit
of the holders of Old Senior Subordinated
Notes, the Senior Subordinated Registration
Rights Agreement dated as of November 26,
1996 (the "Senior Subordinated Registration
Rights Agreement," and together with the Se-
nior Registration Rights Agreement, the "Reg-
istration Rights Agreements"). The Registra-
tion Rights Agreements grant the holders of
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy certain of such rights, which termi-
nate upon the consummation of the Exchange
Offer. Therefore, the holders of New Notes
will not be entitled to any exchange or reg-
istration rights with respect to the New
Notes.
The Registration Rights Agreements also
provide that if, (i) because of any change in
law or in currently prevailing
interpretations of the staff of the
Commission, NNS is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer
is not commenced on or prior to the 150th day
after the Closing Date, (iii) any holder of
Private Exchange Securities (as defined) so
requests, or (iv) in the case of any holder
of Old Notes that participates in the
Exchange Offer, such holder does not receive
New Notes on the date of the exchange that
may be sold without restriction under state
and federal securities laws, then the Company
is required to file a shelf registration
statement (the "Shelf Registration
Statement") pursuant to Rule 415 under the
Securities Act. To the extent that Old Notes
are terminated and accepted in the Exchange
Offer, the trading market for untendered Old
Notes could be adversely affected. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer."
NNS is obligated to commence an Exchange
Offer pursuant to an effective registration
statement (the "Exchange Offer Registration
Statement") or cause the Old Notes to be
registered under the Securities Act and, if
(i) the Exchange Offer Registration Statement
is not filed with the Commission on or prior
to the 60th day following the original
issuance of the Old Notes, (ii) the Exchange
Offer Registration Statement is not declared
effective by the Commission on or prior to
the 150th day following the original issuance
of the Old Notes, or (iii) the Exchange Offer
is not consummated or (unless the Exchange
Offer is consummated) a registration
statement with respect to resales of the Old
Notes is not declared effective on or prior
to the later of the 180th day following the
original issuance of the Old Notes and the
120th day following the date
5
<PAGE>
of the event the occurrence of which
obligated NNS to file such registration
statement (each such event referred to in
clauses (i) through (iii), a "Registration
Default"), then NNS will pay additional
interest (in addition to the interest
otherwise due on the Old Notes) to each
holder of Old Notes during the first 90-day
period immediately following the occurrence
of each such Registration Default in an
amount equal to 0.25% per annum. The amount
of interest will increase by an additional
0.25% per annum for each subsequent 90-day
period until such Registration Default is
cured, up to a maximum amount of additional
interest of 1.00% per annum. Such additional
interest will cease accruing on such Old
Notes when the Registration Default has been
cured. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer."
The Exchange Offer.............. $1,000 principal amount of New Senior Notes
in exchange for each $1,000 principal amount
of Old Senior Notes and $1,000 principal
amount of New Senior Subordinated Notes in
exchange for each $1,000 principal amount of
Old Senior Subordinated Notes. As of the date
hereof, $200,000,000 aggregate principal
amount of Old Senior Notes is outstanding and
$200,000,000 aggregate principal amount of
Old Senior Subordinated Notes is outstanding.
The terms of the New Notes are substantially
identical (including principal amount, inter-
est rate and maturity) to the terms of the
Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
the New Notes will have been registered under
the Securities Act and will not bear legends
restricting their transfer. See "The Exchange
Offer--Terms of the Exchange Offer" and "The
Exchange Offer--Procedures for Tendering."
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Ex-
change Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any holder or beneficial owner
thereof (other than any such holder or bene-
ficial owner which is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act or a "broker" or "dealer"
registered under the Exchange Act) without
compliance with the registration and prospec-
tus delivery provisions of the Securities
Act, provided that such New Notes are ac-
quired in the ordinary course of such hold-
er's or beneficial owner's business and that
such holder or beneficial owner is not en-
gaged in, does not intend to engage in and
has no arrangement or understanding with any
person to participate in the distribution of
such New Notes. See "Plan of Distribution."
Expiration Date.................
5:00 p.m., New York City time, on March 13,
1997, unless the Exchange Offer is extended
by NNS in its sole discretion, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer--
Expirations; Extensions; Amendments."
6
<PAGE>
Interest........................ Interest on the New Notes shall accrue from
the last Interest Payment Date on which
interest was paid on the Old Notes so
surrendered, or, if no interest has been paid
on such Old Notes, from the Closing Date. No
interest will be paid on the Old Notes
accepted for exchange. See "The Exchange
Offer--Interest."
Procedures for Tendering........ Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Old Notes and any other required
documentation to The Bank of New York (the
"Exchange Agent") at the address set forth
herein. By executing the Letter of
Transmittal, each holder will represent to
the Company, among other things, that (i) the
New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of the person receiving
such New Notes, whether or not such person is
the holder, (ii) neither the holder nor any
such other person is engaged in, intends to
engage in or has an arrangement or
understanding with any person to participate
in the distribution of such New Notes and
(iii) neither the holder nor any such other
person is an "affiliate," as defined under
Rule 405 under the Securities Act, of the
Company. See "The Exchange Offer--Procedures
for Tendering."
Special Procedures for Any beneficial owner whose Old Notes are
Beneficial Owners............... registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. See "The
Exchange Offer--Procedures for Tendering."
Brokers or Dealers.............. Any broker or dealer participating in the
Exchange Offer will be required to
acknowledge that it will deliver a prospectus
in connection with any resales of the New
Notes received by it in the Exchange Offer. A
broker or dealer registered under the
Exchange Act that acquired Old Notes for its
own account pursuant to its market-making or
other trading activities (other than Old
Notes acquired directly from the Company or
an affiliate of the Company) may participate
in the Exchange Offer but may be deemed an
underwriter under the Securities Act and,
therefore, must deliver a prospectus relating
to the New Notes in connection with any
resales by it of New Notes acquired by it for
its own account in the Exchange Offer; only
such brokers or dealers may use this
Prospectus in connection with resales of the
New Notes. See "Plan of Distribution."
Guaranteed Delivery Procedures..
Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent on or prior
to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery
procedures set forth under "The Exchange
Offer--Guaranteed Delivery Procedures."
7
<PAGE>
Exchanging Book-Entry Old Financial institutions that have an account
Notes.......................... with The Depository Trust Company ("DTC") may
utilize DTC's Automatic Tender Offer Program
("ATOP") to tender Old Notes. See "The
Exchange Offer--Exchanging Book-Entry Old
Notes."
Withdrawal Rights............... Old Notes tendered pursuant to the Exchange
Offer may be withdrawn on or prior to the
Expiration Date. See "The Exchange Offer--
Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes..........
NNS will accept for exchange any and all Old
Notes which are properly tendered in the
Exchange Offer prior to the Expiration Date.
The New Notes issued pursuant to the Exchange
Offer will be delivered on the earliest
practicable date following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Certain U.S. Income Tax An exchange of Old Notes for New Notes
Considerations................. pursuant to the Exchange Offer should not be
treated as an exchange or otherwise as a
taxable event for United States federal
income tax purposes. Accordingly, the New
Notes should have the same issue price as the
Old Notes and each holder should have the
same adjusted basis and holding period in the
New Notes as it had in the Old Notes
immediately before the Exchange Offer. See
"Certain U.S. Income Tax Consequences."
Effect on Holders of the Old
Notes.......................... As a result of the making of, and upon
acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of,
the Exchange Offer, the Company will have
fulfilled certain of its obligations
contained in the Registration Rights
Agreements. Holders of the Old Notes who do
not tender their Old Notes will be entitled
to all the rights and limitations applicable
thereto under the Indentures (as defined)
and the Registration Rights Agreements,
except for any rights under the Indentures or
the Registration Rights Agreements which by
their terms terminate or cease to have
further effect as a result of the making of,
and the acceptance for exchange of all
validly tendered Old Notes pursuant to, the
Exchange Offer. All untendered Old Notes will
continue to be subject to the restrictions on
transfer provided for in the Old Notes and in
the Indentures.
Use of Proceeds................. There will be no cash proceeds to NNS from
the exchange pursuant to the Exchange Offer.
See "Use of Proceeds."
Exchange Agent.................. The Bank of New York, as Trustee, is serving
as Exchange Agent in connection with the Ex-
change Offer. See "The Exchange Offer--Ex-
change Agent."
8
<PAGE>
DESCRIPTION OF THE NEW NOTES
NEW SENIOR NOTES:
Issuer.......................... NNS.
Securities Offered.............. $200 million aggregate principal amount of 8
5/8% Senior Notes due 2006.
Maturity Date................... December 1, 2006.
Interest Payment Dates..........
The New Senior Notes will bear interest at
the rate of 8 5/8% per annum. Interest will
accrue from the last June 1 or December 1 (an
"Interest Payment Date") on which interest
was paid on the Old Senior Notes so
surrendered, or, if no interest has been paid
on such Old Senior Notes, from November 26,
1996. No interest will be paid on Old Senior
Notes accepted for exchange. See "Description
of the New Notes--General."
Optional Redemption by NNS......
On and after December 1, 2001, the New Senior
Notes may be redeemed by NNS at any time, in
whole or in part, on not less than 30 nor
more than 60 days' notice at the prices set
forth herein. In addition, prior to December
1, 1999, NNS may redeem up to 35% of the
aggregate principal amount of the New Senior
Notes originally issued with the net cash
proceeds received by NNS from one or more
public offerings of its Capital Stock (as
defined) (other than Disqualified Stock (as
defined)) made after the Distribution Closing
Date at a redemption price of 108.625% of the
principal amount thereof, plus accrued and
unpaid interest to the redemption date;
provided, however, that at least $100 million
in aggregate principal amount of the New
Senior Notes remains outstanding immediately
after any such redemption; provided, further,
that any such redemptions shall be made pro
rata (based on the then outstanding principal
amounts thereof) among the New Senior Notes
and the New Senior Subordinated Notes. See
"Description of the New Notes--Optional
Redemption."
Mandatory Redemption by NNS..... None.
Ranking......................... The New Senior Notes will be general
unsecured obligations of NNS and will rank on
a parity in right of payment with all other
Senior Indebtedness of NNS and will rank
senior in right of payment to all existing
and future Subordinated Indebtedness of NNS.
The Senior Notes will be effectively
subordinated to all secured indebtedness of
NNS (including indebtedness under the Senior
Credit Facility). See "Description of the New
Notes--General."
NEW SENIOR SUBORDINATED
NOTES:
Issuer.......................... NNS.
Securities Offered.............. $200 million aggregate principal amount of 9
1/4% Senior Subordinated Notes due 2006.
Maturity Date................... December 1, 2006.
Interest Payment Dates.......... The New Senior Subordinated Notes will bear
interest at the rate of 9 1/4% per annum.
Interest will accrue from the last Interest
Payment Date on which interest was paid on
the Old
9
<PAGE>
Senior Subordinated Notes so surrendered, or,
if no interest has been paid on such Old
Senior Subordinated Notes, from November 26,
1996. No interest will be paid on Old Senior
Subordinated Notes accepted for exchange. See
"Description of the New Notes--General."
Optional Redemption by NNS......
On and after December 1, 2001, the New Senior
Subordinated Notes may be redeemed by NNS at
any time, in whole or in part, on not less
than 30 nor more than 60 days' notice at the
prices set forth herein. In addition, prior
to December 1, 1999, NNS may redeem up to 35%
of the aggregate principal amount of the New
Senior Subordinated Notes originally issued
with the net cash proceeds received by NNS
from one or more public offerings of its
Capital Stock (other than Disqualified Stock)
made after the Distribution Closing Date at a
redemption price of 109.250% of the principal
amount thereof, plus accrued and unpaid
interest to the redemption date; provided,
however, that at least $100 million in
aggregate principal amount of the New Senior
Subordinated Notes remains outstanding
immediately after any such redemption;
provided, further, that any such redemptions
shall be made pro rata (based on the then
outstanding principal amounts thereof) among
the New Senior Notes and the New Senior
Subordinated Notes. See "Description of the
New Notes--Optional Redemption."
Mandatory Redemption by NNS..... None.
Ranking......................... The New Senior Subordinated Notes will be
general unsecured obligations of NNS and will
rank subordinated in right of payment to all
existing and future Senior Indebtedness of
NNS, including the Old Senior Notes, the New
Senior Notes and indebtedness under the
Senior Credit Facility. See "Description of
the New Notes--General" and "Description of
the New Notes--Subordination of New Senior
Subordinated Notes."
OTHER PROVISIONS APPLICABLE TO
THE NEW NOTES:
Guarantees of New Senior Notes
and New Senior Subordinated
Notes..........................
The New Notes will be fully and
unconditionally guaranteed on a joint and
several basis by all direct and indirect
Material Subsidiaries of NNS. Presently the
Guarantors are Newport News and NNS Delaware
Management Company, which, together with any
subsequent Guarantors, are collectively
referred to as "Guarantors." Separate
financial statements of the Guarantors are
not included herein because the Guarantors'
aggregate assets, earnings and equity are
substantially equivalent to the assets,
earnings and equity of NNS and its combined
subsidiaries. The Guarantees will be general
unsecured obligations of the Guarantors. The
Guarantors have guaranteed all obligations of
NNS under the Senior Credit Facility, and
each Guarantor has granted a security
interest in all or substantially all of its
assets to secure the obligations
10
<PAGE>
under the Senior Credit Facility. The
obligations of each Guarantor under its
Guarantee will in the case of the New Senior
Notes rank senior in right of payment to all
existing and future Subordinated Indebtedness
(as defined) of such Guarantor and pari passu
with all other Guarantor Senior Indebtedness
(as defined) of the Guarantor. The
obligations of each Guarantor under its
Guarantee will in the case of the New Senior
Subordinated Notes be subordinated in right
of payment to the prior payment in full of
all Guarantor Senior Indebtedness of such
Guarantor to substantially the same extent as
the New Senior Subordinated Notes are
subordinated to all existing and future
Senior Indebtedness of NNS. See "Description
of the New Notes--Guarantees of the New
Senior Notes and the New Senior Subordinated
Notes."
Change of Control Offer......... Upon a Change of Control (as defined) after
the Distribution Transaction, NNS will be
required to make an offer to purchase all
outstanding New Senior Notes and New Senior
Subordinated Notes at 101% of the principal
amount thereof plus accrued and unpaid
interest to the purchase date. If a Change of
Control occurs, the subordination provisions
of the New Senior Subordinated Notes and
certain provisions of the New Senior Notes
will have the effect of requiring that
tendered New Senior Notes be repurchased
prior to the repurchase of any tendered New
Senior Subordinated Notes. The Senior Credit
Facility prohibits the purchase of
outstanding New Senior Subordinated Notes
prior to payment of the borrowings under the
Senior Credit Facility. There can be no
assurance that upon a Change of Control the
Company will have sufficient funds to
repurchase any of the Notes. See "Description
of the New Notes--Change of Control."
Certain Covenants...............
The New Senior Notes evidence the same debt
as the Old Senior Notes (which they replace)
and will be issued under, and entitled to the
benefits of the Indenture governing the Old
Senior Notes dated as of November 26, 1996,
as supplemented and amended by the First
Supplemental Indenture dated as of December
11, 1996 (the "Senior Note Indenture"). The
New Senior Subordinated Notes evidence the
same debt as the Old Senior Subordinated
Notes (which they replace) and will be issued
under, and entitled to the benefits of the
Indenture governing the Old Senior
Subordinated Notes dated as of November 26,
1996, as supplemented and amended by the
First Supplemental Indenture dated as of
December 11, 1996 (the "Senior Subordinated
Note Indenture," and together with the Senior
Note Indenture, the "Indentures"). The
Indentures contain certain covenants that,
among other things, limit the ability of the
Company to incur certain additional
Indebtedness (as defined), make certain
Restricted Payments (as defined) and
Investments (as defined), permit dividend or
other
11
<PAGE>
payment restrictions to apply to Subsidiaries
(as defined), create liens, enter into
certain transactions with Affiliates (as
defined) or Related Persons (as defined) or
consummate certain merger, consolidation or
similar transactions. The Senior Subordinated
Note Indenture also limits the incurrence of
certain senior subordinated indebtedness. In
addition, in certain circumstances, NNS will
be required to offer to purchase New Senior
Notes and New Senior Subordinated Notes at
100% of the principal amount thereof with the
net proceeds of certain asset sales. The
subordination provisions of the New Senior
Subordinated Notes and certain provisions of
the New Senior Notes will have the effect of
requiring that tendered New Senior Notes be
repurchased as a result of such asset sales
prior to the repurchase of any tendered New
Senior Subordinated Notes. These covenants
are subject to a number of significant
exceptions and qualifications. See
"Description of the New Notes--Certain
Covenants."
The Indentures also provide that holders of
the Notes and any Private Exchange Securities
will vote and consent together on all matters
(to which such holders are entitled to vote
or consent) as one class and that none of the
holders of the Notes and any Private Exchange
Securities shall have the right to vote or
consent as a separate class on any matter (to
which such holders are entitled to vote or
consent). These covenants are subject to a
number of significant exceptions and
qualifications. See "Description of the New
Notes--General."
RISK FACTORS
Holders of the Notes should be aware that the ownership of the New Notes
involves certain risk factors including those described under "Risk Factors"
and elsewhere in this Prospectus. 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 Distribution Transaction; the fact
that the New Notes are unsecured; the fact that the issuance of the Notes and
execution of the Guarantees are subject to review under federal and state
fraudulent conveyance laws; the consequences of failure to exchange; the
necessity of complying with the exchange procedures; the lack of a public
market for the Notes; and other matters. See "Risk Factors."
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
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 nine-
month periods ended September 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 nine months ended September 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 nine months ended September 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 nine months
ended September 30, 1996 and for the year ended December 31, 1995, have been
prepared to reflect the Distribution Transaction including: (i) the issuance of
$400 million aggregate principal amount of Old Notes; (ii) borrowings of $214
million under the Senior Credit Facility; (iii) the cash dividend of $600
million which was paid by the Company to Tenneco or one or more of its
subsidiaries; (iv) the payment of $14 million of certain fees and expenses
incurred in connection with the Senior Credit Facility and the Old Notes; 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 Distribution Transaction
occurred on January 1, 1995; the unaudited pro forma combined Balance Sheet
Data has been prepared as if the various components of the Distribution
Transaction occurred on September 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," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Combined Financial
Statements, and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 YEARS ENDED DECEMBER 31
------------------------------ ----------------------------------------------------------
PRO PRO
FORMA FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
---------- ---------- ---------- ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In
millions, except ratios
STATEMENTS OF EARNINGS
DATA:
Net sales............... $ 1,437 $ 1,437 $ 1,290 $1,756 $1,756 $1,753 $1,861 $2,265 $2,216
========== ========== ========== ====== ====== ====== ====== ====== ======
Operating earnings...... $ 115 $ 117 $ 125 $ 155 $ 157 $ 201 $ 210 $ 249 $ 224
Interest expense (net of
interest
capitalization)........ 40 25 26 53 29 30 36 42 23
Other (income) loss,
net.................... -- -- -- (3) (3) 1 (15)(b) -- (2)
Provision for income
taxes.................. 35 40 41 49 58 75 78 64 68
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Earnings before
cumulative effect of
changes in accounting
principles............. 40 52 58 56 73 95 111 143 135
Cumulative effect of
changes in accounting
principles, net of
tax.................... -- -- -- -- -- (4)(c) -- (93)(c) --
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Net earnings............ $ 40 $ 52 $ 58 $ 56 $ 73 $ 91 $ 111 $ 50 $ 135
========== ========== ========== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Working capital......... $ 172 $ 5 $ 82 N/A $ (19) $ (75) $ (121) $ (89) $ (470)
Total assets............ 1,491 1,473 1,358 N/A 1,380 1,263 1,235 1,450 1,412
Long-term debt(d)....... 586 267 304 N/A 292 287 423 761 364
Combined equity(e)...... 196 334 292 N/A 272 199 105 (173) (30)
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(f)............... $ 165 $ 165 $ 176 $ 227 $ 227 $ 270 $ 297 $ 323 $ 298
Depreciation and
amortization........... 50 48 51 69 67 70 72 74 72
Net cash provided (used)
by operating
activities............. N/A 4 (10) N/A 63 182 215 (174) 352
Net cash provided (used)
by investing
activities............. N/A (66) (43) N/A (87) (29) 21 6 (99)
Net cash provided (used)
by financing
activities............. N/A 61 52 N/A 25 (154) (241) 181 (246)
Capital expenditures.... 55 55 43 77 77 29 35 35 64
Ratio of EBITDA to
interest expense....... 4.1 N/A N/A 4.3 N/A N/A N/A N/A N/A
Ratio of earnings to
fixed charges(g)....... 2.7 4.1 4.3 2.7 4.6 5.7 5.5 5.1 7.1
</TABLE>
(continued on next page)
13
<PAGE>
- --------
(a) For a discussion of significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the nine months ended
September 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
(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 was
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 was 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 following completion of the Distribution Transaction,
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 Prospectus.
(e) Historical amounts represented the combined equity of Tenneco's cumulative
net investment in the businesses of the Company.
(f) EBITDA represents earnings before cumulative effect of changes in
accounting principles, income taxes, interest expense and depreciation and
amortization. The Company has included EBITDA to provide additional
information related to the Company's ability to service debt. 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.
(g) For purposes of computing this ratio, earnings consist of earnings before
cumulative effect of changes in accounting principles, income taxes and
fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, and one-third of rental expense (the portion considered
representative of the interest factor) and interest capitalized. The
historical ratio is based upon the amount of interest expense on corporate
debt allocated to the Company by Tenneco as discussed in (d) above. The pro
forma ratio gives effect to the incurrence of indebtedness under the Senior
Credit Facility and the Old Notes in connection with the Distribution
Transaction.
14
<PAGE>
RECENT DEVELOPMENTS
On January 31, 1997, the Company announced consolidated earnings for the year
ended December 31, 1996. The Company's earnings for the year ended December 31,
1996 and 1995 are summarized below (amounts in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
----------- ---------
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Net Sales................................................. $1,870 $1,756
Operating Costs and Expenses.............................. 1,729 1,599
Other Income (Expense), net............................... (1) 3
------ ------
Earnings Before Interest and Taxes........................ 140 160
Interest Expense, net..................................... (38) (29)
------ ------
Earnings Before Income Taxes.............................. 102 131
Provision for Income Taxes................................ 47 58
------ ------
Net Earnings.............................................. $ 55 $ 73
====== ======
</TABLE>
Earnings before interest and taxes for 1996 of $140 million were $20 million
below 1995 due mostly to declines in construction earnings which were not
completely offset by significant year-over-year gains in earnings from overhaul
and repair. The decline in construction income of $51 million was due to losses
in the Company's commercial tanker program and increased costs on Sealift
conversion work (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). Additionally, 1996
earnings were lower due to the conclusion of the Los Angeles-class submarine
construction program. Repair and Overhaul income increased $43 million, driven
by the Eisenhower overhaul contract and the Roosevelt and Nimitz planning
contracts. Income from engineering was consistent with the prior year.
The growth in net sales from 1995 to 1996 was due to commercial construction
activities and substantially increased overhaul and repair work. These
increases were partly offset by the completion of the Los Angeles-class
submarine program and lower revenue from Sealift conversion work.
15
<PAGE>
RISK FACTORS
Holders should carefully consider the risk factors described below and
elsewhere in this Prospectus prior to making a decision to tender their Old
Notes in the Exchange Offer.
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 nine months ended September 30, 1996,
respectively. Approximately 86% of the Company's backlog consisted of
contracts to build, repair or overhaul nuclear-powered aircraft carriers as of
September 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 $505
million during the first nine 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 September 30, 1996, was $3.7 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 nine months of 1996, aircraft carrier construction accounted
for approximately 41% of the Company's revenues. 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 Boat"), a competitor of the Company and a
wholly-owned subsidiary of General Dynamics Corporation
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("General Dynamics"). Subsequently, 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) under this
approach for the construction of NSSNs, if made, are expected to be determined
by competitive bidding. Recently, at the urging of the Navy, the Company and
Electric Boat have been exploring the possibility of entering into a teaming
agreement with respect to the NSSN submarine program.
On January 10, 1997, an alliance consisting of the Company, Ingalls
Shipbuilding, Inc. ("Ingalls") and Lockheed Martin Corporation ("Lockheed
Martin") was one of three teams awarded $15 million contracts to provide a
functional design for the U.S. Navy's "Arsenal Ship." The Company's alliance
was one of five alliances awarded $1 million contracts in July 1996 to provide
initial Arsenal Ship design concepts, and is now one of three teams which will
compete to participate in the third phase of the planned six-phase program.
The third phase, which involves the detailed design and construction of the
Arsenal Ship demonstrator, is scheduled to begin in January 1998. 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 provide
the functional design, 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 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 alliance is awarded this project.
Previously, the Company entered into an alliance with Ingalls (the prime
contractor), Lockheed Martin and National Steel and Shipbuilding Co. to bid on
the LPD-17 non-nuclear amphibious assault ship program; however, on December
17, 1996, the Navy announced that a competing alliance of companies was the
successful bidder for this program. On December 26, 1996, Ingalls filed a
protest to the Navy's decision to award the LPD-17 contract to a competing
alliance with the General Accounting Office. There can be no assurances as to
the outcome of the protest. The General Accounting Office has 100 days from
the date of the protest to make a determination.
As part of its expansion strategy, the Company has also been selectively
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 effect 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 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 ("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
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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.
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
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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 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.
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.
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 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
tankers 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. 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."
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 advantages 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.
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SUBSTANTIAL LEVERAGE
Prior to the Shipbuilding Distribution, the Company historically relied upon
Tenneco for working capital requirements on a short-term basis and for other
financial support functions. As a result of the Shipbuilding Distribution, the
Company is not able to rely on the earnings, assets or cash flow of Tenneco
and the Company is responsible for servicing its own debt and obtaining and
maintaining sufficient working capital. The Company had substantial new
indebtedness upon the consummation of the offering of the Old Notes. The
Company's debt following consummation of the Distribution Transaction included
(on a pro forma basis at September 30, 1996): (i) the Old Notes in the
aggregate amount of $200 million and the Old Senior Subordinated Notes in the
aggregate amount of $200 million; and (ii) secured borrowings of $214 million
under the Senior Credit Facility. As of September 30, 1996, on a pro forma
basis after giving effect to the Distribution Transaction, the Company on a
consolidated basis, had outstanding $614 million of total indebtedness, and
stockholders' equity of $196 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 is leveraged could have important
consequences to holders of the Notes, including the following: (i) the
Company's ability to 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 interest on the Notes and to service its other
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 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
Indentures or the Company's other credit and contractual arrangements.
The Senior Credit Facility and the Indentures contain restrictive covenants
that, among other things, limit the Company's ability to incur additional
indebtedness, create liens and make investments and capital expenditures. The
Senior Credit Facility requires 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 New Notes. There can be no assurance that the
Company would have sufficient assets to pay indebtedness then outstanding
thereunder and under the New Notes.
SUBORDINATION
The New Senior Subordinated Notes will be subordinated in right of payment
to all Senior Indebtedness of NNS, including the Old Senior Notes, the New
Senior Notes and borrowings under the Senior Credit Facility. In the event of
the bankruptcy, liquidation or reorganization of NNS, the assets of NNS will
be available to pay obligations on the New Senior Subordinated Notes only
after all Senior Indebtedness has been paid in full and sufficient assets may
not remain to pay amounts due on any or all of the New Senior Subordinated
Notes then outstanding. Similarly, the Guarantees of the New Senior
Subordinated Notes will be subordinated in right of payment to all Guarantor
Senior Indebtedness of the respective Guarantors. In certain circumstances,
provisions of the Senior Indebtedness could prohibit payments of amounts due
to holders of the New Senior Subordinated Notes. See "Description of the New
Notes--Subordination of New Senior Subordinated Notes." As of September 30,
1996, on a pro forma basis after giving effect to the Distribution
Transaction, NNS and the
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Guarantors had Senior Indebtedness and Guarantor Senior Indebtedness in an
aggregate amount of approximately $414 million. Additional Senior Indebtedness
and Guarantor Senior Indebtedness may be incurred by NNS and the Guarantors
from time to time, subject to certain limitations. See "Description of the New
Notes--Certain Covenants--Relating to all the New Notes--Limitation on
Indebtedness."
The New Notes and the Guarantees will be effectively subordinated to secured
indebtedness of NNS and the Guarantors, including all indebtedness under the
Senior Credit Facility, which is secured by substantially all of the assets of
NNS and the Guarantors. See "Description of the Senior Credit Facility."
POTENTIAL LIABILITIES DUE TO FRAUDULENT TRANSFER CONSIDERATIONS AND LEGAL
DIVIDEND REQUIREMENTS
The proceeds of the Old Notes were used by NNS to pay a portion of a
dividend of approximately $600 million to Tenneco or one or more of its
subsidiaries as part of the Distribution Transaction. The Distribution
Transaction, including the incurrence by NNS of indebtedness, such as the Old
Notes, to pay a dividend, and the incurrence by the Guarantors of
indebtedness, such as the Guarantees, and the Exchange Offer may be 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 (such as a trustee or debtor-in-possession in a bankruptcy by NNS or
any of the Guarantors) were to determine that NNS did not receive fair
consideration or reasonably equivalent value for issuing the Notes or taking
other action related to the Distribution Transaction or any Guarantor did not
receive fair consideration or reasonably equivalent value for executing its
Guarantee or taking other action related to the Distribution Transaction and,
at the time of such issuance or execution, NNS or the Guarantor (i) was
insolvent or would be rendered insolvent, (ii) had unreasonably small capital
with which to carry on its business and all businesses 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 Notes to return any payments received under the Notes
or the Guarantees, and invalidate, in whole or in part, the Notes, the
Guarantees or the Distribution Transaction, as fraudulent conveyances.
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 NNS or any of
the Guarantors was "insolvent" at the time of or after giving effect to the
Distribution Transaction, including the issuance of the Notes and execution of
the Guarantees.
In addition, the Shipbuilding Distribution which was made by Tenneco may be
subject to similar fraudulent conveyance review. If a court were to find that
the Shipbuilding Distribution was a fraudulent conveyance, such court could
invalidate, in whole or in part, the Shipbuilding Distribution.
NNS' payment of the dividend to Tenneco 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 made the distribution entirely from surplus, no assurance can be given
that a court will not later determine that some or all of the distribution was
unlawful.
Prior to the Shipbuilding Distribution, the Board of Directors of Tenneco
(the "Tenneco Board") obtained an opinion regarding the solvency of NNS and
Tenneco and the permissibility of the Shipbuilding Distribution and the
dividend to be paid by NNS to Tenneco, under Section 170 of the DGCL. The
Company was informed that the Tenneco Board and management believe that, in
accordance with this opinion, (i) NNS and Tenneco each was solvent at the time
of the Distribution Transaction (including after the payment of such dividend
and the Shipbuilding Distribution), was able to repay its debts as they mature
following the Distribution Transaction and had sufficient capital to carry on
its businesses and (ii) the Shipbuilding Distribution and such dividend was
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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 NNS or Tenneco or that a court would reach the same
conclusions set forth in such opinion in determining whether NNS or Tenneco
was insolvent at the time of, or after giving effect to, the Distribution
Transaction, or whether lawful funds were available for the Shipbuilding
Distribution and such dividend.
Pursuant to the Distribution Agreement (as defined), from and after the
Shipbuilding Distribution, each of Tenneco, the Company and New Tenneco is
responsible for the debts, liabilities and other obligations related to the
business or businesses which it owns and operates following the consummation
of the Distribution 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 perform the
subject allocated obligations.
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.
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 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.
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
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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."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for the New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to
participate in the distribution of such New Notes and neither such holder nor
any such other person is engaging in or intends to engage in a distribution of
such New Notes. Notwithstanding the foregoing, each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resale of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company). See "The Exchange
Offer."
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "The Exchange Offer--Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal or (ii)
a timely confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC pursuant to the procedure for book-entry
transfer described herein, must be received by the Exchange Agent on or prior
to the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures described herein. See "The Exchange Offer."
LACK OF PUBLIC TRADING MARKET
The Notes constitute securities for which there is no established trading
market. There can be no assurance as to the development of any market or the
liquidity of any market that may develop for the New Notes.
23
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
NNS, the Guarantors and the Initial Purchasers entered into the Registration
Rights Agreements, which provide that NNS and the Guarantors will use their
best efforts, and at their cost, to file and cause to become effective the
Exchange Offer Registration Statement with respect to a registered offer to
exchange (the "Exchange Offer") the Old Notes for an issue of New Notes with
terms which are substantially identical (including principal amount, interest
rate and maturity) to the terms of the Old Notes for which they will be
exchanged (except that the New Notes will have been registered under the
Securities Act and will not bear legends restricting their transfer other than
as provided in the Indentures) and guaranteed on a joint and several basis by
the Guarantors with terms identical to the Guarantees of the Old Notes. Upon
such registration statement being declared effective, NNS shall offer the New
Notes in return for surrender of the Old Notes as aforesaid. Such offer shall
remain open for 30 days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed to holders of the Old Notes. For
each Old Note surrendered to NNS under the Exchange Offer, the holder will
receive a New Note of equal principal amount on or prior to the fifth day
following the Expiration Date. If, (i) because of any change in law or in
currently prevailing interpretations of the staff of the Commission, the
Company is not permitted to effect the Exchange Offer, (ii) the Exchange Offer
is not commenced on or prior to the 150th day after the Closing Date, (iii)
any holder of Private Exchange Securities so requests, or (iv) in the case of
any holder that participates in the Exchange Offer, such holder does not
receive New Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws, then, the Company shall,
at its cost, use its best efforts to cause to become effective a Shelf
Registration Statement effective until three years after the Issue Date (as
defined). NNS and the Guarantors shall, in the event of such a shelf
registration, provide to each holder copies of the prospectus, notify each
holder when a registration statement for the Old Notes has become effective
and take certain other actions as are required to permit resales of the Old
Notes.
In the event that (i) the Exchange Offer Registration Statement relating to
the Exchange Offer is not filed with the Commission on or prior to the 60th
day following the Closing Date, (ii) the Exchange Offer Registration Statement
is not declared effective on or prior to the 150th day following the Closing
Date or (iii) the Exchange Offer is not consummated or (unless the Exchange
Offer is consummated) a registration statement with respect to resale of the
Old Notes is not declared effective on or prior to the later of the 180th day
following the Closing Date and the 120th day following the date of the event
the occurrence of which obligated NNS and the Guarantors to file such
registration statement (each such event referred to in clauses (i) through
(iii), a "Registration Default"), then NNS will pay additional interest (in
addition to the interest otherwise due on the Old Notes) to each holder of Old
Notes during the first 90-day period immediately following the occurrence of
each such Registration Default in an amount equal to 0.25% per annum. The
amount of interest will increase by an additional 0.25% per annum for each
subsequent 90-day period until such Registration Default is cured, up to a
maximum amount of additional interest of 1.00% per annum. Such additional
interest will cease accruing on such Old Notes when the Registration Default
has been cured.
Following the consummation of the Exchange Offer, except as set forth below,
holders of Old Notes not tendered will not have any further registration
rights and the Old Notes will continue to be subject to certain restrictions
on transfer. See "--Consequences of Failure to Exchange." Accordingly, the
liquidity of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, NNS will accept any and all Old Notes
validly tendered and not withdrawn on or prior to the Expiration Date. NNS
will issue $1,000 principal amount of New Senior Notes or New Senior
Subordinated Notes, as the case may be, in exchange for each $1,000 principal
amount of outstanding Old Senior Notes or Old Senior Subordinated Notes, as
the case may be, accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may
be tendered only in integral multiples of $1,000 principal amount.
24
<PAGE>
The form and terms of the New Notes are substantially identical (including
principal amount, interest rate, and maturity) to the form and terms of the
Old Notes, except that the New Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting their
transfer pursuant to the Securities Act and (ii) holders of New Notes will not
be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreements which will terminate upon the consummation of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under, and be entitled to the benefits of the
Indentures.
As of the Closing Date, of the $400,000,000 aggregate principal amount of
the Old Notes outstanding, $3,500,000 was registered in the name of
institutions and the remainder was registered in the name of Cede & Co, as
nominee for The Depository Trust Company (the "Depository" or "DTC"). Only a
registered holder of Old Notes (or such holder's legal representative or
attorney-in-fact) as reflected on the records of the Trustee under the
Indentures may participate in the Exchange Offer. There will be no fixed
record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
NNS shall be deemed to have accepted validly tendered Old Notes when, as and
if NNS has given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Old Notes for
the purposes of receiving the New Notes from NNS.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned (or
in the case of Old Notes tendered by book-entry transfer through DTC, will be
credited to an account maintained with DTC), without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date. See "--
Procedures for Tendering."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than any applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
If, prior to consummation of the Exchange Offer, any Initial Purchaser holds
any Old Notes acquired by it and having, or which are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, NNS upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the New Notes in the Exchange Offer, issue
and deliver to such Initial Purchaser, in exchange (the "Private Exchange")
for the Old Notes held by such Initial Purchaser, a like principal amount of
debt securities of NNS that are identical to the New Notes and guaranteed by
the Guarantors with terms identical to the Guarantees (the "Private Exchange
Securities") (and which are issued pursuant to the Indentures). The Private
Exchange Securities shall bear the same CUSIP number as the New Notes.
Interest on the New Notes and Private Exchange Securities will accrue from the
last Interest Payment Date on which interest was paid on the Old Notes
surrendered in exchange therefor or, if no interest has been paid on the Old
Notes, from the Issue Date.
The Indentures provide that the holders of the Notes and any Private
Exchange Securities will vote and consent together on all matters (to which
such holders are entitled to vote or consent) as one class and that none of
the holders of the Notes and any Private Exchange Securities will have the
right to vote or consent as a separate class on any matter (to which such
holders are entitled to vote or consent).
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 13, 1997, unless NNS, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, NNS will notify the Exchange Agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
25
<PAGE>
NNS reserves the right, in its sole discretion, (i) to delay accepting any
Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate the Exchange
Offer by giving oral or written notice of such delay, extension or termination
to the Exchange Agent, or (iv) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If
the Exchange Offer is amended in a manner determined by NNS to constitute a
material change, NNS will promptly disclose such amendments by means of a
prospectus supplement that will be distributed to the registered holders of
Old Notes, and NNS will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which NNS may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, NNS shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
INTEREST
Interest on the New Notes shall accrue from the last Interest Payment Date
on which interest was paid on the Old Notes so surrendered, or, if no interest
has been paid on such Old Notes, from November 26, 1996. No interest will be
paid on the Old Notes accepted for exchange.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes and any other required documents, to the Exchange
Agent at the address set forth below under "--Exchange Agent" for receipt
prior to the Expiration Date; provided, however, that in lieu of the
foregoing, a holder may either (i) tender the Old Notes pursuant to the
procedure for book-entry tender set forth below, or (ii) comply with the
guaranteed delivery procedure set forth below.
The tender by a holder will constitute an agreement between such holder and
NNS in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO NNS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder from Beneficial Owner" included with the
Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery
26
<PAGE>
Instructions" on the Letter of Transmittal, or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by a member of one of the following signature guarantee
programs: the Securities Transfer Agents Medallion Program (STAMP), the New
York Stock Exchange Medallion Signature Program (MSP) and the Stock Exchange
Medallion Program (SEMP) (each, an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to NNS of
their authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by NNS, in its sole discretion, which determination will be final and binding.
NNS reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes NNS' acceptance of which would, in the opinion of
counsel for NNS, be unlawful. NNS also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes.
NNS' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as NNS
shall determine. Although NNS intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither NNS, the
Guarantors, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By executing the Letter of Transmittal, each registered holder will
represent to the Company, among other things, that (i) the New Notes to be
acquired by the holder and any beneficial owner(s) of Old Notes ("Beneficial
Owner(s)") in connection with the Exchange Offer are being acquired by the
holder and any Beneficial Owner(s) in the ordinary course of business of the
holder and any Beneficial Owner(s), (ii) at the time of the consummation of
the Exchange Offer the holder and each Beneficial Owner are not engaging in,
do not intend to engage in, and have no arrangement or understanding with any
person to participate, in the distribution of the New Notes in violation of
the provisions of the Securities Act, (iii) the holder and each Beneficial
Owner acknowledge and agree that any person participating in the Exchange
Offer for the purpose of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the Staff of the Commission set
forth in no-action letters that are discussed under "Plan of Distribution",
(iv) the holder and each Beneficial Owner understands that a secondary resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or 508, as applicable, of Regulation S-K of the
Commission, and (v) neither the holder nor any Beneficial Owner(s) is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company
except as otherwise disclosed to the Company in writing.
EXCHANGING BOOK-ENTRY OLD NOTES
The Exchange Agent and DTC have confirmed that any financial institution
that has an account with DTC (a "Participant") may utilize DTC's Automated
Tender Offer Program ("ATOP") to tender Old Notes.
27
<PAGE>
The Exchange Agent will request that DTC establish an account with respect
to the Old Notes for purposes of the Exchange Offer within two business days
after the date of the Exchange Offer. Any Participant may make book-entry
delivery of Old Notes by causing DTC to transfer such Old Notes into such
Exchange Agent's account in accordance with DTC's ATOP procedures for
transfer. However, the exchange for the Old Notes so tendered will only be
made after timely confirmation (a "Book-Entry Confirmation") of such book-
entry transfer of Old Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as defined) and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC and received by the Exchange Agent and
forming part of a Book-Entry Confirmation, which states that DTC has received
an express acknowledgment from a Participant tendering Old Notes which are the
subject of such Book-Entry Confirmation that such Participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such Participant.
The method of delivery of Old Notes is at the option and risk of the
tendering holder and, except as otherwise provided in the Letter of
Transmittal, the delivery will be deemed to be made only when actually
received by the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date or (iii) who cannot comply with the procedure for book-
entry tender on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of the Old Notes being tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the execution of the Notice
of Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five
New York Stock Exchange trading days after the execution of the Notice of
Guaranteed Delivery.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, Old Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time on or prior to the Expiration
Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein on or prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers (except
in the case of book-entry tenders) and principal amount at maturity
(regardless of the means of tendering) of such Old Notes), (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register
28
<PAGE>
the transfer of such Old Notes into the name of the Depositor withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. If the Old Notes have
been tendered pursuant to the procedure for book-entry tender set forth above
under "Exchanging Book-Entry Old Notes," a notice of withdrawal must specify,
in lieu of certificate numbers, the name and account number at DTC to be
credited with the withdrawn Old Notes. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company in its sole discretion, which determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Properly withdrawn Old Notes may be retendered by following one of
the procedures described above under "Procedures for Tendering" at any time on
or prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
exchange due to rejection of tender or termination of the Exchange Offer, or
which have been validly withdrawn, will be returned as soon as practicable to
the holder thereof without cost to such holder.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at (212) 815-6333
or addressed as follows:
By Registered or By Facsimile By Hand/Overnight
Certified Mail: Transmission: Delivery:
The Bank of New York (For Eligible The Bank of New York
Institutions Only)
101 Barclay Street - 101 Barclay Street
7E (212) 571-3080
Corporate Trust
Services Window
New York, New York
Confirm by Telephone: Ground Level
Attn: Reorganization New York, New York
Section (212) 815-6333 10286
Arwen Gibbens Attn: Reorganization
Section
For Information Call:
(212) 815-6333
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitations are being made by mail; however, additional
solicitations may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses incurred and to be incurred in connection with the
Exchange Offer will be paid by the Company and are estimated in the aggregate
to be approximately $490,000. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, filing fees under the
Securities Act and state securities laws, and printing costs, among others.
EFFECT ON HOLDERS OF OLD NOTES
Old Notes which are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities under the Securities Act. Accordingly,
such Old Notes may be resold only (i) to a person who the seller reasonably
believes is a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act
29
<PAGE>
("QIB") in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the U.S. to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act or in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if NNS so requests), (ii) to NNS or (iii) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction. Certain holders prohibited from participating in the
Exchange Offer may have certain other registration rights under the
Registration Rights Agreements. See "Prospectus Summary--The Exchange Offer--
Registration Rights Agreements."
ACCOUNTING TREATMENT
The carrying value of the Old Notes is not expected to be materially
different from the fair value of the New Notes at the time of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be amortized by the Company
over the term of the New Notes.
USE OF PROCEEDS
The Company will not receive cash proceeds from the exchange of New Notes
for Old Notes.
The net proceeds from the sale of Old Notes were $390,500,000, after
deducting the discount to the Initial Purchasers, but before deducting fees
and expenses relating to the sale and issuance of the Old Notes of
approximately $750,000. The proceeds were used to pay a portion of (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 Old Notes pursuant to the Shipbuilding Distribution. See "The
Exchange Offer--Fees and Expenses."
30
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization as of
September 30, 1996, and unaudited pro forma capitalization as of September 30,
1996, after giving effect to the Distribution 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, the "Unaudited Pro Forma Combined Financial
Statements," "Selected Combined Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each contained
elsewhere herein.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
--------------------
HISTORICAL PRO FORMA
---------- ---------
In millions
<S> <C> <C>
SHORT-TERM DEBT:
Allocated from Tenneco.................................... $160(a) $ --
Term Loan................................................. -- 28(b)
LONG-TERM DEBT:
Allocated from Tenneco.................................... 267(a) --
Revolving Credit Facility................................. -- 14(c)
Term Loan................................................. -- 172
8 5/8% Old Notes due 2006................................. -- 200
9 1/4% Old Senior Subordinated Notes due 2006............. -- 200
---- ----
Total debt.............................................. 427 614
---- ----
EQUITY:
Common stock.............................................. -- 1
Paid-in capital........................................... -- 195
Retained earnings......................................... -- --
Combined equity(d)........................................ 334 --
---- ----
Total equity............................................ 334 196
---- ----
TOTAL CAPITALIZATION...................................... $761 $810
==== ====
</TABLE>
- --------
(a) Represents debt allocated to the Company from Tenneco. Tenneco's
historical practice was to incur indebtedness for its consolidated group
at the parent company level or at a limited number of subsidiaries (not
including the Company), 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 following completion of the Distribution Transaction, 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 Distribution Transaction and
such amount is reflected as short-term debt.
(c) On a pro forma basis at September 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.
(d) Represented the combined equity of Tenneco's cumulative net investment in
the businesses of the Company.
31
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Balance Sheet of the Company as
of September 30, 1996 and Unaudited Pro Forma Combined Statements of Earnings
for the nine months ended September 30, 1996 and the year ended December 31,
1995 have been prepared to reflect the Shipbuilding Distribution and related
transactions (the "Distribution Transaction"), including: (i) the issuance of
$400 million aggregate principal amount of Old Senior Notes and Old Senior
Subordinated Notes (collectively "Old Notes"); (ii) borrowings of $214 million
under the Company's senior credit facility ("Senior Credit Facility"); (iii)
the cash dividend of $600 million paid by the Company to Tenneco or one or
more of its subsidiaries; (iv) the payment of $14 million of certain fees and
expenses incurred in connection with the Senior Credit Facility and the Old
Notes; and (v) the issuance of 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 were
transferred to the Company prior to the Distribution Transaction. The
accounting for such transfer of assets and liabilities 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 Distribution Transaction occurred on September 30,
1996; the Unaudited Pro Forma Combined Statements of Earnings have been
prepared as if the various components of the Distribution 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 Distribution Transaction had been
consummated as of September 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.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996
----------------------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- ----------
In millions (except
share data)
<S> <C> <C> <C>
Net sales............... $1,437 $ $ 1,437
Operating costs and
expenses............... 1,320 2 (a) 1,322
------ ---- ----------
Operating earnings...... 117 (2) 115
Interest expense........ 25 (25)(b) 40
40 (a)
------ ---- ----------
Earnings before income
taxes.................. 92 (17) 75
Provision for income
taxes.................. 40 9 (b) 35
(14)(a)
------ ---- ----------
Net earnings............ $ 52 $(12) $ 40
====== ==== ==========
Average number of common
shares outstanding..... 34,083,609
==========
Earnings per share...... $1.17
==========
<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 (a) 1,601
------ ---- ----------
Operating earnings...... 157 (2) 155
Interest expense........ 29 (29)(b) 53
53 (a)
Other (income), net..... (3) (3)
------ ---- ----------
Earnings before income
taxes.................. 131 (26) 105
Provision for income
taxes.................. 58 10 (b) 49
(19)(a)
------ ---- ----------
Net earnings............ $ 73 $(17) $ 56
====== ==== ==========
Average number of common
shares outstanding..... 34,799,188
==========
Earnings per share...... $1.61
==========
</TABLE>
See the accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- ---------
In millions
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 1 $ 4 (c) $ 5
614 (d)
(614)(e)
Contracts in process.......................... 298 298
Other current assets.......................... 180 180
------ ---- ------
Total current assets........................ 479 4 483
------ ---- ------
Property, plant and equipment, net............ 834 834
Other assets.................................. 160 14 (e) 174
------ ---- ------
Total noncurrent assets..................... 994 14 1,008
------ ---- ------
$1,473 $ 18 $1,491
====== ==== ======
LIABILITIES AND EQUITY
Accounts payable.............................. $ 133 $(31)(f) $ 102
Short-term debt............................... 160 (160)(b) 28
28 (d)
Other accrued liabilities..................... 181 181
------ ---- ------
Total current liabilities................... 474 (163) 311
------ ---- ------
Long-term debt................................ 267 (267)(b) 586
586 (d)
Deferred income taxes......................... 136 136
Other long-term liabilities................... 262 262
------ ---- ------
Total noncurrent liabilities................ 665 319 984
------ ---- ------
Common stock.................................. 1 (g) 1
Paid-in capital............................... 195 (g) 195
Retained earnings............................. -- (g) --
Combined equity............................... 334 427 (b) --
4 (c)
(600)(e)
31 (f)
(196)(g)
------ ---- ------
Total equity................................ 334 (138) 196
------ ---- ------
$1,473 $ 18 $1,491
====== ==== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) To reflect: (i) interest expense related to the borrowings assumed
outstanding under the Senior Credit Facility and the Old Notes at the assumed
annual interest rates discussed in (d) below, (ii) the cost of commitment fees
on the unused borrowing capacity under the revolving credit facility
("Revolving Credit Facility") constituting part of the Senior Credit Facility,
and (iii) the amortization of deferred debt financing costs incurred in
connection with the Senior Credit Facility and the Old Notes, as well as the
related tax effects of these items at an assumed statutory rate of 35%. A 1/8%
change in the assumed annual interest rates of the Senior Credit Facility and
the Old Notes would change pro forma annual interest expense by $0.8 million,
before the effect of income taxes.
(b) To reflect the elimination of corporate debt and related interest
expense allocated by Tenneco to the Company. A portion of Tenneco's corporate
debt and the related interest expense has been allocated to the Company as a
component of the Company's historical capitalization.
(c) To reflect a cash contribution from Tenneco to the Company pursuant to
the cash realignment provisions in the Distribution Agreement covering the
Shipbuilding Distribution.
(d) To reflect $614 million in total borrowings under the various credit
facilities which borrowings consist of (i) a $200 million six-year amortizing
Term Loan with an estimated annual interest rate of 8%, (ii) $200 million Old
Senior Notes due 2006 with an estimated annual interest rate of 8.625%, (iii)
$200 million Old Senior Subordinated Notes due 2006 with an estimated annual
interest rate of 9.25%, and (iv) $14 million in borrowings under the $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 (f) below. Approximately $28
million of the assumed Term Loan borrowings will mature within one year from
the consummation of the Distribution Transaction, and such amount is reflected
as short-term debt in the accompanying Pro Forma Combined Balance Sheet.
(e) To reflect: (i) a cash dividend of $600 million paid by the Company to
Tenneco or one or more of its subsidiaries, principally using borrowings under
the Senior Credit Facility and the Old Notes and (ii) a payment of $14 million
for certain fees and expenses in connection with the Senior Credit Facility
and Old Notes.
(f) To reflect the settlement or capitalization of intercompany accounts
payable with Tenneco affiliates pursuant to certain corporate restructuring
transactions.
(g) 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.
35
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following selected 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 selected
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 selected combined financial data as of and
for each of the nine-month periods ended September 30, 1996 and 1995 were
derived from the unaudited Combined Financial Statements of the Company. In
the opinion of the Company's management, the selected 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 nine months ended September
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 nine months ended September 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
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 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>
In millions, except
ratios
STATEMENTS OF EARNINGS
DATA:
Net sales............... $ 1,437 $ 1,290 $1,756 $1,753 $1,861 $2,265 $2,216
========= ========= ====== ====== ====== ====== ======
Operating earnings...... $ 117 $ 125 $ 157 $ 201 $ 210 $ 249 $ 224
Interest expense (net of
interest capitalized).. 25 26 29 30 36 42 23
Other (income) expense,
net.................... -- -- (3) 1 (15)(b) -- (2)
Provision for income
taxes.................. 40 41 58 75 78 64 68
--------- --------- ------ ------ ------ ------ ------
Earnings before
cumulative effect of
changes in accounting
principles............. 52 58 73 95 111 143 135
Cumulative effect of
changes in accounting
principles, net of
tax.................... -- -- -- (4)(c) -- (93)(c) --
--------- --------- ------ ------ ------ ------ ------
Net earnings............ $ 52 $ 58 $ 73 $ 91 $ 111 $ 50 $ 135
========= ========= ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Working capital......... $ 5 $ 82 $ (19) $ (75) $ (121) $ (89) $ (470)
Total assets............ 1,473 1,358 1,380 1,263 1,235 1,450 1,412
Long-term debt(d)....... 267 304 292 287 423 761 364
Combined equity......... 334 292 272 199 105 (173) (30)
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(e)............... $ 165 $ 176 $ 227 $ 270 $ 297 $ 323 $ 298
Depreciation and
amortization........... 48 51 67 70 72 74 72
Net cash provided (used)
by operating
activities............. 4 (10) 63 182 215 (174) 352
Net cash provided (used)
by investing
activities............. (66) (43) (87) (29) 21 6 (99)
Net cash provided (used)
by financing
activities............. 61 52 25 (154) (241) 181 (246)
Capital expenditures.... 55 43 77 29 35 35 64
Ratio of earnings to
fixed charges(f)....... 4.1 4.3 4.6 5.7 5.5 5.1 7.1
</TABLE>
- -------
(a) For a discussion of significant items affecting comparability of the
financial information for the years ended December 31, 1995, 1994 and 1993
and for the nine months ended September 30, 1996 and 1995, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," included elsewhere in this Prospectus.
(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 was
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 was 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 following completion of the Distribution
Transaction, 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 Prospectus.
(e) EBITDA represents earnings before cumulative effect of changes in
accounting principles, income taxes, interest expense and depreciation and
amortization. The Company has included EBITDA to provide additional
information related to the Company's ability to service debt. EBITDA is
not a calculation based upon GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in the Combined
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.
(f) For purposes of computing this ratio, earnings consist of earnings before
cumulative effect of changes in accounting principles, income taxes and
fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, and one-third of rental expense (the portion considered
representative of the interest factor) and interest capitalized. The
historical ratio is based upon the amount of interest expense on corporate
debt allocated to the Company by Tenneco as discussed in (d) above.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Selected Combined
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 until December 11, 1996, represented the Shipbuilding
Business segment of Tenneco's diversified businesses. As a result of the
Shipbuilding Distribution, the Company became a separate, publicly-held
corporation. See "Prospectus Summary--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 nine months ended September
30, 1996, respectively. The following table summarizes the percentage of net
sales by contract type.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30 DECEMBER 31
--------------- ----------------
1996 1995 1995 1994 1993
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed-Price-Type................................ 65% 76% 75% 75% 67%
Cost-Type....................................... 35 24 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.
37
<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 nine months ended September 30, 1996 and 1995.
NET SALES
<TABLE>
<CAPTION>
NINE
MONTHS ENDED SEPTEMBER
30 YEARS 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
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In millions
Construction............ $ 809 56 $ 826 64 $1,107 63 $1,144 65 $1,046 57
Repair and Overhaul..... 465 32 291 23 414 24 383 22 471 25
Engineering............. 141 10 153 12 202 11 204 12 225 12
Other................... 22 2 20 1 33 2 22 1 119 6
------ --- ------ --- ------ --- ------ --- ------ ---
Net sales............... $1,437 100 $1,290 100 $1,756 100 $1,753 100 $1,861 100
====== === ====== === ====== === ====== === ====== ===
</TABLE>
OPERATING EARNINGS AND MARGINS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 YEARS 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
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In millions
Construction....... $ 31 4 $ 79 10 $ 95 9 $181 16 $135 13
Repair and
Overhaul.......... 73 16 35 12 45 11 13 3 51 11
Engineering........ 11 8 9 6 13 6 11 5 8 4
Other.............. 2 NM 2 NM 4 NM (4) NM 16 NM
---- --- ---- --- ---- --- ---- --- ---- ---
Operating
earnings.......... $117 8 $125 10 $157 9 $201 11 $210 11
==== === ==== === ==== === ==== === ==== ===
</TABLE>
- --------
NM=Not meaningful
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES
Construction. The $17 million decrease in construction revenues is due to
the delivery of the aircraft carrier Stennis in late 1995 which decreased
revenues by $238 million, the continued decline in Los Angeles-class submarine
production resulting in decreased revenues of $57 million and lower levels of
revenue on the Sealift conversions in 1996 which decreased revenues by $93
million. These decreases are partially offset by a $58 million increase due to
production on Double Eagle product tankers and an increase in revenue of $192
million and $116 million on the aircraft carriers Reagan and Truman,
respectively.
Repair and Overhaul. The $174 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 nine months
of 1995 as a result of the delivery of the USS Enterprise in 1994, with the
Eisenhower not arriving until mid-1995.
Engineering. Engineering revenues decreased by $12 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.
38
<PAGE>
Other. Other revenues over the time period remained stable.
OPERATING EARNINGS
Construction. The $48 million decrease in operating earnings and 6% decrease
in operating margin on construction work relates to (i) the delivery of the
Stennis in late 1995, which resulted in a decrease in operating earnings by
$45 million for the nine months ended September 30, 1996 as compared to the
prior year period, (ii) additional costs of $30 million in the nine months
ended September 30, 1996 compared to the prior year period associated with the
Sealift conversion contract that were not recoverable from the U.S.
Government, and (iii) $57 million of higher than expected costs associated
with the production of commercial product tankers, an increase of $42 million
over the comparable prior year period. Decreases in operating earnings for the
period are offset for the most part by (i) increased activity and productivity
improvements on the aircraft carriers Reagan and Truman, resulting in $49
million of additional earnings, and (ii) the recognition of certain change
orders related to previously delivered submarines.
Repair and Overhaul. The $38 million increase in operating earnings and 4%
increase in operating margin for repair and overhaul work is a result of
additional work performed on the Eisenhower in 1996 which contributed $24
million in additional earnings and increased margins on submarine, carrier and
other surface ship repair and overhaul work. See "--Net Sales--Repair and
Overhaul" above.
Engineering. The increase in operating earnings for engineering is primarily
the result of higher margins on Seawolf engineering work.
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
39
<PAGE>
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.
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 second 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.
40
<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>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30 DECEMBER 31
------------------ -------------------
1996 1995 1995 1994 1993
-------- -------- ----- ----- -----
In millions
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities........................... $ 4 $ (10) $ 63 $ 182 $ 215
Capital expenditures.................. (55) (43) (77) (29) (35)
Other investing cash flows............ (11) -- (10) -- 56
-------- -------- ----- ----- -----
Subtotal.............................. (62) (53) (24) 153 236
Cash transfers (to) from Tenneco...... 61 52 25 (154) (241)
-------- -------- ----- ----- -----
Net cash flow after transactions with
Tenneco.............................. $ (1) $ (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 September 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 $14 million increase in comparative cash flows from operating activities
for the nine month periods ended September 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, higher taxes currently payable 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 was due to the higher payments for taxes in 1995
as described above. Increased taxes currently payable relate to the delivery
of submarines and the level of progress on aircraft carrier construction.
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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.
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 was expended in 1996 and $20 million will be expended in 1997 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
$196 million in modernizing its facilities. The $12 million increase in
capital expenditures for the nine month period ended September 30, 1996
compared to the nine month period ended September 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 $11 million investment for a 49%
ownership interest in a limited partnership. See "Certain Transactions." The
Company completed its subscription for the 40% equity interest by paying an
additional $9.6 million to Abu Dhabi Ship Building Company on December 17,
1996. This additional payment was 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 former parent to meet other Tenneco
obligations. During 1995, the Company received, on a net basis, $25 million
from its former 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
42
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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 $56 million as of September 30,
1996.
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 entered 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 utilized
borrowings of $14 million under the Revolving Credit Facility to pay certain
fees and expenses incurred in connection with the Senior Credit Facility and
the Old Notes. See "Prospectus Summary--The Shipbuilding Distribution,"
"Prospectus Summary--Sources and Uses of Funds," "Use of Proceeds" and "Risk
Factors--Substantial Leverage."
Management believes that capital requirements and as described above for
overall operations, its 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
Tenneco's historical practice was 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 was 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 was also 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 was not 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
following the Shipbuilding Distribution nor debt and interest to 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, historically entered into an
agreement to file a consolidated U.S. federal income tax return. Additionally,
the Company 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.
The effective tax rates for 1995, 1994 and 1993 were 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.
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In connection with the Distribution Transaction, the previous tax sharing
agreement was cancelled and the Company entered into a new tax sharing
agreement. See "Certain Transactions." The new tax sharing agreement provides,
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
Shipbuilding Distribution. Generally, the Company is 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 are liable to Tenneco for
federal income taxes attributable to their activities, and each is 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 September 30, 1996, and the portion of the
September 30, 1996 backlog which is estimated to have remained at December 31,
1996:
<TABLE>
<CAPTION>
AS OF
ESTIMATED AS OF DECEMBER 31
DECEMBER 31, SEPTEMBER 30, -----------
1996 1996 1995 1994
------------ ------------- ----- -----
<S> <C> <C> <C> <C>
In billions
Construction....................... $3.2 $3.3 $ 4.0 $ 5.2
Repair and Overhaul................ 0.1 0.2 0.3 0.2
Engineering........................ 0.1 0.2 0.3 0.2
---- ---- ----- -----
Total backlog...................... $3.4 $3.7 $ 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 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."
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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 September 30, 1996 backlog continued to
be U.S. Navy-related. Construction backlog at September 30, 1996 included two
Nimitz-class aircraft carriers (Truman and Reagan), one Sealift conversion and
nine Double Eagle product tankers. Repair and overhaul backlog at September
30, 1996 consisted of overhauling the aircraft carrier Eisenhower, and repairs
to several other naval and commercial ships. The engineering backlog at
September 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 does hold 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 September 30, 1996 the
Company had approximately $3.7 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 next 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 a 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. Recently, at the urging of the Navy,
the Company and Electric Boat have been exploring the possibility of entering
into a teaming agreement with respect to the NSSN submarine program. See "Risk
Factors--Reliance on Major Customer and Uncertainty of Future Work."
To selectively add to its base of nuclear-powered carriers and submarines,
the Company intends to market a number of new products and services to both
the U.S. and foreign governments and commercial customers. These products
include surface combatant ships like the "Arsenal Ship" and the Company's fast
frigate (FF-21) and the Double Eagle product tankers. Although there can be no
assurance that it will be awarded the construction work or other aspects of
the project, an alliance including the Company was one of three teams awarded
$15 million contracts to provide a functional design for the Arsenal Ship. See
"Risk Factors--Reliance on Major Customer and Uncertainty of Future Work."
Although the Company is currently pursuing opportunities with respect to 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 completed 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
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
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<PAGE>
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") acquired
an option to purchase the Company's interest in connection with the
Distribution Transaction. 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) with two purchasers to construct a total of nine Double Eagle product
tankers at prices ranging, depending upon the design of the ship, from $36
million to $43.4 million per ship. During the course of construction,
disagreements arose with one of the purchasers who had agreed to purchase four
ships as to whether the first and second ships were being constructed in
compliance with the specifications set forth in the contracts, and the
purchaser 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 would be in compliance with all contract and classification society
requirements. The purchaser withdrew both invocation of the dispute resolution
procedures under the contracts and its request that the Company cease further
construction of the ships. Discussions between the Company and the purchaser
have resulted in the resolution of a significant number of disagreements,
although some remain unresolved and there can be no assurance as to the
outcome of future discussions. In January 1997, the Company, this original
purchaser and Mobil Oil Corporation ("Mobil") entered into an agreement
whereby Mobil agreed to acquire the first ship. In accordance with the terms
of the agreement between the Company and Mobil, the first ship is being
modified for use in the domestic Jones Act market. Including this ship, a
total of six of the nine ships are being designed for use in the domestic
Jones Act market.
The nine Double Eagle product tankers are in various stages of production.
Construction of the first tanker is substantially complete and, as modified,
is expected to be delivered in 1997. Construction has begun on the second
tanker and a significant portion of the materials needed for the construction
of the seven other tankers has been ordered. The Company expects to begin
construction on the remaining tankers in 1997 for delivery in 1998 and 1999.
In connection with the construction of these nine tankers, the Company
estimated that it had incurred or would incur costs of approximately $90
million in excess of the fixed contract prices as of September 30, 1996. At
December 31, 1996, the Company estimated that it would incur an additional $11
million of costs in excess of the fixed contract prices. As of December 31,
1996, the full amount of the excess costs has been reserved for by a charge
against income. The Company's estimates are based on the use of new robotic
technology and the utilization of a different building strategy going forward.
The Company believes that these factors, as well as the experience gained in
the construction of the first ship, will result in a very significant
reduction in the man-hours necessary to construct each of the remaining
vessels. There can be no assurance that these factors will produce this
result. The Company intends to review this situation at the end of each
quarter and, accordingly, there can be no assurance that the estimate of costs
to be incurred on these contracts will not be revised at that time based on
the facts then known to the Company. See Note 13 to the Combined Financial
Statements of the Company.
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.
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<PAGE>
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 approximately 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 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, number or value 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.
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<PAGE>
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 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 to
construct a total of nine of its Double Eagle product tankers. The initial
ships under contract are being built at a loss, for which the Company has
created a reserve. See "--Business Outlook." The Company believes it can
complete construction of these ships based on its current estimate of costs.
These estimates are based on the use of new robotic technology and the
utilization of a different building strategy going forward. The Company
believes that these factors, as well as the experience gained in the
construction of the first ship, will result in a very significant reduction in
the man-hours necessary to construct each of the remaining vessels. There can
be no assurance that these factors will produce this result. The Company
intends to review this situation at the end of each quarter and, accordingly,
there can be no assurance that the estimate of costs to be incurred on these
contracts will not be revised at that time based on the facts then known to
the Company. See "--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 $48 million that was not recoverable through that REA has been
recognized in the first nine months of 1996. Due to uncertainties inherent in
the estimation process there can be no assurance that the projection of costs
to be incurred will not be revised in the future. The first of two Sealift
ships was delivered in August 1996. Management expects this contract to be
substantially complete by the end of the second 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 nine months ended September 30, 1996
were $31 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
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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 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.
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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 established 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.
50
<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 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
NAME CLASS DATE DATE SHIPYARD
---- ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Number
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."
51
<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 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. Under this schedule, NSSN contract
awards beyond 2001, if made, are expected to be determined by competitive
bidding. Recently, at the urging of the Navy, the Company and Electric Boat
have been exploring the possibility of entering into a teaming agreement with
respect to the NSSN submarine program. See "Risk Factors--Reliance on Major
Customer and Uncertainty of Future Work."
52
<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 nine months ended September 30, 1996, the
Company had net sales of $1,756 million and $1,437 million, respectively, and
EBITDA (as defined) of $227 million and $165 million, respectively. In
addition, at September 30, 1996 the Company had $3.7 billion of 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 for 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 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. At the
urging of the Navy, the Company and Electric Boat have recently been exploring
the possibility of entering into a teaming agreement with respect to the NSSN
submarine program.
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 refueling. It
normally takes two years to complete a refueling and overhaul. Currently the
Company is completing the overhaul of 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 although there can be no assurances as to the
number or value of contracts awarded.
The Company's 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 Chairman, President and Chief Executive Officer of
the Company, who has 30 years of experience, the Company's senior executives
average 10 years of shipbuilding experience.
53
<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 $196 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 selectively
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 three 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 has 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 for the
construction of such ships. Although there can be no assurance that it will be
awarded the construction work or other aspects of the project, on January 10,
1997 this alliance was one of three teams awarded $15 million contracts to
provide a fundamental design for the Arsenal Ship. 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.
54
<PAGE>
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>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30, --------------------------------------
1996 1995 1994 1993
--------------- ------------ ------------ ------------
NET % OF NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL
-------- ------ ------ ----- ------ ----- ------ -----
In millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Construction............ $809 56 $1,107 63 $1,144 65 $1,046 57
Repair and Overhaul..... 465 32 414 24 383 22 471 25
Engineering and Design.. 141 10 202 11 204 12 225 12
Other................... 22 2 33 2 22 1 119 6
-------- ----- ------ --- ------ --- ------ ---
Net sales............. $1,437 100 $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 56% of net sales for the
nine months ended September 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., the 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 1997 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
--- --- --- --- --- --- ---
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>
55
<PAGE>
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. Subsequently, the Company was
designated by legislation to build two of the next generation of attack
submarines known as the Navy's 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. Under this approach, 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. Recently, at the urging of
the Navy, the Company and Electric Boat have been exploring the possibility of
entering into a teaming agreement with respect to the NSSN submarine program.
The Company has constructed 53 nuclear-powered submarines, including 39 attack
submarines and 14 of the larger, fleet ballistic missile submarines.
On January 10, 1997, an alliance consisting of the Company, Ingalls and
Lockheed Martin was one of three teams awarded $15 million contracts to
provide a functional design for the U.S. Navy's Arsenal Ship. The Company's
alliance was one of five alliances awarded $1 million contracts in July 1996
to provide initial Arsenal Ship design concepts, and is now one of three teams
which will compete to participate in the third phase of the planned six-phase
program. The third phase, which involves the detailed design and construction
of the Arsenal Ship demonstrator, is scheduled to begin in January 1998.
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 during the second quarter of 1997.
Commercial
As part of its strategy to selectively add to its core business, 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) with two purchasers to construct a total of nine Double Eagle product
tankers at prices ranging, depending upon the design of the ship, from $36
million to $43.4 million per ship. During the course of construction,
disagreements arose with one of the purchasers who had agreed to purchase four
ships as to whether the first and second ships were being constructed in
compliance with the specifications set forth in the contracts, and the
purchaser 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 would be in compliance with all contract and classification society
requirements. The purchaser withdrew both invocation of the dispute resolution
procedures under the contracts and its request that the Company cease further
construction of the ships. Discussions between the Company and the purchaser
have resulted in the resolution of a significant number of disagreements,
although some remain unresolved and there
56
<PAGE>
can be no assurance as to the outcome of future discussions. In January 1997,
the Company, this original purchaser and Mobil Oil Corporation ("Mobil")
entered into an agreement whereby Mobil agreed to acquire the first ship. In
accordance with the terms of the agreement between the Company and Mobil, the
first ship is being modified for use in the domestic Jones Act market.
Including this ship, a total of six of the nine ships are being designed for
use in the domestic Jones Act market.
The nine Double Eagle product tankers are in various stages of production.
Construction of the first tanker is substantially complete and, as modified,
is expected to be delivered in 1997. Construction has begun on the second
tanker and a significant portion of the materials needed for the construction
of the seven other tankers has been ordered. The Company expects to begin
construction on the remaining tankers in 1997 for delivery in 1998 and 1999.
In connection with the construction of these nine tankers, the Company
estimated that it had incurred or would incur costs of approximately $90
million in excess of the fixed contract prices as of September 30, 1996. At
December 31, 1996, the Company estimated that it would incur an additional $11
million of costs in excess of the fixed contract prices. As of December 31,
1996, the full amount of the excess costs has been reserved for by a charge
against income. The Company's estimates are based on the use of new robotic
technology and the utilization of a different building strategy going forward.
The Company believes that these factors, as well as the experience gained in
the construction of the first ship, will result in a very significant
reduction in the man-hours necessary to construct each of the remaining
vessels. There can be no assurance that these factors will produce this
result. The Company intends to review this situation at the end of each
quarter and, accordingly, there can be no assurance that the estimate of costs
to be incurred on these contracts will not be revised at that time based on
the facts then known to the Company. See Note 13 to the Combined Financial
Statements of the Company.
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 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
57
<PAGE>
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% equity 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 made 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 caused 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 OVERHAUL
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.
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
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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
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
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<PAGE>
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.
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.
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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 Distribution
Transaction, 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 last
day of the calendar month including the Distribution Closing Date, (ii) the
Company's employees will not accrue additional benefits under the TRP after
the last day of the calendar month including the Distribution Closing 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 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,
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<PAGE>
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.
To reduce the consequences of an adverse outcome, the Company has taken an
interim step to adjust its future progress billings on the CVN-76 contract.
Although this step will reduce the Company's cash flow pending a final
resolution, management believes this step will not have a material adverse
effect on the Company's financial condition or results of operations.
Furthermore, future assessments by the Company of the validity of claims the
Government might potentially assert may support a return to normal progress
billings. 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
Presently, the Board of Directors of NNS (the "NNS Board") consists of seven
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), the NNS
Board is divided into three classes. Information concerning the individuals
who serve as directors of NNS is set forth below.
Term Expiring at the 1997 Annual Meeting of Stockholders (Class I)
WILLIAM P. FRICKS has served as the President of the Company since September
1994, as its Chief Executive Officer since November, 1995 and as its Chairman
of the Board since January 1997. 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 currently the 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. Mr. Fricks is 52 years old and has been a director of NNS since
October 1996.
DR. WILLIAM R. HARVEY has been the President of Hampton University in
Hampton, Virginia, since July 1978 . He is also the owner of the Pepsi-Cola
Bottling Company of Houghton, Michigan. Prior to July 1978, Dr. Harvey served
as Administrative Vice President at Tuskegee University from July 1972 to June
1978; as Administrative Assistant to the President of Fisk University from
July 1970 to June 1972; and as Assistant for Governmental Affairs to the Dean
at Harvard University's Graduate School of Education from July 1969 to June
1970. He is a director of the Signet Banking Corporation, Blue Cross Blue
Shield of Virginia, and International Guaranty Insurance Company. Dr. Harvey
is 55 years old and has been a director of NNS since January 1997.
STEPHEN R. WILSON has served as the Executive Vice President and Chief
Financial Officer of Reader's Digest Association, Inc. since April 1995. From
March 1993 to April 1995 he served as the Executive Vice President and Chief
Financial Officer of RJR Nabisco, Inc. From October 1990 until March 1993, Mr.
Wilson served as Senior Vice President--Corporate Development of RJR Nabisco.
Mr. Wilson is 50 years old and has been a director of NNS since January 1997.
Term Expiring at the 1998 Annual Meeting of Stockholders (Class II)
LEON A. EDNEY, ADMIRAL (RET.) served in the United States Navy for 39 years,
last serving as Supreme Allied Commander Atlantic (NATO) and Commander-in-
Chief, U.S. Atlantic Command, from May 1990 to August 1992. From August 1988
to May 1990 he served as the Vice Chief of Naval Operations. Admiral Edney
retired from the Navy in August 1992. From September 1992 to April 1994
Admiral Edney served as a defense consultant to the U.S. Navy and from May
1994 to July 1995 he served as Vice President of Loral Corporation. He
currently serves as a director of Armed Forces Benefit Services Inc. and the
Retired Officers Association, as Vice Chairman of the Board of the Naval
Aviation Museum Foundation, as Senior Fellow at the Center for Naval Analysis
and as a trustee of the Naval Academy Foundation. Admiral Edney is 61 years
old and has been a director of NNS since January 1997.
DR. 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 served as a Director of Tenneco from 1977 until his retirement from the
Tenneco Board in May 1996. Dr. Sisco is 77 years old and has been a director
of NNS since October 1996.
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Term Expiring at the 1999 Annual Meeting of Stockholders (Class III)
HON. GERALD L. BALILES has been a partner with the law firm of Hunton &
Williams since February 1990. From January 1986 until January 1990, he served
as Governor of the Commonwealth of Virginia. While Governor, he served as
Chairman of the National Governors' Association from 1988 to 1989. He
currently serves as Chairman of the Board of the Public Broadcasting Service,
and as a director of Norfolk Southern Corporation, The Atlantic Council of the
United States, The United States Council for International Business, and the
Washington Airports Task Force. Governor Baliles is 56 years old and has been
a director of NNS since January 1997.
DANA G. MEAD has served as an executive officer of Tenneco since March 1992,
when he joined Tenneco as Chief Operating Officer and a member of the Board.
He was elected President one month later and was named Chief Executive Officer
in February 1994 and Chairman in May 1994. Prior to joining Tenneco, Mr. Mead
served as an Executive Vice President of International Paper Company, a
manufacturer of paper, pulp and wood products. Mr. Mead served in the White
House from 1970 to 1974, first as a White House Fellow from 1970-1971, then as
Associate and Deputy Director of the Domestic Council from 1972-1974. Mr. Mead
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 NNS since June 1992.
- --------
For purposes of this subsection, "Tenneco" refers: (i) for periods prior to
the Distribution Transaction, to Tenneco Inc., now known as El Paso Tennessee
Pipeline Co., and (ii) for periods after the Distribution Transaction, to
Tenneco Inc., formerly known as New Tenneco Inc.
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<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who presently serve as executive officers of the Company.
<TABLE>
<CAPTION>
NAME (AGE AT JANUARY 1, EFFECTIVE
1997) OFFICES HELD* DATE OF TERM
----------------------- ------------- --------------
<S> <C> <C>
William P. Fricks(52)... Chairman, President and Chief Executive Officer January, 1997
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(47).... Vice President--Sourcing November 1996
William G. Cridlin,
Jr.(50)................ Vice President--Marketing January 1995
Vice President--Commercial Shipbuilding April 1992
Vice President--Manufacturing September 1988
T. Michael
Hatfield(50)........... 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.(50).. Vice President--Human Resources July 1996
James A. Palmer,
Jr.(60)................ Vice President--Commercial Nuclear October 1995
Vice President--Engineering October 1994
Vice President--Aircraft Carriers March 1992
Vice President--Engineering September 1988
Marc Y. E. Pelaez(50)... Vice President--Engineering August 1996
John E. Shephard,
Jr.(41)................ 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 in the capacity of Senior Vice
President--Finance and Customer Service; (ii) from 1991 to 1996, Whylen G.
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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 Company, Inc.,
last serving in the capacity of Vice President--Human Resources and from 1988
to 1992 in the capacity of Director--Human Resources; (v) from 1968 to 1996,
Marc Y. 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
Executive Assistant to the Assistant Secretary of the Navy (RDA); (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 he 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 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 January 20, 1997 of the number of
shares and percentage of NNS 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.
<TABLE>
<CAPTION>
SHARES OF NNS
DIRECTORS COMMON STOCK OWNED(A)(B)
-------------------------- ------------------------
<S> <C>
William P. Fricks............................... 88,355(c)(d)
Hon. Gerald L. Baliles.......................... 1,000
Leon A. Edney, Admiral (Ret.)................... 1,000
Dr. William R. Harvey........................... 1,000
Dana G. Mead.................................... 23,204(e)
Dr. Joseph J. Sisco............................. 1,837
Stephen R. Wilson............................... 1,000
<CAPTION>
EXECUTIVE OFFICERS
----------------------------
<S> <C>
Thomas C. Schievelbein.......................... 34,219(c)(d)
Stephen B. Clarkson............................. 22,522(c)(d)
David J. Anderson............................... --
James A. Palmer, Jr............................. 22,075(c)(d)
George A. Wade.................................. 24,391(c)(d)
All directors and executive officers as a group
(22 persons)................................... 310,646(c)(d)(e)
</TABLE>
- --------
(a) Except as described in the notes below each director and executive officer
has sole voting and investment power over the shares beneficially owned as
set forth in this column.
(b) The percent of the class of NNS Common Stock owned by each director and
executive officer, and by all directors and executive officers as a group,
was less than one percent.
(c) Includes options to acquire shares of NNS Common Stock in replacement of
options to acquire shares of Tenneco Common Stock which are exercisable
within the next sixty days. Options held by Company employees to acquire
shares of Tenneco Common Stock were cancelled as of December 11, 1996 and
were replaced in January 1997 with options under which the excess of the
fair market value of the shares subject to the replacement 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 the employee's Tenneco stock options immediately before such
cancellation over the aggregate option price under such Tenneco options.
The replacement options of Messrs. Fricks, Schievelbein, Clarkson, Palmer
and Wade which are exercisable within the next sixty days are for 82,797,
32,677, 21,307, 19,816, and 22,908 shares of NNS Common Stock,
respectively. All directors and executive officers as a group have
replacement options exercisable within the next sixty days for 262,361
shares of NNS Common Stock.
(d) Includes shares held under the Company's 401(k) plan. Shares in the
Company's 401(k) plan held by Messrs. Fricks, Schievelbein, Clarkson,
Palmer and Wade were 159, 206, 124, 154, and 161, respectively. All
directors and executive officers as a group held 2,723 shares in the
401(k) plan.
(e) Includes 81 shares held under the Tenneco Inc. 401(k) plan and 5,905 stock
units in the Tenneco Inc. Deferred Compensation Plan.
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COMMITTEES OF THE BOARD OF DIRECTORS
The NNS Board has established four standing committees as permitted by the
By-laws, which have the following described responsibilities and authority:
Audit Committee. The Audit Committee has 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. The Members of the Audit
Committee are Messrs. Wilson, Edney, Harvey and Fricks. Mr. Wilson is the
Chairman of the Audit Committee. Mr. Fricks, as President and Chief Executive
Officer of NNS, is an ex officio member of the Audit Committee. As an ex
officio member, he may attend meetings of such committee; however, he has no
authority to vote for or against any action taken or contemplated to be taken
by such committee and his attendance is for the sole purpose of providing
information to the committee in order to assist the members in making informed
decisions.
Compensation and Benefits Committee. The Compensation and Benefits Committee
has 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. The Members of the
Compensation and Benefits Committee are Messrs. Sisco, Wilson and Mead. Dr.
Sisco is the Chairman of the Compensation and Benefits Committee.
Nominating and Management Development Committee. The Nominating and
Management Development Committee has 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. The Members of the Nominating and Management Development Committee
are Messrs. Baliles, Harvey, Edney and Sisco. Governor Baliles is the Chairman
of the Nominating and Management Development Committee.
Executive Committee. Other than matters assigned to the Compensation and
Benefits Committee, the Executive Committee has, 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. The
Members of the Executive Committee are Messrs. Fricks, Baliles, Mead and
Wilson. Mr. Fricks is the Chairman of the Executive Committee.
67
<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 was 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 prior to the Shipbuilding
Distribution on December 11, 1996 and by the Company after that date (i) to
the Chairman, President and Chief Executive Officer of the Company and (ii) to
each of the five 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>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- -----------------------------------
RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND 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) 1996 $395,500 $230,000 $39,833 $ -- 30,000 $45,378
Chairman, President and 1995 $323,759 $195,000 $29,591 -- 12,000 $34,680
Chief Executive Officer 1994 $276,960 $145,000 $14,156 $161,814 7,000 $35,226
Thomas C. Schievelbein 1996 $238,900 $109,000 $11,214 $168,875 14,000 $26,513
Executive Vice President 1995 $188,202 $ 90,000 $ 7,188 $ 90,038 3,300 $ 9,810
1994 $125,000 $ 75,000 $ 7,829 $107,876 3,000 $ 8,288
David J. Anderson 1996 $116,272(h) $ 68,000(h) $ 3,252(h) $--(h) --(h) $ 276(h)
Senior Vice President 1995 -- -- -- -- -- --
and Chief Financial 1994 -- -- -- -- -- --
Officer
Stephen B. Clarkson 1996 $206,565 $ 68,000 $ 6,504 $ 86,850 4,300 $13,595
Vice President, General 1995 $200,400 $ 75,000 $ 6,664 $ 85,750 3,000 $13,287
Counsel and Secretary 1994 $199,920 $ 84,000 $ 7,203 $ 80,907 3,000 $11,767
James A. Palmer, Jr. 1996 $211,900 $ 81,000 $ 6,504 $110,975 5,000 $33,178
Vice President 1995 $206,760 $ 95,000 $ 6,735 $ 98,613 3,500 $31,735
1994 $189,480 $ 95,000 $ 7,732 $107,876 3,150 $30,752
George A. Wade 1996 $201,100 $ 68,000 $ 6,504 $ 96,500 4,300 $25,225
Vice President 1995 $195,960 $ 90,000 $ 6,664 $ 98,613 3,500 $24,299
1994 $139,800 $ 95,000 $ 7,227 $107,876 3,150 $22,252
</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 is not serving as an executive officer of
the Company.
(b) Dana G. Mead received compensation from Tenneco for services rendered to
Newport News. Mr. Mead continues to serve as a director of the Company but
is not an executive officer of the Company.
(c) Includes base salary plus amounts paid in lieu of 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 named in the table was as follows: During 1996: $14,183 for
reimbursement for taxes, and $25,650 in Dividend Equivalents paid to Mr.
Fricks; $11,214, $6,504, $6,504, and $6,504 for reimbursement for taxes
for Messrs. Schievelbein, Clarkson, Palmer and Wade, respectively. 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.
68
<PAGE>
(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. All grants of Tenneco restricted stock vested
as of November 1, 1996.
(f) Includes amounts attributable during 1996 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
$9,500, $9,500, $7,635, $9,500, and $9,500 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, Schievelbein, Palmer and Wade were $28,576; $15,469;
$13,987; and $12,059, respectively.
(3) Amounts imputed as income for federal income tax purposes under the
Company's group life insurance plan for Messrs. Fricks, Schievelbein,
Anderson, Clarkson, Palmer and Wade were $7,302; $1,544; $276; $5,960;
$9,691; and $3,666, respectively.
(g) William P. Fricks has served as Chairman, President and Chief Executive
Officer of the Company since January 16, 1997, 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.
The Company has an employment agreement with Mr. Fricks, effective December
12, 1996, for a term ending December 12, 1999. Mr. Fricks will receive an
annual base salary of not less than $525,000, subject to such adjustments as
may, from time to time, be approved by the Compensation and Benefits Committee
of the Board of Directors, and annual financial planning services and
retirement and other benefits. The agreement provides that upon Mr. Fricks'
separation from the Company, he will receive career transition assistance of
up to $75,000. Upon involuntary termination, or if the term of the agreement
is not extended, the Company will pay Mr. Fricks a severance benefit in an
amount equal to the greater of (i) the total salary for the remainder of the
agreement assuming his base salary then in effect or (ii) three times his
then-current base salary. Subject to Board approval, Mr. Fricks' outstanding
restricted stock, stock option and performance share awards will vest and/or
become exercisable on the date of his termination. The agreement includes a
supplemental executive retirement plan (SERP) which provides for certain
retirement benefits.
69
<PAGE>
OPTION GRANTS IN 1996
The following table sets forth the number of stock options to acquire
Tenneco Common Stock that were granted by Tenneco during 1996 prior to the
Shipbuilding Distribution to the following persons named in the Summary
Compensation Table. As discussed in note (d), these options were replaced in
January 1997 by options to acquire NNS Common Stock.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(C)
---------------------------------------------------------- -------------------
% OF TOTAL
OPTIONS OPTIONS
GRANTED (NO. GRANTED TO EXERCISE OR
OF EMPLOYEES BASE PRICE
NAME SHARES)(A)(D) IN FISCAL YEAR PER SHARE(B) EXPIRATION DATE 5% 10%
---- ------------- -------------- ------------ ---------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks....... 30,000 1.3% $48.25 January 16, 2006 $910,200 $2,307,000
Thomas C. Schievelbein.. 14,000 0.6% $48.25 January 16, 2006 $424,760 $1,076,600
Stephen B. Clarkson..... 4,300 0.2% $48.25 January 16, 2006 $130,462 $ 330,670
James A. Palmer, Jr..... 5,000 0.2% $48.25 January 16, 2006 $151,700 $ 384,500
George A. Wade.......... 4,300 0.2% $48.25 January 16, 2006 $130,462 $ 330,670
</TABLE>
- --------
(a) These options provided that a grantee who delivered shares of Tenneco
Common Stock to pay the option exercise price would 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 were
granted at 100% of the fair market value (as defined in the plan) on the
date they were granted, became exercisable six months from that date and
expired coincident with the options they replaced. Grantees were limited
to 10 reload options and the automatic grant of such reload options was
limited to twice during any one calendar year.
(b) All options were granted by Tenneco at 100% of the fair market value on
the date of grant.
(c) 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 $78.59 and $125.15,
respectively, or 63% and 160%, respectively, above the exercise or base
price. As described in footnote (d) below, however, options to acquire
Tenneco Common Stock held by Company employees have been replaced by
options to acquire NNS Common Stock.
(d) All Tenneco stock options held by employees of the Company were cancelled
as of December 11, 1996 and were replaced in January 1997 with options to
acquire NNS Common Stock under a plan (the "Company Stock Ownership Plan")
which is substantially similar to the 1994 Tenneco Inc. Stock Ownership
Plan. Tenneco approved the Company Stock Ownership Plan as the sole
stockholder of NNS. All employees of the Company who formerly held Tenneco
options have replacement options under the Company Stock Ownership Plan.
Each such employee has replacement 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 are 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. The replacement options for the Tenneco stock options
granted in 1996 of Messrs. Fricks, Schievelbein, Clarkson, Palmer and Wade
are for 99,359, 46,368, 14,242, 16,560, and 14,242, shares of NNS Common
Stock, respectively, and are exercisable at the rate of one-third per year
on January 16, 1997, 1998 and 1999. The aggregate replacement options for
Tenneco stock options granted in 1996 and in prior years of Messrs.
Fricks, Schievelbein, Clarkson, Palmer and Wade are for 162,287, 67,234,
34,114, 34,720 and 36,267, shares of NNS Common Stock, respectively. The
replacement options are exercisable at a rate of one-third per year
beginning on the first anniversary of the date of grant.
70
<PAGE>
OPTION/SAR EXERCISES IN 1996 AND 1996 YEAR-END VALUES
The following table sets forth the number of Tenneco options and SARs
exercised by the following persons named in the Summary Compensation Table. No
options were outstanding as of December 31, 1996.
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
HELD AT DECEMBER 31, HELD AT DECEMBER 31,
1996(A) 1996(A)(B)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks....... 213 $ 1,824 -- -- $34,500 $166,500
Thomas C. Schievelbein.. -- $ -- -- -- $ 9,488 $ 64,475
Stephen B. Clarkson..... -- $ -- -- -- $ 8,625 $ 31,225
James A. Palmer, Jr..... 1,167 $13,858 -- -- $ -- $ 36,372
George A. Wade.......... 100 $ 919 -- -- $10,065 $ 34,098
</TABLE>
- --------
(a) No options were outstanding as of December 31, 1996. As described in
footnote (d) to the Option Grant Table, options to acquire shares of
Tenneco Common Stock held by Company employees were cancelled as of
December 11, 1996. Each option to acquire one share of Tenneco Common
Stock was replaced in January 1997 by an option to acquire shares of NNS
Common Stock.
(b) The expected value of replacement options to acquire NNS Common Stock
approximates the value of options previously held to acquire Tenneco
Common Stock.
LONG-TERM INCENTIVE PLANS
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN LAST FISCAL YEAR
The following table sets forth information concerning performance based
awards made to the persons named in the Summary Compensation Table during 1996
prior to the Shipbuilding Distribution by Tenneco. All shares credited for
payout under Tenneco's long-term incentive plan vested as of November 1, 1996
and the number of shares of Tenneco Common Stock subject thereto were issued.
Consequently, there are no estimated future payouts.
<TABLE>
<CAPTION>
NUMBER OF
SHARES,
UNITS OR
OTHER
NAME RIGHTS(A)
- ---- ---------
<S> <C>
William P. Fricks..................................................... 10,000
</TABLE>
- --------
(a) Each performance share equivalent unit represented one share of Tenneco
Common Stock that could be earned under this award and the number of
performance share equivalent units listed in this column represented the
maximum number of performance share equivalent units that could be earned
under this award.
PENSION PLAN TABLE
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 Tenneco Inc. Retirement Plan (the "TRP") and certain
non-qualified structures. The Company has adopted a Retirement Plan that is
similar 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.
71
<PAGE>
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
--------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 47,100 $ 62,900 $ 78,600 $ 94,300 $110,000
250,000 58,900 78,600 98,200 117,900 137,500
300,000 70,700 94,300 117,900 141,400 165,000
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. The estimated credited years of
service for Messrs. Fricks, Schievelbein, Clarkson, Palmer and Wade are 34, 8,
5, 11 and 27, respectively. Pursuant to the employment agreement with Mr.
Fricks, benefits for Mr. Fricks are based on his average base salary and bonus
during the term of the agreement. See "--Executive Compensation."
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 Distribution Transaction was not deemed to
constitute a "change in control" for purposes of the plan.
COMPENSATION OF DIRECTORS
All directors who are not also officers of the Company are 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.
Directors who are not also officers of the Company 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 each receive a one-time grant of 1,000
shares of restricted stock.
BENEFIT PLANS FOLLOWING THE SHIPBUILDING DISTRIBUTION
In connection with the Shipbuilding Distribution, the Company adopted two
plans qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"): a defined benefit pension plan and an employee stock
ownership plan which also provides for 401(k) salary reduction contributions.
It is anticipated
72
<PAGE>
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.
The Company also adopted the Company Stock Ownership Plan. The Company Stock
Ownership Plan is substantially similar to the Tenneco Inc. 1994 Stock
Ownership Plan and provides for the grant of stock options, restricted stock,
performance shares and other forms of awards. In connection with the
Shipbuilding Distribution, the Company also adopted an employee stock purchase
plan which will be substantially similar to the Tenneco employee stock
purchase plan.
73
<PAGE>
CERTAIN TRANSACTIONS
Governor Baliles, a director of NNS, is a partner in the law firm of Hunton
& Williams. Hunton & Williams has provided legal services to the Company
during the last two years.
In connection with the Distribution Transaction, Tenneco entered into an
Agreement and Plan of Merger dated as of June 19, 1996, as amended (the
"Merger Agreement"), and NNS entered into a related Distribution Agreement
dated as of November 1, 1996, as amended (the "Distribution Agreement"). See
"Prospectus Summary--The Shipbuilding Distribution." The Distribution
Agreement provides for the Shipbuilding Distribution and related matters, and
contains provisions governing the relationship among the Company, Tenneco and
New Tenneco prior to and following the Shipbuilding Distribution. The
Distribution Agreement provides, among other things, that from and after the
Distribution Closing Date the Company will assume, pay, perform and discharge
the "Shipbuilding Liabilities," New Tenneco will assume, pay, perform and
discharge the "Industrial Liabilities," and Tenneco will assume, pay, perform
and discharge the "Energy Liabilities."
For the purposes of the Distribution Agreement, "Shipbuilding Liabilities"
generally include (i) those liabilities related to the assets of the Company
and the current and past conduct of the Shipbuilding Business, including
liabilities reflected on the Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1996 which remained outstanding as of the close of business on
the Distribution Closing Date (plus liabilities that were subsequently
incurred or accrued, 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 or delivered by or on behalf of, the Company in
connection with the Company's financing arrangements or the Distribution
Transaction, and (iii) those liabilities expressly allocated to the Company
under the Distribution Agreement or any Ancillary Agreement (as defined
below).
For purposes of the Distribution Agreement, "Industrial Liabilities"
generally include (i) those liabilities related to the assets of the
Industrial Business (as defined) and the current and past conduct of the
Industrial Business, (ii) certain liabilities for any violations or alleged
violations of securities or other laws arising out of documents relating to,
or filed by or delivered by or on behalf of, New Tenneco in connection with
the Distribution Transaction, and (iii) those liabilities expressly allocated
to New Tenneco or its subsidiaries under the Distribution Agreement or any
Ancillary Agreement. "Energy Liabilities" include certain liabilities,
including certain liabilities not associated with the Shipbuilding Business or
Industrial Business.
In addition, the Distribution Agreement provides for cross-indemnities under
which (i) Tenneco must indemnify the Company and New Tenneco (and their
respective subsidiaries, directors, officers, employees, and agents and
certain other related parties) against all losses arising out of or in
connection with the Energy Liabilities or breach of the Distribution Agreement
or any Ancillary Agreement by Tenneco, (ii) the Company must indemnify Tenneco
and New Tenneco (and their respective subsidiaries, directors, officers,
employees, and agents 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, directors,
officers, employees, and agents 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, and for contribution in certain circumstances. Additionally, Tenneco
and the Company have received letters from the DCAA, inquiring about certain
aspects of the Distribution Transaction, including the disposition of the TRP
which covers salaried employees of the Company and other Tenneco divisions.
The Company and New Tenneco agreed to certain indemnities regarding such
inquiries. See "Business--Investigations and Legal Proceedings--Retirement
Plans."
In addition, as contemplated by the Distribution Agreement, NNS entered into
certain ancillary agreements (collectively, the "Ancillary Agreements") with
Tenneco and/or New Tenneco prior to the consummation of the Shipbuilding
Distribution. The Ancillary Agreements further effectuated the disaffiliation
of the Shipbuilding Business from the other businesses of Tenneco and New
Tenneco.
74
<PAGE>
The Ancillary Agreements include: (i) the Benefits Agreement, which provided
for allocations of responsibilities among the Company, New Tenneco and Tenneco
with respect to employee compensation, benefit and labor matters; (ii) the Tax
Sharing Agreement, as amended (the "Tax Sharing Agreement") 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 Closing
Date; (iii) the Debt Realignment plan pursuant to which certain Tenneco
Consolidated Debt was restructured, paid and/or refinanced by the Company, New
Tenneco and Tenneco (the "Debt Realignment"); (iv) the Debt and Cash
Allocation Agreement which provided for, among other things, the allocation of
cash among, and the restructuring and refinancing of certain of the debt of
Tenneco existing prior to the Shipbuilding Distribution by (or with the funds
provided by) the Company, New Tenneco and Tenneco; (v) the TBS Services
Agreement (as defined) 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 Trademark Transition License Agreement allowing the Company to
use the trademarks and tradenames of Tenneco for certain specified periods of
time for certain purposes; and (vii) the Insurance Agreement, which provided
for, among other things, coverage arrangements for the Company, New Tenneco
and Tenneco in respect of various insurance policies.
Benefits Agreement. The Benefits Agreement defines certain labor,
employment, compensation and benefit matters in connection with the
Distribution Transaction and the transactions contemplated thereby. Pursuant
to the Benefits Agreement, from and after the Distribution Closing Date, each
of the Company, Tenneco and New Tenneco will generally 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 Closing Date, continue to honor all related existing collective
bargaining agreements, recognize related incumbent labor organizations and
continue sponsorship of hourly employee benefit plans. The Benefit Agreement
also covers the treatment of the Tenneco Inc. Retirement Plan and Tenneco Inc.
Thrift Plan and the creation of new benefit plans for the Company and Tenneco.
Tax Sharing Agreement. The Tax Sharing Agreement provides for the allocation
of tax liabilities among the parties arising prior to, as a result of, and
subsequent to the Distribution Transaction. As a general rule, Tenneco is
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
is liable for taxes imposed on it and its post-distribution subsidiaries and
New Tenneco is liable for taxes imposed exclusively on its operations. In the
case of federal income taxes imposed on the combined activities of Tenneco,
New Tenneco (and its affiliates in the Industrial Business) and the Company,
the Company and New Tenneco are 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,
subject to certain exceptions. New Tenneco is also 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 is 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 New Tenneco had filed combined returns for their respective groups,
subject to certain exceptions. The Agreement also allocates taxes related to
or arising from the Distribution Transaction.
TBS Services 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 beginning after the Distribution Closing Date through December 31,
1998, and thereafter only by mutual agreement. TBS also entered into a
Supplier Participation Agreement (the "NNS Supplier Participation Agreement,"
and, together with the NNS Processing Services Agreement, the "TBS Services
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
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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-ups and consulting in connection with
the vendor agreements.
Insurance Agreement. Tenneco historically maintained at the parent-company
level various insurance policies for the benefit or protection of itself and
its subsidiaries. The Insurance Agreement entered into among Tenneco, the
Company and New Tenneco provides for the respective continuing rights and
obligations from and after the Distribution Transaction 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 Distribution Transaction, policies
which relate exclusively to the Shipbuilding Business were retained by the
Company, policies which relate exclusively to the energy business were
retained by Tenneco, and policies which relate exclusively to the industrial
business were retained by New Tenneco.
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DESCRIPTION OF THE SENIOR CREDIT FACILITY
On November 4, 1996, NNS entered into a $415 million senior credit facility
(the "Senior Credit Facility") consisting 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"). 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. Of the Revolving Credit Facility, $125 million may be
used for advances and letters of credit and $90 million may be used only for
standby letters of credit. Each of NNS' present and future subsidiaries having
consolidated assets exceeding $10 million, excluding Foreign Subsidiaries (as
defined) and NNS Tanker Holdings Corporation, have guaranteed the Senior
Credit Facility. Borrowings under the Senior Credit Facility are secured by
perfected liens on substantially all of NNS' and the Guarantors' assets. After
January 1, 1998, the security interest in the collateral will be released if
the Company meets specific financial and other conditions.
Interest on borrowings under the Senior Credit Facility accrues at a
floating rate based on either LIBOR or the Base Rate. The Senior Credit
Facility contains 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 also provides 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 Senior Credit
Facility places restrictions, subject to certain exceptions, upon the right of
NNS and its Subsidiaries 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
is treated as a single accounting period).
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Senior Notes will be issued under the Indenture dated as of November
26, 1996, as supplemented and amended by the First Supplemental Indenture
dated as of December 11, 1996 (the "Senior Note Indenture"), among NNS, the
Guarantors and The Bank of New York, as trustee (the "Senior Note Trustee").
The New Senior Subordinated Notes will be issued under the Indenture dated as
of November 26, 1996, as supplemented and amended by the First Supplemental
Indenture dated as of December 11, 1996 (the "Senior Subordinated Note
Indenture," and, together with the Senior Note Indenture, the "Indentures"),
among NNS, the Guarantors and The Bank of New York, as trustee (the "Senior
Subordinated Note Trustee," and, together with the Senior Note Trustee,
collectively the "Trustees" and individually each a "Trustee"). The New Notes
are subject to all such terms, and Holders of New Notes are referred to the
Indentures and the Trust Indenture Act for a statement thereof. A copy of the
Indentures will be made available to prospective investors upon request. The
following summary of certain provisions of the Indentures does not purport to
be complete and is qualified in its entirety by reference to the Indentures,
including the definitions therein of certain terms used below. The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions" or are otherwise defined in the Indentures. Any reference
to a "Trustee" means the Senior Note Trustee or the Senior Subordinated Note
Trustee, as the context may require.
The New Senior Notes will be general unsecured obligations of NNS, limited
to $200 million aggregate principal amount, and will rank on a parity in right
of payment with all existing and future Senior Indebtedness of NNS and senior
in right of payment to all existing and future Subordinated Indebtedness of
NNS. The New Senior Notes will be effectively subordinated to all secured
Indebtedness of NNS (including all Indebtedness outstanding under the Senior
Credit Facility). The New Senior Notes will mature on December 1, 2006 and
will bear interest at the rate of 8 5/8% per annum from November 26, 1996 or
from the most recent interest payment date to which interest has been paid on
the Old Senior Notes. Interest will be payable semiannually (to holders of
record of New Senior Notes at the close of business on May 15 or November 15
immediately preceding the interest payment date) on June 1 and December 1 of
each year, commencing June 1, 1997. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. No interest will be paid on
Old Senior Notes accepted for exchange.
The New Senior Subordinated Notes will be general unsecured obligations of
NNS, limited to $200 million aggregate principal amount, and will be
subordinated in right of payment to all existing and future Senior
Indebtedness of NNS (including the Senior Credit Facility). The New Senior
Subordinated Notes will mature on December 1, 2006 and will bear interest at
the rate of 9 1/4% per annum from November 26, 1996 or from the most recent
interest payment date to which interest has been paid on the Old Senior
Subordinated Notes. Interest will be payable semiannually (to holders of
record of New Senior Subordinated Notes at the close of business on the May 15
or November 15 immediately preceding the interest payment date) on June 1 and
December 1 of each year, commencing June 1, 1997. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. No interest
will be paid on Old Senior Subordinated Notes accepted for exchange.
The New Notes will not have the benefit of any sinking fund.
At September 30, 1996, after giving pro forma effect to the issuance of the
Old Notes and the incurrence of indebtedness under the Senior Credit Facility
as set forth under "Capitalization" and "Use of Proceeds," NNS would have had
approximately $414 million of Senior Indebtedness outstanding (of which
approximately $214 million would have been secured), all of which would have
been guaranteed by the Guarantors on a senior basis.
The Indentures provide that holders of the Notes and any Private Exchange
Securities will vote and consent together on all matters (to which such
holders are entitled to vote or consent) as one class and that none of the
holders of the Notes and any Private Exchange Securities shall have the right
to vote or consent as a separate class on any matter (to which such holders
are entitled to vote or consent).
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OPTIONAL REDEMPTION
On and after December 1, 2001, the New Senior Notes may be redeemed at any
time, in whole or in part, at the option of NNS, on not less than 30 days' nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of the principal amount) set forth below, if redeemed during the 12-month
period beginning December 1 of the year indicated below, in each case together
with interest accrued to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................................ 104.3125%
2002............................................................ 102.8750%
2003............................................................ 101.4375%
2004 and thereafter............................................. 100.0000%
</TABLE>
In addition, prior to December 1, 1999, NNS may, at its option, redeem up to
35% of the principal amount of the New Senior Notes originally issued with the
net cash proceeds received by NNS from one or more public offerings of Capital
Stock of NNS (other than Disqualified Stock) made after the Distribution
Closing Date, at a redemption price (expressed as a percentage of the
principal amount) of 108.625% of the principal amount thereof, plus accrued
and unpaid interest to the date fixed for redemption; provided, however, that
at least $100 million in aggregate principal amount of the New Senior Notes
remains outstanding immediately after any such redemption (excluding any Notes
owned by NNS or any of its Affiliates); provided, further, that any such
redemptions shall be made pro rata (based on the then outstanding principal
amounts thereof) among the New Senior Notes and the New Senior Subordinated
Notes. Notice of redemption pursuant to this paragraph must be mailed to
Holders of New Senior Notes not later than 60 days following the consummation
of such public offering.
On and after December 1, 2001, the New Senior Subordinated Notes may be
redeemed at any time, in whole or in part, at the option of NNS, on not less
than 30 days' nor more than 60 days' notice, at the redemption prices
(expressed as percentages of the principal amount) set forth below, if
redeemed during the 12-month period beginning December 1 of the year indicated
below, in each case together with interest accrued to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................................ 104.625%
2002............................................................ 103.083%
2003............................................................ 101.542%
2004 and thereafter............................................. 100.000%
</TABLE>
In addition, prior to December 1, 1999, NNS may, at its option, redeem up to
35% of the principal amount of the New Senior Subordinated Notes originally
issued with the net cash proceeds received by NNS from one or more public
offerings of Capital Stock of NNS (other than Disqualified Stock) made after
the Distribution Closing Date, at a redemption price (expressed as a
percentage of the principal amount) of 109.250% of the principal amount
thereof, plus accrued and unpaid interest to the date fixed for redemption;
provided, however, that at least $100 million in aggregate principal amount of
the New Senior Subordinated Notes remains outstanding immediately after any
such redemption (excluding any Notes owned by NNS or any of its Affiliates);
provided, further, that any such redemptions shall be made pro rata (based on
the then outstanding principal amounts thereof) among the New Senior Notes and
the New Senior Subordinated Notes. Notice of redemption pursuant to this
paragraph must be mailed to Holders of New Senior Subordinated Notes not later
than 60 days following the consummation of such public offering.
Selection of New Notes for any redemption shall be made by the relevant
Trustee, in accordance with the rules of any national securities exchange on
which the New Notes may be listed or, if the New Notes are not so
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listed, pro rata or by lot or in such other manner as the relevant Trustee
shall deem appropriate and fair. New Notes in denominations larger than $1,000
may be redeemed in part but only in integral multiples of $1,000. Notice of
redemption will be mailed at least 30 days but not more than 60 days before
the redemption date to each Holder of New Notes to be redeemed at his or her
registered address. On and after the redemption date, interest will cease to
accrue on New Notes or portions thereof called for redemption.
SUBORDINATION OF NEW SENIOR SUBORDINATED NOTES
The payment of the principal of, premium, if any, and interest on the New
Senior Subordinated Notes is subordinated in right of payment, to the extent
and in the manner provided in the Senior Subordinated Note Indenture, to the
prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of NNS of any kind
or character, whether in cash, property or securities (including any payment
made to the Holders of the New Senior Subordinated Notes under the terms of
Indebtedness subordinated to the New Senior Subordinated Notes, but excluding
any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or total or partial liquidation or reorganization of
NNS, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness shall first be paid
in full in cash before the Holders of the New Senior Subordinated Notes or the
Senior Subordinated Note Trustee on behalf of such Holders shall be entitled
to receive any payment by NNS of the principal of, premium, if any, or
interest on the New Senior Subordinated Notes, or any payment to acquire any
of the New Senior Subordinated Notes for cash, property or securities, or any
distribution with respect to the New Senior Subordinated Notes of any cash,
property or securities (including any payment made to the Holders of the New
Senior Subordinated Notes under the terms of Indebtedness subordinated to the
New Senior Subordinated Notes, but excluding any payment or distribution of
Permitted Junior Securities). Before any payment may be made by, or on behalf
of, NNS of the principal of, premium, if any, or interest on the New Senior
Subordinated Notes upon any such dissolution or winding-up or liquidation or
reorganization, any payment or distribution of assets or securities of NNS of
any kind or character, whether in cash, property or securities (including any
payment made to the Holders of the New Senior Subordinated Notes under the
terms of Indebtedness subordinated to the Senior Subordinated Indebtedness,
but excluding any payment or distribution of Permitted Junior Securities), to
which the Holders of the New Senior Subordinated Notes or the Senior
Subordinated Note Trustee on their behalf would be entitled, but for the
subordination provisions of the Senior Subordinated Note Indenture, shall be
made by NNS or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, directly to the
holders of the Senior Indebtedness (pro rata to such holders on the basis of
the respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Indebtedness.
No direct or indirect payment (including any payment made to the Holders of
the New Senior Subordinated Notes under the terms of Indebtedness subordinated
to the Senior Subordinated Indebtedness, but excluding any payment or
distribution of Permitted Junior Securities) by or on behalf of NNS of
principal of, premium, if any, or interest on the New Senior Subordinated
Notes, whether pursuant to the terms of the New Senior Subordinated Notes,
upon acceleration, pursuant to an Asset Disposition Offer to Purchase or a
Change of Control Offer to Purchase or otherwise, will be made if, at the time
of such payment, there exists a default in the payment of all or any portion
of the obligations on any Designated Senior Indebtedness, whether at maturity,
on account of mandatory redemption or prepayment, acceleration or otherwise,
and such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment default
or non-payment event of default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated, and
upon receipt by the Senior Subordinated Note Trustee of written notice (a
"Payment Blockage Notice")
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from the holder or holders of such Designated Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Senior Indebtedness,
then, unless and until such default or event of default has been cured or
waived or has ceased to exist or such Designated Senior Indebtedness has been
discharged or repaid in full in cash, no direct or indirect payment (including
any payment made to the Holders of the New Senior Subordinated Notes under the
terms of Indebtedness subordinated to the Senior Subordinated Indebtedness,
but excluding any payment or distribution of Permitted Junior Securities) will
be made by or on behalf of NNS of principal of, premium, if any, or interest
on the New Senior Subordinated Notes, except from those funds held in
trust for the benefit of the Holders of any New Senior Subordinated Notes
pursuant to the procedures set forth under "--Satisfaction and Discharge of
Indentures; Defeasance" below, to such Holders, during a period (a "Payment
Blockage Period") commencing on the date of receipt of such notice by the
Senior Subordinated Note Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Senior
Subordinated Note Indenture or the New Senior Subordinated Notes to the
contrary, (x) in no event will a Payment Blockage Period extend beyond 179
days from the date the Payment Blockage Notice in respect thereof was given
and (y) in no event shall a Payment Blockage Notice be effective unless and
until 360 days shall have elapsed since the date the immediately prior Payment
Blockage Notice became effective. Not more than one Payment Blockage Period
may be commenced with respect to the New Senior Subordinated Notes during any
period of 360 consecutive days. No default or event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge
of such existing or continuing default or event of default) may be, or be
made, the basis for the commencement of any other Payment Blockage Period by
the holder or holders of such Designated Senior Indebtedness or the trustee or
agent acting on behalf of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such default or event of
default has been cured or waived for a period of not less than 90 consecutive
days.
The failure to make any payment or distribution for or on account of the New
Senior Subordinated Notes by reason of the provisions of the Senior
Subordinated Note Indenture described under this "Subordination of New Senior
Subordinated Notes" heading will not be construed as preventing the occurrence
of an Event of Default in respect of the New Senior Subordinated Notes
described in clause (a), (b) or (c) of the first paragraph under "--Events of
Default."
By reason of the subordination provisions described above, in the event of
insolvency of NNS, funds which would otherwise be payable to Holders of the
New Senior Subordinated Notes will be paid to the holders of Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full in
cash, and NNS may be unable to fully meet its obligations with respect to the
New Senior Subordinated Notes.
At the time of the issuance of the New Senior Subordinated Notes, the Old
Senior Notes, the New Senior Notes, and the Senior Credit Facility are
expected to be the only outstanding Senior Indebtedness. Subject to the
restrictions set forth in the Senior Subordinated Indenture, in the future,
NNS may issue additional Senior Indebtedness to refinance existing
Indebtedness or for other corporate purposes.
GUARANTEES OF THE NEW SENIOR NOTES AND THE NEW SENIOR SUBORDINATED NOTES
Each Indenture provides that each of the Guarantors will unconditionally
guarantee on a joint and several basis (the "Guarantees") all of NNS'
obligations under the New Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the New Notes. The Guarantors
are also guaranteeing all obligations of NNS under the Senior Credit Facility,
and each Guarantor has granted a security interest in all or substantially all
of its assets to secure the obligations under the Senior Credit Facility. The
obligations of each Guarantor are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations
under the applicable Indenture, will result in the obligations of such
Guarantor under the applicable Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each
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Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor determined in accordance with GAAP.
Except as provided in "--Certain Covenants--Relating to all the New Notes"
below, NNS is not restricted from selling or otherwise disposing of any of the
Guarantors.
Each Indenture provides that Newport News, NNS Delaware Management Company
and any other Material Subsidiary whether organized or acquired after the
Issue Date will become a Guarantor; provided, however, that any Material
Subsidiary acquired after the Issue Date which is prohibited from entering
into a Guarantee pursuant to restrictions contained in any debt instrument or
other agreement in existence at the time such Material Subsidiary was so
acquired and not entered into in anticipation or contemplation of such
acquisition shall not be required to become a Guarantor so long as any such
restriction is in existence and to the extent of any such restriction.
Separate financial statements of the Guarantors are not included herein
because the Guarantors are jointly and severally liable for the New 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.
Each Indenture provides that if the New Notes thereunder are defeased in
accordance with the terms of such Indenture, or if all or substantially all of
the assets of any Guarantor or all of the Capital Stock of any Guarantor is
sold (including by issuance or otherwise) by the Company in a transaction
constituting an Asset Disposition, and if (x) the Net Available Proceeds from
such Asset Disposition are used in accordance with the covenant described
under "--Certain Covenants--Relating to all the New Notes--Limitation on
Certain Asset Dispositions" or (y) NNS delivers to the Trustee an Officers'
Certificate to the effect that the Net Available Proceeds from such Asset
Disposition shall be used in accordance with the covenant described under "--
Certain Covenants--Relating to all the New Notes--Limitation on Certain Asset
Dispositions" and within the time limits specified by such covenant, then such
Guarantor (in the event of a sale or other disposition of all of the Capital
Stock of such Guarantor) or the corporation acquiring such assets (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) shall be released and discharged of its Guarantee
obligations in respect of such Indenture and the New Notes issued thereunder.
The Guarantees will be general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guarantee will in the case of the New
Senior Notes rank senior in right of payment to all existing and future
Subordinated Indebtedness of such Guarantor and pari passu with all other
Guarantor Senior Indebtedness. The obligations of each Guarantor under its
Guarantee will in the case of the New Senior Subordinated Notes be
subordinated in right of payment to the prior payment in full of all existing
and future Guarantor Senior Indebtedness to substantially the same extent as
the New Senior Subordinated Notes are subordinated to all existing and future
Senior Indebtedness of NNS. The obligations of each Guarantor under a
Guarantee will be effectively subordinated to all secured Indebtedness of the
Guarantor (including the Guarantor's guarantee of the Senior Credit Facility).
The subordination provisions of the Guarantees of the New Senior
Subordinated Notes and certain provisions of the Guarantees of the New Senior
Notes will have the effect of requiring that the Guarantees of the New Senior
Notes be satisfied in full prior to any payments being made in respect of the
Guarantees of the New Senior Subordinated Notes.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to NNS'
obligations pursuant to the New Notes, and the aggregate net assets, earnings
and equity of the Guarantors and NNS are substantially equivalent to the net
assets, earnings and equity of NNS on a consolidated basis.
CERTAIN COVENANTS
Relating Only to the New Senior Notes
LIMITATION ON LIENS. Under the terms of the Senior Note Indenture, NNS will
not, and will not permit any of its Subsidiaries to, Incur any Lien on or with
respect to any property or assets of NNS or any Subsidiary
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of NNS owned on the Issue Date or thereafter acquired or on the income or
profits thereof to secure Indebtedness of any Person without making, or
causing such Subsidiary to make, effective provision for securing the New
Senior Notes and all other amounts due under the Senior Note Indenture (and,
if NNS shall so determine, any other Indebtedness of NNS or such Subsidiary
including Indebtedness which is pari passu with or subordinate in right of
payment to the New Senior Notes or the Guarantee thereof by such Subsidiary;
provided, however, that Liens securing the New Senior Notes and any
Indebtedness pari passu with the New Senior Notes or such Guarantee are senior
to such Liens securing such subordinated Indebtedness) equally and ratably
with such Indebtedness or, in the event such Indebtedness is subordinate in
right of payment to the New Senior Notes or the Guarantees thereof, prior to
such Indebtedness, as to such property or assets for so long as such
Indebtedness shall be so secured.
The foregoing restriction shall not apply to (i) Liens securing the Senior
Credit Facility and any guarantees thereof to the extent that the Indebtedness
secured thereby is permitted to be incurred under clauses (ii) or (vi) of the
first paragraph of the description of the "Limitation on Indebtedness"
covenant below; (ii) Liens securing the New Senior Notes and any Guarantees
thereof; (iii) Liens with respect to assets of a Subsidiary of NNS granted by
such Subsidiary to NNS or a Wholly-Owned Subsidiary of NNS to secure
Indebtedness of such Subsidiary owing to NNS or such Wholly-Owned Subsidiary;
(iv) Liens to secure Indebtedness Incurred for the purpose of financing all or
any part of the purchase price or the cost of construction or improvement of
the property subject to such Liens; provided, however, that (a) the aggregate
principal amount of any Indebtedness secured by such a Lien does not exceed
100% of such purchase price or cost, (b) such Lien does not extend to or cover
any other property other than such item of property and any improvements on
such item, (c) the Indebtedness secured by such Lien is Incurred by NNS or a
Subsidiary of NNS within 180 days of the acquisition, construction or
improvement of such property and (d) the Incurrence of Indebtedness is
permitted by the provisions of the Indentures described under "--Relating to
all the New Notes--Limitation on Indebtedness" below; (v) Liens on property
existing immediately prior to the time of acquisition thereof (and not created
in anticipation or contemplation of the financing of such acquisition); (vi)
Liens on property of, or on shares of stock or Indebtedness of, a Person
existing at the time such Person is merged with or into or consolidated with
NNS or any Subsidiary of NNS (and not created in anticipation or contemplation
thereof); (vii) Liens existing on the Issue Date securing Indebtedness
existing on the Issue Date; (viii) Liens securing Senior Indebtedness (other
than Indebtedness secured by the Liens described in clauses (i) through (vii),
inclusive, above) in an aggregate principal or stated amount at any one time
outstanding not exceeding $10 million; (ix) Liens to secure Indebtedness
Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, any Indebtedness
secured by Liens referred to in the foregoing clauses (i)-(viii) so long as
such Liens do not extend to any other property and the principal amount of
Indebtedness so secured is not increased except for the amount of any premium
required to be paid in connection with such renewal, refinancing or refunding
pursuant to the terms of the Indebtedness renewed, refinanced or refunded or
the amount of any premium reasonably determined by NNS as necessary to
accomplish such renewal, refinancing or refunding by means of a tender offer,
exchange offer or privately negotiated repurchase, plus the expenses of NNS or
such Subsidiary incurred in connection with such renewal, refinancing or
refunding; and (x) Permitted Liens.
Relating Only to the New Senior Subordinated Notes
LIMITATION ON SENIOR SUBORDINATED DEBT. The Senior Subordinated Note
Indenture provides that NNS will not (i) directly or indirectly Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the New Senior Subordinated Notes and expressly rank subordinate in right
of payment to any Senior Indebtedness or (ii) permit any Guarantor to, and no
Guarantor will, directly or indirectly Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Guarantee of such
Guarantor and expressly rank subordinate in right of payment to any Guarantor
Senior Indebtedness.
LIMITATION ON LIENS. The Senior Subordinated Note Indenture provides that
NNS will not, and will not permit any of its Subsidiaries to, Incur any Lien
on or with respect to any property or assets of NNS or any of its Subsidiaries
owned on the Issue Date or thereafter acquired or on the income or profits
thereof to secure
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Indebtedness of any Person (other than Senior Indebtedness of NNS or Guarantor
Senior Indebtedness) without making, or causing such Subsidiary to make,
effective provision for securing the New Senior Subordinated Notes and all
other amounts due under the Senior Subordinated Note Indenture (and, if NNS
shall so determine, any other Indebtedness of NNS or such Subsidiary,
including Indebtedness which is subordinate in right of payment to the New
Senior Subordinated Notes or the Guarantee thereof by such Subsidiary;
provided, however, that Liens securing the New Senior Subordinated Notes and
any Indebtedness pari passu with the New Senior Subordinated Notes or such
Guarantee are senior to such Liens securing such subordinated Indebtedness)
equally and ratably with such Indebtedness or, in the event such Indebtedness
is subordinate in right of payment to the New Senior Subordinated Notes or the
Guarantees thereof, prior to such Indebtedness, as to such property or assets
for so long as such Indebtedness shall be so secured.
The foregoing restrictions shall not apply to (i) Liens securing Senior
Indebtedness or Guarantor Senior Indebtedness; (ii) Liens securing the New
Senior Subordinated Notes or the Guarantees thereof; (iii) Liens with respect
to assets of a Subsidiary of NNS granted by such Subsidiary to NNS or a
Wholly-Owned Subsidiary of NNS to secure Indebtedness owing by such Subsidiary
to NNS or such Wholly-Owned Subsidiary; (iv) Liens to secure Indebtedness
incurred for the purpose of financing all or any part of the purchase price or
the cost of construction or improvement of the property subject to such Liens;
provided, however, that (a) the aggregate principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost,
(b) such Lien does not extend to or cover any other property other than such
item of property and any improvements on such item, (c) the Indebtedness
secured by such Lien is Incurred by NNS or a Subsidiary of NNS within 180 days
of the acquisition, construction or improvement of such property and (d) the
Incurrence of Indebtedness is permitted by the provisions of the Senior
Subordinated Note Indenture described under "--Relating to all the New Notes--
Limitation on Indebtedness" below; (v) Liens on property existing immediately
prior to the time of acquisition thereof (and not created in anticipation or
contemplation of the financing of such acquisition); (vi) Liens on property
of, or on shares of stock or Indebtedness of, a Person existing at the time
such Person is merged with or into or consolidated with NNS or any Subsidiary
of NNS (and not created in anticipation or contemplation thereof); (vii) Liens
existing on the Issue Date securing Indebtedness existing on the Issue Date;
(viii) Liens to secure Indebtedness Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, any Indebtedness secured by Liens referred to in the
foregoing clauses (i)-(vii) so long as such Liens do not extend to any other
property and the principal amount of Indebtedness so secured is not increased
except for the amount of any premium required to be paid in connection with
such renewal, refinancing or refunding pursuant to the terms of the
Indebtedness renewed, refinanced or refunded or the amount of any premium
reasonably determined by NNS as necessary to accomplish such renewal,
refinancing or refunding by means of a tender offer, exchange offer or
privately negotiated repurchase, plus the expenses of NNS or such Subsidiary
incurred in connection with such renewal, refinancing or refunding; and (ix)
Permitted Liens.
Relating to all the New Notes
LIMITATION ON INDEBTEDNESS. The Indentures provide that NNS will not, and
will not permit any of its Subsidiaries to, Incur, directly or indirectly, any
Indebtedness, except: (i) Indebtedness of NNS or its Subsidiaries, if
immediately after giving effect to the Incurrence of such Indebtedness and the
receipt and application of the net proceeds thereof, the Consolidated Cash
Flow Ratio of NNS for the four full fiscal quarters for which quarterly or
annual financial statements are available next preceding the Incurrence of
such Indebtedness, calculated on a pro forma basis as if such Indebtedness had
been Incurred on the first day of such four full fiscal quarters, would be
greater than 2.50 to 1.00; (ii) Indebtedness of NNS, and guarantees of such
Indebtedness by any Guarantor, Incurred under the Senior Credit Facility in an
aggregate principal amount outstanding at any one time not to exceed $415
million less any amount of Indebtedness permanently repaid as provided under
the "Limitation on Certain Asset Dispositions" covenant described below or
pursuant to the terms of such Senior Credit Facility or otherwise; (iii)
Indebtedness owed by NNS to any Wholly-Owned Subsidiary of NNS or Indebtedness
owed by a Subsidiary of NNS to NNS or a Wholly-Owned Subsidiary of NNS;
provided, however, upon either (I) the transfer or other disposition by such
Wholly-Owned Subsidiary or
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NNS of any Indebtedness so permitted under this clause (iii) to a Person other
than NNS or another Wholly-Owned Subsidiary of NNS or (II) the issuance (other
than directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock or other ownership interests (including by
consolidation or merger) of such Wholly-Owned Subsidiary to a Person other
than NNS or another such Wholly-Owned Subsidiary of NNS, the provisions of
this clause (iii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of any such
issuance, sale, transfer or other disposition, as the case may be; (iv)
Indebtedness of NNS or its Subsidiaries under any Interest Rate Agreement or
Currency Agreement to the extent entered into to hedge any other Indebtedness
permitted under the Indentures; (v) Indebtedness Incurred to renew, extend,
refinance or refund (collectively for purposes of this clause (v) to "refund")
any Indebtedness outstanding on the Issue Date and Indebtedness Incurred under
clause (i) above or any of the New Notes; provided, however, that (I) such
Indebtedness does not exceed the principal amount (or accreted amount, if
less) of Indebtedness so refunded plus the amount of any premium required to
be paid in connection with such refunding pursuant to the terms of the
Indebtedness refunded or the amount of any premium reasonably determined by
NNS as necessary to accomplish such refunding by means of a tender offer,
exchange offer, or privately negotiated repurchase, plus the expenses of NNS
or such Subsidiary incurred in connection therewith and (II)(A) in the case of
any refunding of Indebtedness that is pari passu with the New Senior Notes or
Guarantees thereof or the New Senior Subordinated Notes or Guarantees thereof,
as the case may be, such refunding Indebtedness is made pari passu with or
subordinate in right of payment to such New Senior Notes or Guarantees thereof
or New Senior Subordinated Notes or Guarantees thereof, as the case may be,
and, in the case of any refunding of Indebtedness that is subordinate in right
of payment to the New Senior Notes or Guarantees thereof or the New Senior
Subordinated Notes or Guarantees thereof, as the case may be, such refunding
Indebtedness is subordinate in right of payment to such New Senior Notes or
Guarantees thereof or New Senior Subordinated Notes or Guarantees thereof on
terms no less favorable to the Holders than those contained in the
Indebtedness being refunded, (B) in either case, the refunding Indebtedness by
its terms, or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, does not have an Average Life that is less than
the remaining Average Life of the Indebtedness being refunded and does not
permit redemption or other retirement (including pursuant to any required
offer to purchase to be made by NNS or any of its Subsidiaries) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refunded, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including
pursuant to a required offer to purchase made by NNS or any of its
Subsidiaries) which is conditioned upon a change of control of NNS pursuant to
provisions substantially similar to those contained in the Indentures
described under "--Change of Control" below and (C) any Indebtedness Incurred
to refund any other Indebtedness is Incurred by the obligor on the
Indebtedness being refunded or by NNS; (vi) Indebtedness of NNS or its
Subsidiaries, not otherwise permitted to be Incurred pursuant to clauses (i)
through (v) above, which, together with any other outstanding Indebtedness
Incurred pursuant to this clause (vi), has an aggregate principal amount not
in excess of $50 million at any time outstanding; and (vii) Indebtedness of
NNS under the New Notes and Indebtedness of the Guarantors under the
Guarantees in respect thereof.
For purposes of determining compliance with the "Limitation on Indebtedness"
covenant described in the preceding paragraphs, (A) in the event that an item
of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the clauses of the preceding paragraph, NNS, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one such clause, and
(B) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP.
LIMITATION ON RESTRICTED PAYMENTS. The Indentures provide that NNS will not,
and will not permit any of its Subsidiaries to, directly or indirectly, (i)
declare or pay any dividend, or make any distribution of any kind or character
(whether in cash, property or securities), in respect of any class of its
Capital Stock or to the holders thereof in their capacity as stockholders,
excluding any (x) dividends or distributions payable solely in shares of its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire its Capital Stock (other than Disqualified Stock), (y) in
the case of any Subsidiary of NNS, dividends or distributions payable to NNS
or a Subsidiary of NNS or (z) the dividends and distributions paid or made in
connection with the
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Distribution Transaction on or prior to the date of the Shipbuilding
Distribution, (ii) purchase, redeem, or otherwise acquire or retire for value
shares of Capital Stock of NNS or a Subsidiary of NNS, any securities
convertible or exchangeable into shares of Capital Stock of NNS or a
Subsidiary of NNS or any options, warrants or rights to purchase or acquire
shares of Capital Stock of NNS or a Subsidiary of NNS, excluding any such
shares of Capital Stock, options, warrants, rights or securities which are
owned by NNS or a Subsidiary of NNS, (iii) make any Investment in (other than
a Permitted Investment), or payment on a guarantee of any obligation of, any
Person, other than NNS or a Wholly-Owned Subsidiary of NNS, or (iv) redeem,
defease, repurchase, retire or otherwise acquire or retire for value, prior to
any scheduled maturity, repayment or sinking fund payment, Indebtedness which
is subordinate in right of payment to the New Senior Notes in the case of the
Senior Note Indenture and the New Senior Subordinated Notes in the case of the
Senior Subordinated Note Indenture (each of the transactions described in
clauses (i) through (iv) (other than any exception to any such clause) being a
"Restricted Payment") if at the time thereof: (1) an Event of Default, or an
event that with the passing of time or giving of notice, or both, would
constitute an Event of Default, shall have occurred and be continuing, or (2)
upon giving effect to such Restricted Payment, NNS could not Incur at least
$1.00 of additional Indebtedness pursuant to the terms of the Indentures
described in clause (i) of "--Limitation on Indebtedness" above, or (3) upon
giving effect to such Restricted Payment, the aggregate of all Restricted
Payments made on or after the Issue Date exceeds the sum of: (a) 50% of
cumulative Consolidated Net Income of NNS (or, in the case cumulative
Consolidated Net Income of NNS shall be negative, less 100% of such deficit)
since the end of the fiscal quarter in which the Issue Date occurs through the
last day of the fiscal quarter for which financial statements are available;
plus (b) 100% of the aggregate net proceeds received after the Issue Date
(other than pursuant to or in connection with the Shipbuilding Distribution or
the Distribution Transaction), including the fair market value of property
other than cash (determined in good faith by the Board of Directors of NNS as
evidenced by a resolution of such Board of Directors filed with the Trustee),
from the issuance of Capital Stock of NNS (other than Disqualified Stock) and
warrants, rights or options on Capital Stock of NNS (other than Disqualified
Stock) (other than in respect of any such issuance to a Subsidiary of NNS) and
the principal amount of Indebtedness of NNS or a Subsidiary of NNS that has
been converted into or exchanged for Capital Stock of NNS which Indebtedness
was Incurred after the Issue Date; plus (c) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment made after the
Issue Date, an amount equal to the lesser of the return of capital with
respect to such Investment and the cost of such Investment, in either case,
less the cost of the disposition of such Investment; provided, however, that
at the time any such Investment is made NNS delivers to the Trustee a
resolution of the Board of Directors of NNS to the effect that, for purposes
of this "--Limitation on Restricted Payments" covenant, such Investment
constitutes a Restricted Payment made after the Issue Date; plus (d) $20
million.
The foregoing provision will not be violated by (i) any dividend on any
class of Capital Stock of NNS or any of its Subsidiaries paid within 60 days
after the declaration thereof if, on the date when the dividend was declared,
NNS or any of its Subsidiaries, as the case may be, could have paid such
dividend in accordance with the provisions of the Indentures, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to the terms of the Indentures described in clause (v) of
"--Limitation on Indebtedness" above, (iii) the exchange or conversion of any
Indebtedness of the Company or any of its Subsidiaries for or into Capital
Stock of NNS (other than Disqualified Stock), (iv) any payments, loans or
other advances made pursuant to any employee benefit plans (including plans
for the benefit of directors) or employment agreements or other compensation
arrangements, in each case as approved by the Board of Directors of NNS in its
good faith judgment, (v) the redemption of NNS' rights issued pursuant to the
Rights Agreement between NNS and First Chicago Trust Company of New York, as
Rights Agent, in an amount per right issued thereunder not to exceed that in
effect on the Issue Date, (vi) so long as no Default or Event of Default has
occurred and is continuing, any Investment made with the proceeds of a
substantially concurrent sale of Capital Stock of NNS (other than Disqualified
Stock); provided, however, that the proceeds of such sale of Capital Stock
shall not be (and have not been) included in subclause (b) of clause (3) of
the preceding paragraph, (vii) so long as no Default or Event of Default has
occurred and is continuing, additional Investments constituting Restricted
Payments in Persons or entities in a line of business related to the
businesses of NNS and its Subsidiaries as of the Issue Date in an aggregate
outstanding amount (valued at the cost thereof) not to exceed at any time $50
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million, (viii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock of NNS in exchange for or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of NNS) of
Capital Stock of NNS (other than Disqualified Stock); provided, however, that
the proceeds of such sale of Capital Stock shall not be (and have not been)
included in subclause (b) of clause (3) of the preceding paragraph, (ix) the
redemption, repurchase, retirement or other acquisition of any New Senior
Subordinated Notes in exchange for or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of NNS) of Capital
Stock of NNS (other than Disqualified Stock); provided, however, that the
proceeds of such sale of Capital Stock shall not be (and have not been)
included in subclause (b) of clause (3) of the preceding paragraph, (x) in the
case of the Senior Note Indenture only, the purchase of New Senior
Subordinated Notes pursuant to an Offer to Purchase required by the covenant
described under "--Limitation on Certain Asset Dispositions" or the covenant
described under "--Change of Control"; provided that no such purchase shall be
permitted until all New Senior Notes validly tendered pursuant to the
applicable Offer to Purchase in respect of the New Senior Notes shall have
been purchased by NNS, or (xi) so long as no Default or Event of Default has
occurred and is continuing, the payment of cash dividends on NNS Common Stock
not to exceed $5.5 million in any fiscal year of NNS. Each Restricted Payment
described in clauses (i), (iv), (v), (vii), (x) (in the case of the Senior
Note Indenture only) and (xi) of the previous sentence shall be taken into
account for purposes of computing the aggregate amount of all Restricted
Payments pursuant to clause (3) of the preceding paragraph.
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY SUBSIDIARIES. The
Indentures provide that NNS will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist any consensual encumbrance or restriction on the ability of any
Subsidiary of NNS to (i) pay, directly or indirectly, dividends or make any
other distributions in respect of its Capital Stock or pay any Indebtedness or
other obligation owed to NNS or any of its Subsidiaries, (ii) make loans or
advances to NNS or any of its Subsidiaries or guarantee any Indebtedness of
NNS or any of its Subsidiaries or (iii) transfer any of its property or assets
to NNS or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) any agreement in effect on the
Issue Date (including pursuant to the Senior Credit Facility and the Senior
Note Indenture and agreements entered into in connection therewith) as any
such agreement is in effect on such date, (b) any agreement relating to any
Indebtedness Incurred by such Subsidiary prior to the date on which such
Subsidiary became a Subsidiary of NNS and outstanding on such date and not
Incurred in anticipation or contemplation of becoming a Subsidiary of NNS and
provided such encumbrance or restriction shall not apply to any assets of NNS
or its Subsidiaries other than such Subsidiary, (c) customary provisions
contained in an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, provided, however, that such encumbrance or restriction is
applicable only to such Subsidiary or assets, (d) an agreement effecting a
renewal, exchange, refunding, amendment or extension of Indebtedness Incurred
pursuant to an agreement referred to in clause (a) or (b) above or (e) below;
provided, however, that the provisions contained in such renewal, exchange,
refunding, amendment or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement that is the subject thereof in the
reasonable judgment of the Board of Directors of NNS as evidenced by a
resolution of such Board of Directors filed with the Trustee, (e) the
Indentures, (f) applicable law, (g) customary provisions restricting
subletting or assignment of any lease governing any leasehold interest of any
Subsidiary of NNS, (h) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the type referred to
in clause (iii) of this covenant, or (i) restrictions of the type referred to
in clause (iii) of this covenant contained in security agreements securing
Indebtedness of a Subsidiary of NNS to the extent that such Liens were
otherwise incurred in accordance with the Indentures and restrict the transfer
of property subject to such agreements.
LIMITATION ON CERTAIN ASSET DISPOSITIONS. The Indentures provide that NNS
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, make one or more Asset Dispositions for aggregate consideration
of, or in respect of assets having an aggregate fair market value of, $25
million or more in any 12-month period, unless: (i) NNS or the Subsidiary, as
the case may be, receives consideration for such Asset Disposition at least
equal to the fair market value of the assets sold or disposed of as determined
by the Board of Directors of NNS
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in good faith and evidenced by a resolution of such Board of Directors filed
with the Trustee; (ii) not less than 75% of the consideration for the
disposition consists of cash or readily marketable cash equivalents or the
assumption of Indebtedness (other than non-recourse Indebtedness or any
Indebtedness subordinated to the New Senior Notes or Guarantees thereof, in
the case of the Senior Note Indenture, or the New Senior Subordinated Notes or
Guarantees thereof, in the case of the Senior Subordinated Note Indenture) of
NNS or such Subsidiary or other obligations relating to such assets (and
release of NNS or such Subsidiary from all liability on the Indebtedness or
other obligations assumed); and (iii) all Net Available Proceeds, less any
amounts invested or committed to be invested pursuant to legally enforceable
agreements within 360 days of such Asset Disposition in assets related to the
business of NNS (including the Capital Stock of another Person (other than NNS
or any Person that is a Subsidiary of NNS immediately prior to such
investment); provided, however, that immediately after giving effect to any
such investment (and not prior thereto) such Person shall be a Subsidiary of
NNS), are applied, on or prior to the 360th day after such Asset Disposition
(unless and to the extent that NNS shall determine to make an Offer to
Purchase), either to (A) the permanent reduction and prepayment of any
Indebtedness of NNS (other than Indebtedness which is expressly subordinate to
the applicable issue of New Notes) then outstanding (including a permanent
reduction of commitments in respect thereof) or (B) the permanent reduction
and repayment of any Indebtedness of any Subsidiary of NNS (other than
Indebtedness which is expressly subordinate to the Guarantee of such
Subsidiary of the applicable issue of New Notes) then outstanding (including a
permanent reduction of commitments in respect thereof). The date of the
earlier to occur of (x) the 361st day after such Asset Disposition and (y) the
31st day after the date that NNS shall have determined not to apply any Net
Available Proceeds from any Asset Disposition as provided in subclauses (A) or
(B) of clause (iii) of the immediately preceding sentence shall be deemed to
be the "Asset Sale Offer Trigger Date," and the amount of Net Available
Proceeds from Asset Dispositions otherwise subject to the preceding provisions
not so applied or as to which NNS has determined not to so apply shall be
referred to as the "Unutilized Net Available Proceeds." Within (x) with
respect to the New Senior Notes, fifteen days after the Asset Sale Offer
Trigger Date, and (y) with respect to the New Senior Subordinated Notes,
thirty days after the Asset Sale Offer Trigger Date, NNS shall make an Offer
to Purchase the outstanding applicable issue of New Notes at a purchase price
in cash equal to 100% of their principal amount plus any accrued and unpaid
interest thereon to the Purchase Date. Notwithstanding the foregoing, NNS may
defer making any Offer to Purchase outstanding New Notes until there are
aggregate Unutilized Net Available Proceeds equal to or in excess of $25
million (at which time, the entire Unutilized Net Available Proceeds, and not
just the amount in excess of $25 million, shall be applied as required
pursuant to this paragraph). If any Indebtedness of NNS or any of its
Subsidiaries ranking pari passu with the New Senior Notes or Guarantees
thereof or the New Senior Subordinated Notes or Guarantees thereof, as the
case may be, requires that prepayment of, or an offer to prepay, such
Indebtedness be made with any Net Available Proceeds, NNS may apply such Net
Available Proceeds pro rata (based on the aggregate principal amount of the
New Senior Notes or the New Senior Subordinated Notes, as the case may be,
then outstanding and the aggregate principal amount (or accreted value, if
less) of all such other Indebtedness then outstanding) to the making of an
Offer to Purchase the New Senior Notes and the New Senior Subordinated Notes
in accordance with the foregoing provisions and the prepayment or the offer to
prepay such pari passu Indebtedness. NNS shall make a further Offer to
Purchase Notes in an aggregate principal amount equal to any such Net
Available Proceeds not utilized to actually prepay such other Indebtedness at
a purchase price in cash equal to 100% of the principal amount of the relevant
New Notes plus accrued and unpaid interest to the Purchase Date if the amount
not so utilized equals or exceeds $25 million. Any remaining Net Available
Proceeds following the completion of the required Offer to Purchase may be
used by NNS for any other purpose (subject to the other provisions of the
Indentures) and the amount of Net Available Proceeds then required to be
otherwise applied in accordance with this covenant shall be reset to zero,
subject to any subsequent Asset Disposition. These provisions will not apply
to the Distribution Transaction or a transaction consummated in compliance
with the provisions of the Indentures described under "--Mergers,
Consolidations and Certain Sales of Assets" below.
In the event that NNS makes an Offer to Purchase the Notes, NNS shall comply
with any applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and
any violation of the provisions of the Indentures relating to such Offer to
Purchase
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occurring as a result of such compliance shall not be deemed an Event of
Default or an event that with the passing of time or giving of notice, or
both, would constitute an Event of Default.
Because the Indentures provide that, upon the occurrence of an Asset
Disposition, NNS will establish the Purchase Date with respect to the New
Senior Subordinated Notes on a date subsequent to the Purchase Date
established by NNS with respect to any Senior Indebtedness, the subordination
provisions relating to the New Senior Subordinated Notes and the "Limitation
on Restricted Payments" covenant in the Senior Note Indenture will prohibit
NNS from repurchasing any tendered New Senior Subordinated Notes upon an Asset
Disposition unless and until all of the tendered Senior Indebtedness is first
repurchased.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF SUBSIDIARIES. The
Indentures provide that NNS (a) will not, and will not permit any Subsidiary
of NNS to, transfer, convey, sell or otherwise dispose of any shares of
Capital Stock of such Subsidiary or any other Subsidiary (other than to NNS or
a Wholly-Owned Subsidiary of NNS), except that NNS and any Subsidiary of NNS
may, in any single transaction, sell all, but not less than all, of the issued
and outstanding Capital Stock of any Subsidiary of NNS to any Person, subject
to complying with the provisions of the Indentures described under "--
Limitation on Certain Asset Dispositions" above and except for the Incurrence
of Liens permitted under "--Relating Only to the New Senior Notes--Limitation
on Liens," in the case of the New Senior Notes, and "--Relating Only to the
New Senior Subordinated Notes--Limitation on Liens," in the case of the New
Senior Subordinated Notes," above and (b) will not permit any Subsidiary of
NNS to issue shares of its Capital Stock (other than directors' qualifying
shares), or securities convertible into, or warrants, rights or options to
subscribe for or purchase shares of, its Capital Stock to any Person other
than to NNS or a Wholly-Owned Subsidiary of NNS.
LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS. The
Indentures provide that NNS will not, and will not permit any of its
Subsidiaries to, enter into directly or indirectly any transaction with an
Affiliate or Related Person of NNS (other than NNS or a Subsidiary of NNS),
including, without limitation, the purchase, sale, lease or exchange of
property, the rendering of any service, or the making of any guarantee, loan,
advance or Investment, either directly or indirectly, involving aggregate
consideration in excess of $1,000,000 unless (i) a majority of the
disinterested directors of the Board of Directors of NNS determines, in its
good faith judgment evidenced by a resolution of such Board of Directors filed
with the Trustee, that such transaction is in the best interests of NNS or
such Subsidiary; and (ii) such transaction is, in the opinion of a majority of
the disinterested directors of the Board of Directors of NNS evidenced by a
resolution of such Board of Directors filed with the Trustee, on terms no less
favorable to NNS or such Subsidiary, as the case may be, than those that could
be obtained in a comparable arm's-length transaction with an entity that is
not an Affiliate or a Related Person. The provisions of this covenant shall
not apply to (i) the Distribution Transaction or the execution, delivery and
performance of any Transaction Agreement, (ii) any employment or
indemnification agreement or similar arrangements entered into by NNS or a
Subsidiary of NNS in the ordinary course of business, (iii) transactions
permitted by the provisions of the Indentures described above under the
caption "--Limitation on Restricted Payments" above, and (iv) the payment of
reasonable fees to directors of NNS or a Subsidiary of NNS.
CHANGE OF CONTROL. Within 30 days (45 days in the case of the New Senior
Subordinated Notes) following the date of the consummation of a transaction
resulting in a Change of Control, NNS will commence an Offer to Purchase the
applicable New Notes, in each case at a purchase price in cash equal to 101%
of the principal amount thereof plus any accrued and unpaid interest thereon
to the Purchase Date in accordance with the procedures set forth in the
Indentures. Each Holder shall be entitled to tender all or any portion of the
New Notes owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a New Note tendered must be tendered in an
integral multiple of $1,000 principal amount. A "Change of Control" will be
deemed to have occurred in the event that (whether or not otherwise permitted
by the Indentures), after the Issue Date (a) any Person or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), together with
any Affiliates or Related Persons thereof, shall "beneficially own" (as
defined in Rule 13d-3 under the Exchange Act, or any
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successor provision thereto) at least 35% of the voting power of the
outstanding Voting Stock of NNS; (b) any sale, lease or other transfer (in one
transaction or a series of related transactions) is made by NNS or any of its
Subsidiaries of all or substantially all of the consolidated assets of NNS to
any Person other than a Wholly-Owned Subsidiary of NNS which is a Guarantor;
(c) Continuing Directors cease to constitute at least a majority of the Board
of Directors of NNS; or (d) the stockholders of NNS approve any plan or
proposal for the liquidation or dissolution of NNS.
In the event that NNS makes an Offer to Purchase the New Notes, NNS shall
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the
Exchange Act and any violation of the provisions of the Indentures relating to
such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
A third party may also make and consummate an Offer to Purchase in the
manner and at the times and otherwise in compliance with this covenant.
Because the Indentures provide that, upon the occurrence of a Change of
Control, NNS will establish the Purchase Date with respect to the New Senior
Subordinated Notes on a date subsequent to the Purchase Date established by
NNS with respect to any New Senior Notes, the subordination provisions
relating to the New Senior Subordinated Notes and the "Limitation on
Restricted Payments" covenant in the Senior Note Indenture will prohibit NNS
from repurchasing any tendered New Senior Subordinated Notes upon a Change of
Control unless and until all of the tendered New Senior Notes are first
repurchased.
With respect to the sale of assets referred to in the definition of "Change
of Control," the phrase "all or substantially all" of the assets of NNS will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of NNS has occurred. In addition, no
assurances can be given that NNS will be able to acquire New Notes tendered
upon the occurrence of a Change of Control. The ability of NNS to pay cash to
the Holders of New Notes upon a Change of Control may be limited by its then
existing financial resources. The Senior Credit Facility contains certain
covenants prohibiting, or requiring waiver or consent of the lenders
thereunder prior to, the repurchase of the New Senior Subordinated Notes upon
a Change of Control and future debt agreements of NNS may provide the same. If
NNS does not obtain such waiver or consent or repay such Indebtedness, NNS
will remain prohibited from repurchasing the New Senior Subordinated Notes. In
such event, NNS' failure to purchase tendered New Senior Subordinated Notes
would constitute an Event of Default under the Senior Subordinated Note
Indenture which would in turn constitute a default under the Senior Credit
Facility, the New Senior Notes and possibly other Senior Indebtedness. In such
circumstances, the subordination provisions of the Senior Subordinated Note
Indenture would likely
restrict payments to the Holders of the New Senior Subordinated Notes. None of
the provisions relating to a repurchase upon a Change of Control are waivable
by the Board of Directors of NNS or the Trustees.
The foregoing provisions will not prevent NNS from entering into a
transaction of the types described above with management or their affiliates.
In addition, such provisions may not necessarily afford the Holders of the New
Notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or similar transaction involving NNS
that may adversely affect the Holders because such transactions may not
involve a shift in voting power or beneficial ownership, or even if they do,
may not involve a shift of the magnitude required under the definition of
Change of Control to trigger the provisions.
PROVISION OF FINANCIAL INFORMATION. Whether or not NNS is subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, NNS
shall file with the Commission the annual reports, quarterly reports and other
documents which NNS would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
NNS were so required, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which NNS would
have been required so to file such documents if NNS were so required. NNS
shall also in any
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event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the Commission) (i) transmit by mail to
all Holders, as their names and addresses appear in the Note Register, without
cost to such Holders, and (ii) file with the Trustees, copies of the annual
reports, quarterly reports and other documents which NNS is required to file
with the Commission pursuant to the preceding sentence, or, if such filing is
not so permitted, information and data of a similar nature, and (b) if,
notwithstanding the preceding sentence, filing such documents by NNS with the
Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any Holder.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS. Neither NNS nor any
Subsidiary will consolidate or merge with or into any Person, and NNS will
not, and will not permit any of its Subsidiaries to, sell, assign, lease,
convey or otherwise dispose of all or substantially all of NNS' consolidated
assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions, including by way of liquidation or
dissolution) to, any Person unless, in each such case: (i) the entity formed
by or surviving any such consolidation or merger (if other than NNS or such
Subsidiary), or to which such sale, assignment, lease, conveyance or other
disposition shall have been made (the "Surviving Entity"), is a corporation
organized and existing under the laws of the United States, any state thereof
or the District of Columbia; provided, however, that any Subsidiary (other
than any other Subsidiary that is not, or would not after giving effect
thereto be, a Material Subsidiary) may consolidate or merge with a corporation
which is not so organized or existing; (ii) the Surviving Entity assumes by
supplemental indenture all of the obligations, if any, of NNS or such
Subsidiary, as the case may be, on the New Notes or such Guarantor's
Guarantee, as the case may be, and under the Indentures; (iii) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Consolidated Net Worth of NNS or the
Surviving Entity (in the case of any transaction involving NNS or all or
substantially all of NNS' consolidated assets), as the case may be, would be
at least equal to the Consolidated Net Worth of NNS immediately prior to such
transaction; (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, NNS or the Surviving
Entity (in the case of any transaction involving NNS or all or substantially
all of NNS' consolidated assets), as the case may be, could Incur at least
$1.00 of Indebtedness pursuant to clause (i) of the provisions of the
Indentures described under "--Limitation on Indebtedness" above; (v)
immediately before and after giving effect to such transaction and treating
any Indebtedness which becomes an obligation of NNS or such Subsidiary, as the
case may be, as a result of such transaction as having been incurred by NNS or
such Subsidiary, as the case may be, at the time of the transaction, no Event
of Default or event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default shall have occurred and be
continuing; and (vi) if, as a result of any such transaction, property or
assets of NNS or a Subsidiary of NNS would become subject to a Lien not
excepted from the provisions of the Indentures described under "Relating Only
to the New Senior Subordinated Notes--Limitation on Liens" above and "Relating
Only to the New Senior Notes--Limitation on Liens" above, as the case may be,
NNS, any such Subsidiary or the Surviving Entity, as the case may be, shall
have secured the New Notes as required by said covenant. The provisions of
this paragraph shall not apply to any merger of a Subsidiary of NNS with or
into NNS or a Wholly-Owned Subsidiary of NNS or any transaction pursuant to
which a Guarantor's Guarantee is to be released in accordance with the terms
of the Guarantees and the Indentures in connection with any transaction
complying with the provisions of the Indentures described under "--Limitation
on Certain Asset Dispositions" above.
EVENTS OF DEFAULT
The following are defined as "Events of Default" under the Indentures: (a)
failure to pay principal of (or premium, if any, on) any New Senior Note or
New Senior Subordinated Note, as the case may be, when due (whether or not, in
the case of the New Senior Subordinated Note, prohibited by the provisions of
the Senior Subordinated Note Indenture described under "--Subordination of the
New Senior Subordinated Notes" above); (b) failure to pay any interest on any
New Senior Note or New Senior Subordinated Note, as the case may be, when due,
continued for 30 days (whether or not, in the case of the New Senior
Subordinated Notes, prohibited by the provisions of the Senior Subordinated
Note Indenture described under "--Subordination of the New Senior Subordinated
Notes" above); (c) default in the payment of principal of and interest on New
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Notes required to be purchased pursuant to an Offer to Purchase as described
under "--Certain Covenants--Relating to all the New Notes--Change of Control"
and "--Certain Covenants --Relating to all the New Notes--Limitation on
Certain Asset Dispositions" above when due and payable (whether or not, in the
case of the New Senior Subordinated Notes, prohibited by the provisions of the
Senior Subordinated Note Indenture described under "--Subordination of the New
Senior Subordinated Notes" above); (d) failure to perform or comply with any
of the provisions described under "--Certain Covenants--Relating to all the
New Notes-- Mergers, Consolidations and Certain Sales of Assets" above; (e)
failure to perform any other covenant, warranty or agreement of NNS under the
Senior Note Indenture or the Senior Subordinated Note Indenture, as the case
may be, or in the New Notes outstanding under such Indenture continued for 30
days after written notice to NNS by the relevant Trustee or Holders of at
least 25% in aggregate principal amount of the outstanding New Senior Notes or
New Senior Subordinated Notes, as the case may be; (f) default or defaults
under the terms of one or more instruments evidencing or securing Indebtedness
of NNS or any of its Subsidiaries having an outstanding principal amount of
$25 million or more individually or in the aggregate that has resulted in the
acceleration of the payment of such Indebtedness or failure by NNS or any of
its Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness; (g) the rendering of a final judgment or judgments (not subject
to appeal) against the NNS or any of its Material Subsidiaries in an amount of
$25 million or more (net of any amounts covered by reputable and creditworthy
insurance companies) which remains undischarged or unstayed for a period of 60
days after the date on which the right to appeal has expired; (h) certain
events of bankruptcy, insolvency or reorganization affecting NNS or any of its
Material Subsidiaries; and (i) other than as provided in or pursuant to any
Guarantee or the Indentures, such Guarantee ceases to be in full force and
effect or is declared null and void and unenforceable or found to be invalid
or any Guarantor denies its liability under its Guarantee (other than by
reason of a release of such Guarantor from its Guarantee in accordance with
the terms of the applicable Indenture and such Guarantee). With respect to the
Senior Subordinated Note Indenture only, the default or defaults in clause (f)
shall constitute an Event of Default only if such default involves the failure
to pay principal on Indebtedness of at least $30 million at the final maturity
thereof or has resulted in the declaration of acceleration thereunder of the
payment of at least $30 million. Subject to the provisions of the Indentures
relating to the duties of the Trustees, in case an Event of Default shall
occur and be continuing, each Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture to which it is a party at the
request or direction of any of the Holders of New Notes issued thereunder,
unless such Holders shall have offered to such Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Senior Note Trustee
and the Senior Subordinated Note Trustee, the Holders of a majority in
aggregate principal amount of the outstanding New Senior Notes and New Senior
Subordinated Notes, as the case may be, will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Senior Note Trustee and the Senior Subordinated Note Trustee, as the
case may be, or exercising any trust or power conferred on the Senior Note
Trustee and the Senior Subordinated Note Trustee, as the case may be.
If an Event of Default with respect to the New Senior Notes (other than an
Event of Default with respect to NNS described in clause (h) of the preceding
paragraph) occurs and is continuing, the Senior Note Trustee or the Holders of
at least 25% in aggregate principal amount of the outstanding New Senior Notes
by notice in writing to NNS (and to the Senior Note Trustee if given by the
Holders) may declare the unpaid principal of and accrued interest to the date
of acceleration on all the outstanding New Senior Notes to be due and payable
immediately and, upon any such declaration, such principal amount (and
premium, if any) and accrued interest will become immediately due and payable.
If an Event of Default with respect to the New Senior Subordinated Notes
(other than an Event of Default with respect to NNS described in clause (h) of
the preceding paragraph) occurs and is continuing, the Senior Subordinated
Note Trustee or the Holders of at least 25% in aggregate principal amount of
outstanding New Senior Subordinated Notes by notice in writing to NNS may
declare the unpaid principal of (and premium, if any) and accrued interest to
the date of acceleration on all the outstanding New Senior Subordinated Notes
to be due and payable immediately and, upon any such declaration, such
principal amount (and premium, if any) and accrued interest, notwithstanding
anything contained in the Senior Subordinated Note Indenture or the New Senior
Subordinated Notes to the contrary, but subject to the provisions limiting
payment described above under "Subordination of New Senior Subordinated
Notes," will become immediately due and payable; provided, however, that so
long as the Senior Credit Facility shall be in full force
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and effect or the New Senior Notes shall be outstanding, if an Event of
Default shall have occurred and be continuing (other than an Event of Default
with respect to NNS described in clause (h) of the preceding paragraph), the
New Senior Subordinated Notes shall not become due and payable until the
earlier to occur of (x) five Business Days following delivery of a written
notice of such acceleration of the New Senior Subordinated Notes to the agent
under the Senior Credit Facility and the Senior Note Trustee, as the case may
be, and (y) the acceleration of any Indebtedness under the Senior Credit
Facility or the Senior Note Indenture, as the case may be. If an Event or
Default specified in clause (h) of the preceding paragraph with respect to NNS
occurs under a Indenture, the New Notes outstanding thereunder will ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee thereunder or any Holder of such New Notes.
Any such declaration with respect to the New Senior Notes or the New Senior
Subordinated Notes may be annulled and past Events of Default and Defaults
(except, unless theretofore cured, an Event of Default or a Default in payment
of principal of (and premium, if any) or interest on the New Senior Notes or
the New Senior Subordinated Notes, as the case may be) may be waived by the
Holders of a majority of the principal amount of the outstanding New Senior
Notes or the New Senior Subordinated Notes, as the case may be, upon the
conditions provided in the respective Indentures. For information as to waiver
of defaults, see "--Modification and Waiver."
Each Indenture provides that the Trustee thereunder shall, within 30 days
after the occurrence of any Default or Event of Default with respect to the
New Notes outstanding thereunder, give the Holders of such New Notes thereof
notice of all uncurred Defaults or Events of Default thereunder known to it;
provided, however, that, except in the case of an Event of Default or a
Default in payment with respect to such New Notes or a Default or Event of
Default in complying with "--Certain Covenants--Relating to all the New
Notes--Mergers, Consolidations and Certain Sales of Assets," the Senior Note
Trustee and the Senior Subordinated Note Trustee shall be protected in
withholding such notice if and so long as a committee of its trust officers in
good faith determines that the withholding of such notice is in the interest
of the Holders of the New Senior Notes or the New Senior Subordinated Notes,
as the case may be.
No Holder of any New Note will have any right to institute any proceeding
with respect to the relevent Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the relevant Trustee written notice
of a continuing Event of Default thereunder and unless the Holders of at least
25% in aggregate principal amount of the New Notes under such Indenture shall
have made written request, and offered reasonable indemnity, to the relevant
Trustee to institute such proceeding as Trustee, and such Trustee shall have
not have received from the Holders of a majority in aggregate principal amount
of such outstanding New Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a Holder of such a New Note
for enforcement of payment of the principal of and premium, if any, or
interest on such New Note on or after the respective due dates expressed in
such New Note.
NNS will be required to furnish to each Trustee annually a statement as to
the performance by it of certain of its obligations under the applicable
Indenture and as to any default in such performance.
SATISFACTION AND DISCHARGE OF INDENTURES; DEFEASANCE
NNS may terminate its and the Guarantors' substantive obligations in respect
of the New Senior Notes and the New Senior Subordinated Notes, as the case may
be, by delivering all outstanding New Senior Notes and New Senior Subordinated
Notes, as the case may be, to the relevant Trustee for cancellation and paying
all sums payable by it on account of principal of, premium, if any, and
interest on all New Senior Notes or New Senior Subordinated Notes, as the case
may be, or otherwise. In addition to the foregoing, NNS may, provided that no
Default or Event of Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default or Event of Default specified in
clause (h) of "--Events of Default" above, any time on or prior to the 95th
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calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 95th day)) under the
applicable Indenture and provided that in the case of the New Senior
Subordinated Notes no default under any Senior Indebtedness would result
therefrom, terminate its and the Guarantors' substantive obligations in
respect of the New Senior Notes or the New Senior Subordinated Notes issued
under such Indenture (except for its obligations to pay the principal of (and
premium, if any, on) and the interest on such New Notes and the Guarantors'
guarantee thereof) by (i) depositing with the relevant Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining
indebtedness on such New Notes, (ii) delivering to the relevant Trustee either
an Opinion of Counsel or a ruling directed to such Trustee from the Internal
Revenue Service to the effect that the Holders of the relevant New Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and termination of obligations, (iii) delivering to the
relevant Trustee an Opinion of Counsel to the effect that NNS' exercise of its
option under this paragraph will not result in any of NNS, the relevant
Trustee or the relevant trust created by NNS' deposit of funds pursuant to
this provision becoming or being deemed to be an "investment company" under
the Investment Company Act of 1940, as amended (the "Investment Act"), and
(iv) complying with certain other requirements set forth in such Indenture. In
addition, NNS may, provided that no Default or Event of Default has occurred
and is continuing or would arise therefrom (or, with respect to a Default or
Event of Default specified in clause (h) of "--Events of Default" above, any
time on or prior to the 95th calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 95th day)) under the applicable Indenture and provided that in the case
of the New Senior Subordinated Notes no default under any Senior Indebtedness
would result therefrom, terminate all of its and the Guarantors' substantive
obligations in respect of the New Notes issued under such Indenture (including
its obligations to pay the principal of (and premium, if any, on) and interest
on such New Notes and the Guarantors' guarantee thereof) by (i) depositing
with the relevant Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without
reinvestment) to pay all remaining Indebtedness on such New Notes, (ii)
delivering to the relevant Trustee either a ruling directed to such Trustee
from the Internal Revenue Service to the effect that the Holders of such New
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and termination of obligations or an Opinion of
Counsel based upon such a ruling addressed to the relevant Trustee or a change
in the applicable federal tax law since the date of such Indenture, to such
effect, (iii) delivering to the relevant Trustee an Opinion of Counsel to the
effect that NNS's exercise of its option under this paragraph will not result
in any of NNS, such Trustee or the relevant trust created by NNS's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Act and (iv) complying with certain other
requirements set forth in such Indenture.
NNS may make an irrevocable deposit pursuant to this provision pursuant to
the Senior Subordinated Note Indenture only if at such time it is not
prohibited from doing so under the subordination provisions of such Indenture
or certain covenants in the Senior Indebtedness and NNS has delivered to the
Senior Subordinated Note Trustee and any Paying Agent an Officers' Certificate
to that effect.
GOVERNING LAW
The Indentures are, and the New Notes and the Guarantees will be, governed
by the laws of the State of New York without regard to principles of conflicts
of laws.
MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by NNS, the
Guarantors and the Trustee thereunder with the consent of the Holders of a
majority in aggregate principal amount of the Senior Notes or the Senior
Subordinated Notes, as the case may be, outstanding thereunder; provided,
however, that no such modification or amendment to the Senior Note Indenture
or the Senior Subordinated Note Indenture may, without the consent of the
Holder of each New Senior Note or New Senior Subordinated Note, as the case
may be, affected thereby, (a) change the maturity of the principal of or any
installment of interest on any such New Senior Note or New Senior Subordinated
Note or alter the optional redemption or repurchase provisions of any such
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New Senior Note or New Senior Subordinated Note or such Indenture in a manner
adverse to the Holders of such New Senior Notes and New Senior Subordinated
Notes, as the case may be, (b) reduce the principal amount of (or the premium)
of any such New Senior Note or New Senior Subordinated Note, as the case may
be, (c) reduce the rate of or extend the time for payment of interest on any
such New Senior Note or New Senior Subordinated Note, as the case may be, (d)
change the place or currency of payment of principal of (or premium) or
interest on any such New Senior Note or New Senior Subordinated Note, as the
case may be, (e) modify any provisions of such Indenture relating to the
waiver of past defaults (other than to add sections of such Indenture or such
New Senior Notes or New Senior Subordinated Notes subject thereto) or the
right of the Holders of New Senior Notes and the New Senior Subordinated
Notes, as the case may be, outstanding thereunder to institute suit for the
enforcement of any payment on or with respect to any such New Senior Note or
New Senior Subordinated Note or any Guarantee in respect thereof or the
modification and amendment of such Indenture and such New Senior Notes or New
Senior Subordinated Notes (other than to add sections of such Indenture or
such New Notes which may not be amended, supplemented or waived without the
consent of each Holder herein affected), (f) reduce the percentage of the
principal amount of outstanding New Senior Notes and New Senior Subordinated
Notes, as the case may be, necessary for amendment to or waiver of compliance
with any provision of the applicable Indenture or the New Senior Notes and New
Senior Subordinated Notes, as the case may be, outstanding thereunder or for
waiver of any Default in respect thereof, (g) waive a default in the payment
of principal of, interest on, or redemption payment with respect to, such New
Senior Note or New Senior Subordinated Note (except a recision of acceleration
of the relevant New Notes by the Holders thereof as provided in such Indenture
and a waiver of the payment default that resulted from such acceleration), (h)
in the case of the Senior Subordinated Note Indenture, modify the ranking or
priority of the New Senior Subordinated Notes or the Guarantees in respect
thereof of any Guarantor or modify the definition of Senior Indebtedness or
Guarantor Senior Indebtedness or amend or modify the subordination provisions
of the Senior Subordinated Note Indenture in any manner adverse to the Holders
of New Senior Subordinated Notes, (i) in the case of the Senior Note
Indenture, modify the ranking or priority of the New Senior Notes or the
Guarantees thereof of any Guarantor, (j) release any Guarantor from any of its
obligations under its Guarantee or such Indenture under which such New Note is
outstanding otherwise than in accordance with such Indenture, or (k) modify
the provisions relating to any Offer to Purchase required under the covenants
described under "--Certain Covenants--Relating to all the New Notes--
Limitation on Certain Asset Dispositions" or "--Certain Covenants--Relating to
all the New Notes--Change of Control" in a manner materially adverse to the
Holders of New Senior Notes and New Senior Subordinated Notes affected
thereby.
The Holders of a majority in aggregate principal amount of the outstanding
New Senior Notes or New Senior Subordinated Notes, on behalf of all Holders of
New Senior Notes or New Senior Subordinated Notes, as the case may be, may
waive compliance by NNS and the Guarantors with certain restrictive provisions
of the Senior Note Indenture and the Senior Subordinated Note Indenture, as
the case may be. Subject to certain rights of the relevant Trustee, as
provided in the applicable Indenture, the Holders of a majority in aggregate
principal amount of the New Senior Notes and the New Senior Subordinated
Notes, as the case may be, on behalf of all Holders of New Senior Notes and
New Senior Subordinated Notes, as the case may be, outstanding thereunder, may
waive any past default under such Indenture, except a default in the payment
of principal, premium or interest or a default arising from failure to
purchase any New Senior Notes and New Senior Subordinated Notes, as the case
may be, tendered pursuant to an Offer to Purchase pursuant thereto, or a
default in respect of a provision that under such Indenture cannot be modified
or amended without the consent of the Holder of each New Senior Note or New
Senior Subordinated Note, as the case may be, outstanding thereunder that is
affected.
THE TRUSTEES
The Indentures provide that, except during the continuance of a Default, the
Trustees will perform only such duties as are specifically set forth in the
Indentures. During the existence of a Default under an Indenture, the relevant
Trustee will exercise such rights and powers vested in it under such Indenture
and use the same degree
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of care and skill in their exercise as a prudent person would exercise under
the circumstances in the conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustees, should
they become a creditor of NNS, any Guarantor or any other obligor upon the New
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustees are permitted to engage in other transactions with NNS or an
Affiliate of NNS; provided, however, that if it acquires any conflicting
interest (as defined in the Indentures or in the Trust Indenture Act), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in this
Prospectus and the Indentures. Reference is made to the Indentures for the
full definition of all such terms, as well as any other terms used herein for
which no definition is provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct or cause the
direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of (i) shares of Capital Stock of a Subsidiary of NNS (other than
directors' qualifying shares) or (ii) property or assets of NNS or any of its
Subsidiaries; provided, however, that an Asset Disposition shall not include
(a) any sale, transfer or other disposition of shares of Capital Stock,
property or assets by a Subsidiary of NNS to NNS or to any Wholly-Owned
Subsidiary of NNS or by NNS to a Wholly-Owned Subsidiary of NNS, (b) any sale,
transfer or other disposition of defaulted receivables for collection or any
sale, transfer or other disposition of property or assets in the ordinary
course of business, (c) any isolated sale, transfer or other disposition that
does not involve aggregate consideration in excess of $1,000,000 individually,
(d) the grant in the ordinary course of business of any non-exclusive license
of patents, trademarks, registrations therefor and other similar intellectual
property, (e) any Lien (or foreclosure thereon) securing Indebtedness to the
extent that such Lien is granted in compliance with "--Certain Covenants--
Relating Only to the New Senior Subordinated Notes--Limitation on Liens"
above, in the case of the Senior Subordinated Note Indenture, or "--Certain
Covenants--Relating to the New Senior Notes--Limitation on Liens" above, in
the case of the Senior Note Indenture, (f) any Restricted Payment permitted by
"--Certain Covenants--Relating to all the New Notes--Limitation on Restricted
Payments" above, or (g) any disposition of assets or property in the ordinary
course of business to the extent such property or assets are obsolete, worn-
out or no longer useful in the NNS' or any of its Subsidiaries' business.
"Asset Sale Offer Trigger Date" has the meaning set forth in "--Certain
Covenants--Relating to all the New Notes--Limitation on Certain Asset
Dispositions."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value payments,
by (ii) the sum of all such principal or liquidation value payments.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which are
required to be classified and accounted for as a capital lease or liability on
the face of a balance sheet
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of such Person in accordance with GAAP. The amount of such obligations shall
be the capitalized amount thereof in accordance with GAAP and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may
be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
"Cash Equivalents" means Investments in marketable, direct obligations
issued or guaranteed by the United States of America, or any governmental
entity or agency or political subdivision thereof (provided, that the good
faith and credit of the United States of America is pledged in support
thereof), maturing within 30 days of the date of purchase.
"Change of Control" has the meaning set forth in "--Certain Covenants--
Relating to all the New Notes--Change of Control."
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means for
any period the Consolidated Net Income of such Person for such period
increased (to the extent Consolidated Net Income for such period has been
reduced thereby) by the sum of (without duplication) (i) Consolidated Interest
Expense of such Person for such period, plus (ii) Consolidated Income Tax
Expense of such Person for such period, plus (iii) the consolidated
depreciation and amortization expense included in the income statement of such
Person for such period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio
of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period to (ii) the sum of (A) Consolidated Interest Expense of such
Person for such period, plus (B) the annual interest expense with respect to
any Indebtedness proposed to be Incurred by such Person or its Subsidiaries,
minus (C) Consolidated Interest Expense of such Person to the extent included
in clause (ii)(A) with respect to any Indebtedness that will no longer be
outstanding as a result of the Incurrence of the Indebtedness proposed to be
Incurred, plus (D) the annual interest expense with respect to any other
Indebtedness Incurred by such Person or its Subsidiaries since the end of such
period to the extent not included in clause (ii)(A), minus (E) Consolidated
Interest Expense of such Person to the extent included in clause (ii)(A) with
respect to any Indebtedness that no longer is outstanding as a result of the
Incurrence of the Indebtedness referred to in clause (ii)(D); provided,
however, that in making such computation, the Consolidated Interest Expense of
such Person attributable to interest on any Indebtedness bearing a floating
interest rate shall be computed on a pro forma basis as if the rate in effect
on the date of computation (after giving effect to any hedge in respect of
such Indebtedness that will, by its terms, remain in effect until the earlier
of the maturity of such Indebtedness or the date one year after the date of
such determination) had been the applicable rate for the entire period;
provided, further, however, that, in the event such Person or any of its
Subsidiaries has made any Asset Dispositions or acquisitions of assets not in
the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during or after such
period and on or prior to the date of measurement, such computation shall be
made on a pro forma basis as if the Asset Dispositions or acquisitions had
taken place on the first day of such period. Calculations of pro forma amounts
in accordance with this definition shall be done in accordance with Rule 11-02
of Regulation S-X under the Securities Act or any successor provision.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person for such period
calculated on a consolidated basis in accordance with GAAP.
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"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest or finance charge income) of such Person for
such period calculated on a consolidated basis in accordance with GAAP, plus
discount on receivables sold or other discount related to any receivables
securitization transaction.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person for such period determined on
a consolidated basis in accordance with GAAP; provided, however, that there
shall be excluded therefrom (a) the net income (or loss) of any Person
acquired by such Person or a Subsidiary of such Person in a pooling-of-
interests transaction for any period prior to the date of such transaction,
(b) the net income (but not net loss) of any Subsidiary of such Person which
is subject to restrictions which prevent or limit the payment of dividends or
the making of distributions to such Person to the extent of such restrictions
(regardless of any waiver thereof), (c) the net income of any Person that is
not a Subsidiary of such Person, except to the extent of the amount of
dividends or other distributions representing such Person's proportionate
share of such other Person's net income for such period actually paid in cash
to such Person by such other Person during such period, (d) gains or losses on
Asset Dispositions by such Person or its Subsidiaries, (e) all extraordinary
gains and extraordinary losses determined in accordance with GAAP, (f) any
other non-cash charges to the extent deducted from or reflected in
Consolidated Net Income except for any non-cash charges that represent
accruals of, or reserves for, cash disbursements to be made in any future
accounting period and (g) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings (or losses) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Stock of
such Person.
"Continuing Director" means a director who either was a member of the Board
of Directors of NNS on the Issue Date or who became a director of NNS
subsequent to the Issue Date and whose election, or nomination for election by
NNS' stockholders, was duly approved by a majority of the Continuing Directors
then on the Board of Directors of NNS, either by a specific vote or by
approval of the proxy statement issued by NNS on behalf of the entire Board of
Directors of NNS in which such individual is named as nominee for director.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, or other similar agreement or arrangement designed to protect
against fluctuation in currency values.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Designated Senior Indebtedness" means (i) so long as any Indebtedness under
the Senior Credit Facility is outstanding or any lender has any commitment
thereunder, the Senior Indebtedness incurred under the Senior Credit Facility,
(ii) so long as outstanding, any Old Senior Notes, any New Senior Notes and
any Senior Indebtedness incurred under the Senior Note Indenture and (iii) so
long as outstanding, any other Senior Indebtedness which has at the time of
initial issuance of the Old Notes an aggregate outstanding principal amount in
excess of $10 million which has been designated as Designated Senior
Indebtedness by the Board of Directors of NNS at the time of initial issuance
of the Old Notes in a resolution delivered to the Trustee.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final maturity of the New Notes.
"Distribution Transaction" means the series of transactions pursuant to
which (i) Tenneco and its subsidiaries, pursuant to a Distribution Agreement
dated as of November 1, 1996, as amended (the "Distribution
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Agreement") among Tenneco, New Tenneco and NNS, restructured, divided and
separated their various businesses and assets so that all of the assets,
liabilities and operations of (A) their automotive parts, packaging and
administrative services businesses ("Industrial Business") are owned and
operated by the New Tenneco, (B) their shipbuilding business ("Shipbuilding
Business") are owned and operated by NNS and (C) the remaining existing and
discontinued operations of Tenneco and its subsidiaries other than those
relating to the Industrial Business or the Shipbuilding Business, including
the transmission and marketing of natural gas are owned by Tenneco; (ii)
Tenneco subsequently distributed pro rata to holders of Tenneco common stock
all of the outstanding common stock of New Tenneco (the "Industrial
Distribution") and NNS (the "Shipbuilding Distribution"); and (iii) thereafter
a subsidiary of El Paso Natural Gas Company ("El Paso") merged with and into
Tenneco pursuant to the Amended and Restated Agreement and Plan of Merger
dated as of June 19, 1996 among El Paso Natural Gas Company, El Paso Merger
Company and Tenneco.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Foreign Subsidiary" means any Subsidiary which is organized under the laws
of a jurisdiction other than the United States of America or any State thereof
or the District of Columbia and (determined on a consolidated basis) more than
66 2/3% of the sales or earnings of which are derived from operations located
in, or more than 66 2/3% of the assets of which are located in, territories of
the United States of America and jurisdictions outside the United States of
America.
"GAAP" means generally accepted accounting principles, consistently applied,
as in effect on the Issue Date in the United States of America, as set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession.
"guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness (and
"guaranteed," "guaranteeing" and "guarantor" shall have meanings correlative
to the foregoing); provided, however, that the guarantee by any Person shall
not include endorsements by such Person for collection or deposit, in either
case, in the ordinary course of business.
"Guarantee" means the guarantee of the New Senior Notes or New Senior
Subordinated Notes, as the case may be, by each Guarantor under the applicable
Indenture.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at any
date, (i) the maximum amount of all Indebtedness of such Guarantor under the
Senior Credit Facility, including principal, premium, if any, and interest on
such Indebtedness and all other amounts due on or in connection with such
Indebtedness including all charges, fees and expenses (without regard to any
limitation set forth in the terms thereof and whether or not such Indebtedness
is invalidated or set aside or otherwise legally unenforceable), (ii) the
Guarantees of the New Senior Notes, including the guarantee of principal,
premium, if any, and interest on the New Senior Notes and all other amounts
guaranteed on or in connection with the New Senior Notes, (iii) all other
Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest on such Indebtedness, unless the instrument
under which such Indebtedness of such Guarantor for borrowed money is created,
incurred, assumed or guaranteed expressly provides that such Indebtedness for
borrowed money is not senior or superior in right of payment to the Guarantee
of the New Senior Subordinated Notes of such Guarantor, and all renewals,
extensions, modifications, amendments or refinancings thereof and (iv) all
interest
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on any Indebtedness referred to in clauses (i), (ii) and (iii) during the
pendency of any bankruptcy or insolvency proceeding, whether or not allowed or
allowable thereunder. Notwithstanding the foregoing, Guarantor Senior
Indebtedness shall not include (a) Indebtedness which is pursuant to its terms
or any agreement relating thereto subordinated or junior in right of payment
or otherwise to any other Indebtedness of such Guarantor, provided, however,
that no Indebtedness of such Guarantor shall be deemed to be subordinated or
junior in right of payment or otherwise to any other Indebtedness of such
Guarantor solely by reason of such other Indebtedness being secured and such
Indebtedness not being secured, (b) the Guarantees of the New Senior
Subordinated Notes, (c) any Indebtedness of such Guarantor to any of its
Subsidiaries, and (d) any Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of the Bankruptcy Code, is
without recourse to such Guarantor.
"Guarantors" means (i) Newport News Shipbuilding and Dry Dock Company, a
Virginia corporation; (ii) NNS Delaware Management Company, a Delaware
corporation; and (iii) each Material Subsidiary, whether formed or acquired
before or after the Issue Date; provided, however, that any Subsidiary
acquired after the Issue Date which is prohibited from entering into a
Guarantee pursuant to restrictions contained in any debt instrument in
existence at the time such Subsidiary was so acquired and not entered into in
anticipation or contemplation of such acquisition shall not be required to
become a Guarantor so long as any such restriction is in existence and to the
extent of any such restriction.
"Holder" means a holder of New Senior Notes or New Senior Subordinated
Notes, as the case may be.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Person or any of
its Subsidiaries existing at the time such Person becomes a Subsidiary of NNS
(or is merged into or consolidates with NNS or any of its Subsidiaries),
whether or not such Indebtedness was incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of NNS (or being merged
into or consolidated with NNS or any of its Subsidiaries), shall be deemed
Incurred at the time any such Person becomes a Subsidiary of NNS or merges
into or consolidates with NNS or any of its Subsidiaries.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith), (v) every Capital
Lease Obligation of such Person, (vi) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person (including, without limitation, any Currency
Agreement and any Interest Rate Agreement) and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise. Indebtedness shall include (without
duplication) the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Stock of NNS, and any Preferred
Stock of a Subsidiary of NNS. Indebtedness shall never be calculated taking
into account any cash and cash equivalents held by such Person.
"Interest Rate Agreements" means any obligations of any Person pursuant to
any interest rate swaps, caps, collars, and similar arrangements providing
protection against fluctuations in interest rates. For purposes of the
Indentures, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the
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then most recently ended fiscal quarter of such person, based on the
assumption that such obligation had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
obligation provides for the netting of amounts payable by and to such person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such person, then in each such case, the amount of such
obligations shall be the net amount so determined, plus any premium due upon
default by such person.
"Investment" by any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by any other Person.
"Issue Date" means the original issue date of the Old Notes.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, priority or other security agreement with respect
to such property or assets (including, without limitation, any conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing).
"Material Subsidiary" means any Subsidiary (other than a Foreign Subsidiary
and other than NNS Tanker Holdings Corporation) having consolidated assets
exceeding $10,000,000.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the
monetization or other disposition of any non-cash consideration (including
notes or other securities) received in connection with such Asset Disposition,
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred (including, without limitation, fees and expenses
of accountants, brokers, printers and other similar entities) and all federal,
state, foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) any amount with respect to any
Asset Disposition involving an asset useful in the performance of a contract
with a U.S. governmental entity which the Company or any of its Subsidiaries
is required to credit to such U.S. governmental entity under the terms of such
contract as a result of such Asset Disposition, (iii) all payments made by
such Person or its Subsidiaries on any Indebtedness which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid
out of the proceeds from such Asset Disposition, (iv) all payments made with
respect to liabilities associated with the assets which are the subject of the
Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (v) appropriate amounts to be provided by such Person or
any Subsidiary thereof, as the case may be, as a reserve in accordance with
GAAP against any liabilities associated with such assets and retained by such
Person or any Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, until such time as such amounts are no
longer reserved or such reserve is no longer necessary (at which time any
remaining amounts will become Net Available Proceeds to be allocated in
accordance with the provisions of clause (iii) of the covenant of the
Indentures described under "--Certain Covenants--Relating to all the New
Notes--Limitation on Certain Asset Dispositions") and (vi) all distributions
and other payments made to minority interest holders in Subsidiaries of such
Person or joint ventures as a result of such Asset Disposition.
"Offer to Purchase" means a written offer (the "Offer") sent by NNS by first
class mail, postage prepaid, to each Holder at his address appearing in the
register for the New Senior Notes or the New Senior Subordinated Notes, as the
case may be, on the date of the Offer offering to purchase up to the principal
amount of New Senior
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Notes or the New Senior Subordinated Notes, as the case may be, specified in
such Offer at the purchase price specified in such Offer (as determined
pursuant to the relevant Indenture). Unless otherwise required by applicable
law, the Offer shall specify an expiration date (the "Offer Expiration Date")
of the Offer to Purchase which shall be not less than 30 days nor more than 60
days after the date of such Offer and, with respect to the New Senior
Subordinated Notes, not earlier than five Business Days after the expiration
date established under the Senior Note Indenture for any offer to purchase for
the New Senior Notes arising out of the event relating to such Offer to
Purchase and a settlement date (the "Purchase Date") for purchase of such New
Notes within five Business Days after the Offer Expiration Date and, with
respect to the New Senior Subordinated Notes, not earlier than five Business
Days after the purchase date established under the Senior Note Indenture for
any offer to purchase for the New Senior Notes arising out of the event
relating to such Offer to Purchase; provided, however, that to the extent that
any offer to purchase for the New Senior Notes arising out of the same event
relating to such Offer to Purchase is extended, the Offer to Purchase for the
New Senior Subordinated Notes shall be extended by that number of days
necessary so that the Purchase Date would be not earlier than five Business
Days after the new purchase date relating to the New Senior Notes after such
extension with respect to the New Senior Notes. NNS shall notify the relevant
Trustee at least 15 Business Days (or such shorter period as is acceptable to
such Trustee) prior to the mailing of the Offer of NNS' obligation to make an
Offer to Purchase, and the Offer shall be mailed by NNS or, at NNS' request,
by such Trustee in the name and at the expense of NNS. The Offer shall contain
all the information required by applicable law to be included therein. The
Offer shall contain all instructions and materials necessary to enable such
Holders to tender such New Notes pursuant to the Offer to Purchase. The Offer
shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Offer Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding New Notes offered
to be purchased by NNS pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by NNS for each $1,000 aggregate
principal amount of New Notes accepted for payment (as specified pursuant
to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the New Notes
registered in the name of such Holder and that any portion of a New Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where New Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any New Note not tendered or tendered but not
purchased by NNS pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each New Note being accepted for payment pursuant to the Offer
to Purchase and that interest thereon shall cease to accrue on and after
the Purchase Date;
(9) that each Holder electing to tender all or any portion of a New Note
pursuant to the Offer to Purchase will be required to surrender such New
Note at the place or places specified in the Offer prior to the close of
business on the Offer Expiration Date (such New Note being, if NNS or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to NNS and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion of New
Notes tendered if NNS (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Offer
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the New Note
the Holder tendered, the certificate number of the New Note the Holder
tendered and a statement that such Holder is withdrawing all or a portion
of his tender;
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(11) that (a) if New Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, NNS shall purchase all such New Notes and (b) if
New Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, NNS shall
purchase New Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only New Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(12) that in the case of any Holder whose New Note is purchased only in
part, NNS shall execute, and the Trustee shall authenticate and deliver to
the Holder of such New Note without service charge, a new New Note or New
Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the New Note or New Notes so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Payment Blocking Period" has the meaning set forth under "--Subordination
of New Senior Subordinated Notes."
"Payment Blockage Notice" has the meaning set forth under "--Subordination
of New Senior Subordinated Notes."
"Permitted Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or any
governmental entity or agency or political subdivision thereof (provided, that
the good faith and credit of the United States of America is pledged in
support thereof), maturing within one year of the date of purchase; (ii)
Investments in commercial paper issued by corporations or financial
institutions maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's Investors Service or "A-1" or
better by Standard & Poor's Corporation or an equivalent rating or better by
any other nationally recognized securities rating agency; (iii) Investments in
certificates of deposit issued or acceptances accepted by or guaranteed by any
bank or trust company organized under the laws of the United States of America
or any state thereof or the District of Columbia, in each case having capital,
surplus and undivided profits totaling more than $500,000,000, maturing within
one year of the date of purchase; (iv) Investments representing Capital Stock
or obligations issued to NNS or any of its Subsidiaries in the course of the
good faith settlement of claims against any other Person or by reason of a
composition or readjustment of debt or a reorganization of any debtor of NNS
or any of its Subsidiaries; (v) deposits, including interest-bearing deposits,
maintained in the ordinary course of business in banks; (vi) any acquisition
of the Capital Stock of any Person; provided, however, that after giving
effect to any such acquisition such Person shall become a Subsidiary of NNS;
(vii) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided, however, that such receivables and
prepaid expenses would be recorded as assets of such Person in accordance with
GAAP; (viii) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments of
such other Person received as payment for ordinary course of business trade
receivables; (ix) any interest swap or hedging obligation with an unaffiliated
Person otherwise permitted by the Indentures (including, without limitation,
any Currency Agreement and any Interest Rate Agreement); (x) Investments
received as consideration for an Asset Disposition in compliance with the
provisions of the Indentures described under "--Certain Covenants--Relating to
all the New Notes--Limitation on Certain Asset Dispositions" above; (xi)
Investments for which the sole consideration provided is Capital Stock of NNS
(other than Disqualified Stock); (xii) loans and advances to employees made in
the ordinary course of business; (xiii) Investments outstanding on the Issue
Date; and (xiv) Investments in minority interests in joint ventures,
partnerships or other similar arrangements after the Issue Date; provided,
that the aggregate unrecovered Investments of NNS and its Subsidiaries does
not at any time exceed $50 million (for this purpose, "unrecovered Investment"
means the amount of cash and the book value of other assets invested, reduced
by the amount of cash and the book value of other assets distributed to the
investor by the investee).
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"Permitted Junior Securities" means any securities of NNS or any other
Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness or Guarantor
Senior Indebtedness, as the case may be, that may at the time be outstanding,
to substantially the same extent as, or to a greater extent than, the New
Senior Subordinated Notes are subordinated as provided in the Senior
Subordinated Note Indenture, in any event pursuant to a court order so
providing and as to which (a) the rate of interest on such securities shall
not exceed the effective rate of interest on the New Senior Subordinated Notes
on the date of the Senior Subordinated Note Indenture, (b) such securities
shall not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the New Senior Subordinated Notes on the date of the Senior Subordinated
Note Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior
to the date six months following the final scheduled maturity date of the
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be (as
modified by the plan of reorganization or readjustment pursuant to which such
securities are issued).
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges, or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made, (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen, or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made, (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance, and other types of social
security, (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds, and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money), (v) easements, rights-of-way, municipal and zoning
ordinances, and similar charges, encumbrances, title defects, or other
irregularities that do not materially interfere with the ordinary course of
business of NNS and its Subsidiaries taken as a whole, (vi) Liens on property
of NNS or any of its Subsidiaries in favor of the United States of America,
any state thereof, or any instrumentality of either to secure payments
pursuant to any contract or statute, (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of business
of NNS and its Subsidiaries taken as a whole, (viii) Liens encumbering
property or assets under construction arising from obligations of NNS or any
of its Subsidiaries to make progress or partial payments relating to such
construction, (ix) any interest or title of a lessor in the property subject
to any Capitalized Lease or operating lease, (x) Liens arising from filing
Uniform Commercial Code financing statements regarding leases, (xi) Liens in
favor of the Senior Note Trustee or the Senior Subordinated Note Trustee as
provided for in the Senior Note Indenture or the Senior Subordinated Note
Indenture, as the case may be, on money or property held or collected by the
Senior Note Trustee or the Senior Subordinated Note Trustee in its capacity as
Trustee, (xii) Liens in favor of NNS or any of its Subsidiaries, (xiii) Liens
arising from the rendering of a final judgment or order against NNS or any of
its Subsidiaries that does not give rise to an Event of Default, (xiv) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and
the products and proceeds thereof, (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods, (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within
the general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, futures
contracts, futures options, or similar agreements or arrangements designed to
protect NNS or any of its Subsidiaries from fluctuations in the price of
commodities, (xvii) Liens arising out of conditional sale, title retention,
consignment, or similar arrangements for the sale of goods entered into by NNS
or any of its Subsidiaries in the ordinary course of business in accordance
with the past practices of NNS or any of its Subsidiaries prior to the Issue
Date, and (xviii) Liens on or sales of receivables.
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"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Related Person" of any Person means any other Person directly or indirectly
owning (a) 5% or more of the outstanding Common Stock of such Person (or, in
the case of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Required Filing Dates" has the meaning set forth in "--Certain Covenants--
Relating to all the New Notes--Provision of Financial Information."
"Senior Credit Facility" means the Credit Agreement, dated as of November 4,
1996, among NNS as borrower thereunder, any Material Subsidiaries of NNS as
guarantors thereunder and Morgan Guaranty Trust Company of New York as agent
on behalf of itself and the other lenders named therein, including any
deferrals, renewals, extensions, replacements, refinancings or refundings
thereof, or amendments, modifications or supplements thereto and any agreement
providing therefor whether by or with the same or any other lender, creditors,
group of lenders or group of creditors and including related notes, guarantee
agreements, security documents and other instruments and agreements executed
in connection therewith.
"Senior Indebtedness" means, at any date, (i) all Indebtedness of NNS under
the Senior Credit Facility, including principal, premium, if any, and interest
on such Indebtedness and all other amounts due on or in connection with such
Indebtedness including all charges, fees and expenses, (ii) the Old Senior
Notes and the New Senior Notes, including principal, premium, if any, and
interest on the Old Senior Notes and the New Senior Notes and all other
amounts due on or in connection with the Old Senior Notes and the New Senior
Notes, (iii) all other Indebtedness of NNS for borrowed money, including
principal, premium, if any, and interest on such Indebtedness, unless the
instrument under which such Indebtedness of NNS for money borrowed is created,
incurred, assumed or guaranteed expressly provides that such Indebtedness for
money borrowed is not senior or superior in right of payment to the Old Senior
Subordinated Notes or the New Senior Subordinated Notes, and all renewals,
extensions, modifications, amendments or refinancings thereof and (iv) all
interest on any Indebtedness referred to in clauses (i), (ii) and (iii)
accruing during the pendency of any bankruptcy or insolvency proceeding,
whether or not allowed or allowable thereunder. Notwithstanding the foregoing,
Senior Indebtedness shall not include (a) Indebtedness which is pursuant to
its terms or any agreement relating thereto subordinated or junior in right of
payment or otherwise to any other Indebtedness of NNS, provided, however, that
no Indebtedness of NNS shall be deemed to be subordinate or junior in right of
payment or otherwise to any other Indebtedness of NNS solely by reason of such
other Indebtedness being secured and such Indebtedness not being secured, (b)
the Old Senior Subordinated Notes or the New Senior Subordinated Notes, (c)
any Indebtedness of NNS to any Subsidiary of NNS, and (d) any Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Code, is without recourse to NNS.
"Shipbuilding Distribution" has the meaning set forth in the definition of
"Distribution Transaction."
"Subordinated Indebtedness" of any Person means any Indebtedness of such
Person if the instrument creating of evidencing such Indebtedness or pursuant
to which such Indebtedness is outstanding expressly provides that such
Indebtedness is subordinated in right of payment to any other Indebtedness of
such Person.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by
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<PAGE>
such Person and one or more other Subsidiaries thereof or (ii) any other
Person (other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and voting
power relating to the policies, management and affairs thereof.
"Transaction Agreements" means each of the Distribution Agreement dated as
of November 1, 1996, as amended among Tenneco, New Tenneco and NNS; the
Amended and Restated Agreement and Plan of Merger, dated as of June 19, 1996,
among El Paso Natural Gas Company, El Paso Merger Company and Tenneco; the
Benefits Agreement among Tenneco, New Tenneco and NNS; the Debt and Cash
Allocation Agreement among Tenneco, New Tenneco and NNS; the Insurance
Agreement among Tenneco, New Tenneco and NNS; the Tax Sharing Agreement, as
amended, among Tenneco, New Tenneco and NNS; the NNS Processing Services
Agreement between Tenneco Business Services Inc. and the Company; the NSS
Supplier Participation Agreement between New Tenneco and the Company (together
with the NNS Processing Services Agreement, the "TBS Services Agreement"); and
the Trademark Transition License Agreement among Tenneco, New Tenneco and NNS;
as each such Agreement has heretofore been and may hereafter be amended,
modified or supplemented.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"United States Government Obligations" means the direct noncallable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unutilized Net Available Proceeds" has the meaning set forth in "--Certain
Covenants--Relating to all the New Notes--Limitation on Certain Asset
Dispositions."
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly-Owned Subsidiaries of such Person or by such
Person and one or more Wholly-Owned Subsidiaries of such Person.
106
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ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement, or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"; such plan, an "ERISA Plan") should consider the
fiduciary standards under ERISA in the context of the ERISA Plan's particular
circumstances and consult with its counsel with respect to an investment of
such ERISA Plan's assets in the Notes. ERISA, and the corresponding provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), prohibit
transactions involving the assets of an ERISA Plan or of an individual
retirement account or plan subject to Section 4975 of the Code and persons who
have certain specified relationships to the ERISA Plan ("parties in interest,"
within the meaning of ERISA, "disqualified persons," within the meaning of the
Code). Thus, a fiduciary of an ERISA Plan considering an investment in the
Notes also should consider whether the acquisition of the Notes might
constitute or give rise to a non-exempt prohibited transaction.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not
subject to the restrictions of ERISA. The investment in the Notes by such
employee benefit plans may, however, be subject to other applicable federal,
state and local laws, which should be carefully considered by such employee
benefit plans before investing in the Notes.
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CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income tax consequences of the Exchange Offer to holders of Old Notes. This
discussion is general in nature and does not discuss all aspects of U.S.
federal income taxation that may be relevant to a particular holder in light
of the holder's particular circumstances, or to certain types of holders
subject to special treatment under U.S. federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions,
employee stock ownership plans, banks, brokers, dealers, holders that hold Old
Notes as part of a position in a "straddle" or as part of a "hedging" or
"conversion" transaction for U.S. federal income tax purposes or that have a
"functional currency" other than the United States dollar, and taxpayers that
are neither citizens nor residents of the United States, or that are foreign
corporations, foreign partnerships or foreign estates or trusts as to the
United States). In addition, the discussion does not consider the effect of
any foreign, state, local, or other tax laws, or any United States federal tax
consequences (e.g., estate or gift tax) other than income tax consequences,
that may be applicable to particular holders. Further, this summary assumes
that holders hold their Old Notes, and will hold their New Notes, as "capital
assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. This summary is based on the Code and applicable
Treasury Regulations, rulings, administrative pronouncements and decisions as
of the date hereof, all of which are subject to change or differing
interpretations at any time with possible retroactive effect.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS NOT
TAX ADVICE. ACCORDINGLY, EACH PERSON CONSIDERING THE ACQUISITION OF NEW NOTES
SHOULD CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM, HER
OR IT OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS
AND OF CHANGES IN APPLICABLE TAX LAWS.
THE EXCHANGE
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
should not be treated as an exchange or otherwise as a taxable event for U.S.
federal income tax purposes. Accordingly, the New Notes should have the same
issue price as the Old Notes and each holder should have the same adjusted
basis and holding period in the New Notes as it had in the Old Notes
immediately before the Exchange Offer. It is assumed, for purposes of the
following discussion, that the consummation of the Exchange Offer will not be
treated as a taxable event and that the New Notes and the Old Notes will be
treated as the same instruments for U.S. federal income tax purposes.
SALE, EXCHANGE, REDEMPTION, RETIREMENT OR OTHER DISPOSITION OF NEW NOTES
In general, subject to the market discount provisions discussed below, the
holder of a New Note ("Holder") will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of such debt instrument
measured by the difference between (i) the amount of cash and fair market
value of property received in exchange therefor and (ii) the Holder's adjusted
tax basis in such debt instrument.
The Holder's initial tax basis in a New Note which is generally equal to the
price paid for the Old Note will be increased from time to time by the accrual
of market discount, if any, that the Holder has previously elected to include
in gross income on an annual basis and decreased from time to time to reflect
any amortized premium.
Any gain or loss on the sale, exchange, redemption, retirement or other
disposition of a New Note should be capital gain or loss (except as discussed
in "Market Discount of a Subsequent Holder" below). Any capital gain or loss
will be long-term capital gain or loss if the debt instrument had been held
for more than one year and otherwise will be short-term capital gain or loss.
ACQUISITION PREMIUM OF A SUBSEQUENT PURCHASER
An acquisition premium will exist if a subsequent purchaser purchases a New
Note at a cost that exceeds the stated redemption price at maturity. In such
case, a Holder will be able to elect to, and in certain
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<PAGE>
circumstances will be required to, amortize the premium, and offset interest
income on the New Notes. If a Holder makes this election, each interest
payment on the New Note will be offset by the portion of the bond premium
allocable to such interest payment, and will therefore, reduce the amount of
interest on the New Note that the Holder would otherwise have to include in
income. Bond premium is amortized on a constant yield to maturity basis
(except to the extent regulations may provide otherwise). Amortized bond
premium will reduce a Holder's adjusted tax basis in the New Note. A Holder
that elects to amortize bond premium on a New Note, will generally be required
to amortize bond premium on all other debt instruments that it acquired at a
premium in such year, and in subsequent years. Additionally, the manner of
amortizing bond premium of a New Note may be affected by the Company's rights
to redeem the New Notes prior to maturity. Holders should consult with their
tax advisor before electing to amortize bond premium with respect to the New
Notes.
MARKET DISCOUNT OF A SUBSEQUENT HOLDER
If a subsequent Holder of a New Note that was purchased at a "market
discount" thereafter realizes gain upon its disposition or retirement, such
gain will be taxed as ordinary income to the extent of the market discount
that has accrued on a straight-line basis (or on a constant interest rate
basis, if such basis of accrual has been elected by the Holder under Section
1276(b) of the Code) while the debt instrument was held by such Holder.
"Market discount" with respect to a New Note is the amount by which the stated
redemption price at maturity of a New Note exceeds the Holder's basis in the
New Note immediately after acquisition (unless such excess is less than 0.25%
of the stated redemption price at maturity of the New Note multiplied by the
number of complete years from acquisition by such Holder to maturity, in which
case there is no "market discount"). If a subsequent Holder makes a gift of a
New Note, accrued market discount, if any, will be recognized as if such
Holder had sold such New Note for a price equal to its fair market value. The
market discount rules also provide that a Holder who acquires a New Note at a
market discount may be required to defer a portion of any interest expense
that otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such New Note until the Holder disposes of the New Note in a
taxable transaction.
The New Notes provide for optional redemption, in whole or in part, under
certain circumstances. If the New Notes were redeemed, a Holder generally
would be required to include in gross income as ordinary income, for U.S.
federal income tax purposes, the portion of the payment that is attributable
to accrued market discount on the New Notes, if any.
A Holder of New Notes acquired at a market discount may elect to include
market discount in gross income as the discount accrues either on a straight-
line basis or on a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies,
and may not be revoked without the consent of the IRS. If a Holder of New
Notes makes such an election, the foregoing rules with respect to the
recognition of ordinary income on sales and other dispositions of such debt
instruments, and with respect to the deferral of interest deductions on
indebtedness incurred or maintained to purchase or carry such debt
instruments, would not apply.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the U.S. federal income tax backup withholding provisions of the Code
and applicable Treasury Regulations, a Holder may be subject to backup
withholding at the rate of 31% with respect to interest and redemption
proceeds unless such Holder: (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number to the Depositary, certifies
as to no loss of exemption from backup withholding, and otherwise complies
with the applicable requirements of the backup withholding rules. Any amount
withheld under these rules will be credited against the Holder's U.S. federal
income tax liability. To prevent backup withholding with respect to the
payment of interest, each Holder must complete and sign a substitute Form W-9,
which is included as part of the Letter of Transmittal, and return it to the
Exchange Agent. If the Depositary is not provided with the correct taxpayer
identification number, the Holder may also be subject to a penalty imposed by
the IRS. If withholding results in an overpayment of taxes, a refund may be
obtained by such Holder from the IRS.
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PLAN OF DISTRIBUTION
Prior to the Exchange Offer, there has been no market for any of the New
Notes. The Old Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") market. There can be
no assurance that an active trading market will develop for, or as to the
liquidity of, any of the Notes.
With respect to resales of New Notes, based on an interpretation by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that any holder or beneficial owner (other than
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act or a "broker" or "dealer" registered under the
Exchange Act) who exchanges Old Notes for New Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 thereof. However, if any holder or beneficial owner
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder or beneficial
owner cannot rely on the position of the staff of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988) or similar no-
action letters or any similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
As contemplated by the above no-action letters and the Registration Rights
Agreements, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes to be
acquired by the holder and any beneficial owners of Old Notes in connection
with the Exchange Offer are being acquired in the ordinary course of business
of the holder and any beneficial owners, (ii) that at the time of the
consummation of the Exchange Offer the holder and each beneficial owner are
not engaging, do not intend to engage and have no arrangements or
understanding with any person to participate in the distribution of the New
Notes in violation of the provisions of the Securities Act, (iii) the holder
and each beneficial owner acknowledge and agree that any person participating
in the Exchange Offer for the purpose of distributing the New Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the New
Notes acquired by such person and cannot rely on the position of the Staff of
the Commission set forth in no-action letters that are discussed herein above,
(iv) the holder and each beneficial owner understands that a secondary resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or 508, as applicable, of Regulation S-K of the
Commission, and (v) neither the holder nor any benefical owner(s) is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company
except as otherwise disclosed to the Company in writing.
Any broker or dealer registered under the Exchange Act (each a "Broker-
Dealer") who holds Old Notes that were acquired for its own account as a
result of market-making activities or other trading activities (other than Old
Notes acquired directly from the Company or any affiliate of the Company) may
exchange such Old Notes for New Notes pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed an underwriter within the meaning of the
Securities Act and, therefore, must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the New
Notes received by it in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of this
Prospectus. Any Broker-Dealer participating in the Exchange Offer will be
required to acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of New Notes
received by it in the Exchange Offer. However only Broker-Dealers who exchange
Old Notes that were acquired for their own account as a result of market-
making activities or other trading activities (other than Old Notes acquired
directly from the Company or any affiliate of the Company), may use this
Prospectus to satisfy the prospectus delivery requirements of the Securities
Act. The delivery by a Broker-Dealer of a prospectus in connection with
resales of New Notes shall not be deemed to be an admission by such Broker-
Dealer that it is an underwriter within the meaning of the Securities Act.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Stephen B.
Clarkson, General Counsel of the Company. Mr. Clarkson beneficially owns
22,522 shares of Common Stock of the Company.
EXPERTS
The audited combined financial statements and schedule included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
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 nine months ended September 30,
1996 and 1995.......................................................... F-3
Combined Balance Sheets--December 31, 1995 and 1994 and September 30,
1996................................................................... F-4
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 and the nine months ended September 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 nine months ended September
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 Newport News Shipbuilding Inc.:
We have audited the accompanying combined balance sheets of Newport News
Shipbuilding Inc. (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 Newport
News Shipbuilding Inc. 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, Newport News Shipbuilding Inc. 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
Newport News Shipbuilding Inc. taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
October 1, 1996 (except with
respect to the matters discussed
in Note 2, as to which the date is December 11, 1996, and Note 13, as to
which the date is January 31, 1997)
F-2
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER ENDED
31 SEPTEMBER 30
---------------------- --------------
1995 1994 1993 1996 1995
------ ------ ------ ------ ------
millions (unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES.............................. $1,756 $1,753 $1,861 $1,437 $1,290
OPERATING COSTS AND EXPENSES........... 1,599 1,552 1,651 1,320 1,165
------ ------ ------ ------ ------
OPERATING EARNINGS..................... 157 201 210 117 125
Interest Expense, net of interest
capitalized........................... (29) (30) (36) (25) (26)
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 92 99
Provision for Income Taxes............. 58 75 78 40 41
------ ------ ------ ------ ------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE........ 73 95 111 52 58
Cumulative Effect of Change in
Accounting Principle,
net of tax............................ -- (4) -- -- --
------ ------ ------ ------ ------
NET EARNINGS........................... $ 73 $ 91 $ 111 $ 52 $ 58
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined statements of
earnings.
F-3
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------- SEPTEMBER 30
1995 1994 1996
------ ------ ------------
millions (unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents............................ $ 2 $ 1 $ 1
Accounts Receivable, net............................. 67 89 105
Contracts in Process................................. 263 184 298
Inventory............................................ 54 45 48
Notes Receivable..................................... 18 -- --
Other Current Assets................................. 15 11 27
------ ------ ------
Total Current Assets................................. 419 330 479
------ ------ ------
NONCURRENT ASSETS
Property, Plant and Equipment, net................... 820 796 834
Other Assets......................................... 141 137 160
------ ------ ------
Total Noncurrent Assets.............................. 961 933 994
------ ------ ------
$1,380 $1,263 $1,473
====== ====== ======
LIABILITIES AND COMBINED EQUITY
CURRENT LIABILITIES
Trade Accounts Payable............................... $ 99 $ 63 $ 102
Accounts Payable to Tenneco.......................... 67 117 31
Short-Term Debt...................................... 68 30 160
Deferred Income Taxes................................ 39 38 --
Other Accrued Liabilities............................ 165 157 181
------ ------ ------
Total Current Liabilities............................ 438 405 474
------ ------ ------
NONCURRENT LIABILITIES
Long-Term Debt....................................... 292 287 267
Postretirement Benefits.............................. 101 104 103
Deferred Income Taxes................................ 138 141 136
Other Long-Term Liabilities.......................... 139 127 159
Commitments and Contingencies (See Note 13)
------ ------ ------
Total Noncurrent Liabilities......................... 670 659 665
------ ------ ------
COMBINED EQUITY (SEE NOTE 4)......................... 272 199 334
------ ------ ------
$1,380 $1,263 $1,473
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-4
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31 SEPTEMBER 30
---------------- --------------
1995 1994 1993 1996 1995
---- ---- ---- ------ ------
millions (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings................................ $ 73 $ 91 $111 $ 52 $ 58
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 48 51
Deferred Income Taxes..................... (2) (46) 30 (41) 48
Gain on Sale of Business.................. -- -- (15) -- --
Allocated Corporate Interest, net of tax.. 18 17 22 16 17
Changes in Components of Working Capital--
Decrease(Increase) in--
Accounts Receivable, net................ 22 (15) (22) (38) (10)
Contracts in Process.................... (95) (20) 76 (35) (56)
Inventory............................... (9) (1) -- 6 (9)
Other Current Assets.................... (4) (6) -- (12) (2)
Increase(Decrease) in--
Trade Accounts Payable.................. 36 (1) (17) 3 19
Accounts Payable to Tenneco............. (50) 58 (69) (36) (115)
Other Accrued Liabilities............... 8 29 15 16 11
Other, net................................ (1) 10 12 25 (22)
---- ---- ---- ----- ------
Net Cash (Used) Provided by Operating
Activities................................. 63 182 215 4 (10)
---- ---- ---- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business.............. -- -- 56 -- --
Capital Expenditures........................ (77) (29) (35) (55) (43)
Other....................................... (10) -- -- (11) --
---- ---- ---- ----- ------
Net Cash (Used) Provided by Investing
Activities................................. (87) (29) 21 (66) (43)
---- ---- ---- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Transfers (to) from Tenneco............ 25 (154) (241) 61 52
---- ---- ---- ----- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 1 (1) (5) (1) (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 $ --
==== ==== ==== ===== ======
CASH PAID DURING THE PERIOD FOR INCOME TAXES
(SEE NOTE 3)............................... $122 $ 53 $120 $ 67 $ 46
==== ==== ==== ===== ======
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>
NEWPORT NEWS SHIPBUILDING INC.
STATEMENTS OF CHANGES IN COMBINED EQUITY
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 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 52 58
Net Cash Transfers (To) From Tenneco........ 25 (154) (241) 61 52
Non-Cash Transactions With Tenneco
Net Change in Allocated Corporate Debt.... (43) 140 386 (67) (34)
Allocated Corporate Interest, net of tax.. 18 17 22 16 17
---- ----- ------ ------ ------
Combined Equity, end of period.............. $272 $ 199 $ 105 $ 334 $ 292
==== ===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined statements of
changes in combined equity.
F-6
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
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) prior to the Shipbuilding Distribution (as defined
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 periods, 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 as part of a larger Tenneco reorganization. On
December 11, 1996, pursuant to a distribution agreement, dated as of November
1, 1996, among Tenneco (now known as El Paso Tennessee Pipeline Co.), the
Company and New Tenneco Inc. ("New Tenneco," now known as Tenneco Inc.): (i)
Tenneco and its subsidiaries undertook and completed various intercompany
transfers and distributions designed to restructure, divide and separate their
then existing businesses and assets so the assets, liabilities and operations
of (A) the shipbuilding businesses would be owned by the Company and (B) the
automotive parts, packaging and administrative services businesses would be
owned by New Tenneco, and (ii) Tenneco subsequently distributed (the
"Shipbuilding Distribution") pro rata to holders of Tenneco Common Stock, par
value $5.00 per share, all of the outstanding Common Stock, par value $.01 per
share, of the Company.
F-7
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
On November 21, 1996, the Company sold $400 million of notes in a
transaction exempt from registration under the Securities Act of 1933.
Additionally, the Company has entered into a $415 million senior credit
facility consisting of a (i) $200 million term loan and (ii) $215 million
revolving credit facility, of which $125 million may be used for advances or
letters of credit and $90 million may be used for standby letters of credit.
In order to assist in the orderly transition of the Company into a separate,
publicly held company, Tenneco has modified, amended or entered 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 provide,
among other things, that (i) New Tenneco becomes the sole sponsor of the
Tenneco Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various
Tenneco welfare plans, while the Company establishes new plans for its
employees subsequent to the Shipbuilding Distribution, (ii) the Company
retains specific insurance policies which relate to its businesses and retains
continuing rights and obligations for certain parent-company insurance
policies of Tenneco, and (iii) the Company receives 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
Prior to the Shipbuilding Distribution, all of the outstanding common stock
of the Company was owned directly or indirectly by Tenneco. Thus, the Company
was under the control of Tenneco. Subsequent to the Shipbuilding Distribution,
the Company is a separate, publicly-held company.
Unaudited Interim Information
The unaudited interim combined financial statements as of September 30, 1996
and for each of the nine month periods ended September 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
F-8
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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 Shipbuilding Distribution the then current tax
sharing agreement was cancelled and the Company entered into a new tax sharing
agreement with Tenneco, New Tenneco and El Paso. The new tax sharing agreement
provides, 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.
F-9
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-10
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 nine months
ended September 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
F-11
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
Historically, certain costs were 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
Prior to the Shipbuilding Distribution, certain employees of the Company
participated in the Tenneco employee stock option and employee stock purchase
plans. The Tenneco employee stock option plan provided 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 allowed 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 are being 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
F-12
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
7. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment (at cost) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ ------
millions
<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>
DECEMBER 31,
-------------
1995 1994
------ ------
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>
F-13
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of the Company's financial
instruments by class are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
millions
<S> <C> <C> <C> <C>
Asset (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.
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,
----------------
1995 1994 1993
---- ---- ----
millions
<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>
F-14
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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,
--------------
1995 1994 1993
---- ---- ----
millions
<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>
The components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1995 1994
---- ----
millions
<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.
F-15
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the postretirement benefit plans reconciles with amounts
recognized in the accompanying Combined Balance Sheets as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
millions
<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>
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>
YEAR ENDED
DECEMBER 31,
--------------
1995 1994 1993
---- ---- ----
millions
<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.
F-16
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 became the sole sponsor of the TRP after the Shipbuilding
Distribution, and the Company has established benefit plans for its employees.
The benefits accrued by Company employees in the TRP were frozen as of the
last day of December, and New Tenneco amended the TRP to provide that all
benefits accrued through that day by Company employees are fully vested and
non-forfeitable.
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
----------
1995 1994
---- ----
millions
<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.
F-17
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
1995 1994 1993
millions ---------- --------- ---------
<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 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 Shipbuilding
Distribution, 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 last
day of the calendar month including the date of the Shipbuilding Distribution
(the "Distribution Closing Date"), (ii) the Company's employees will not
accrue additional benefits under the TRP after the last day of the calendar
month including the Distribution Closing 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
F-18
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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, 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) with two purchasers to construct a total of nine Double Eagle product
tankers at prices ranging, depending upon the design of the ship, from $36
million to $43.4 million per ship. During the course of construction,
disagreements arose with one of the purchasers who had agreed to purchase four
ships as to whether the first and second ships were being constructed in
compliance with the specifications set forth in the contracts, and the
purchaser 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 would be in compliance with all contract and classification society
requirements. The purchaser withdrew both invocation of the dispute resolution
procedures under the contracts and its request that
F-19
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
the Company cease further construction of the ships. Discussions between the
Company and the purchaser have resulted in the resolution of a significant
number of disagreements, although some remain unresolved and there can be no
assurance as to the outcome of future discussions. In January 1997, the
Company, this original purchaser and Mobil Oil Corporation ("Mobil") entered
into an agreement whereby Mobil agreed to acquire the first ship. In
accordance with the terms of the agreement between the Company and Mobil, the
first ship is being modified for use in the domestic Jones Act market.
Including this ship, a total of six of the nine ships are being designed for
use in the domestic Jones Act market.
The nine Double Eagle product tankers are in various stages of production.
Construction of the first tanker is substantially complete and, as modified,
is expected to be delivered in 1997. Construction has begun on the second
tanker and a significant portion of the materials needed for the construction
of the seven other tankers has been ordered. The Company expects to begin
construction on the remaining tankers in 1997 for delivery in 1998 and 1999.
In connection with the construction of these nine tankers, the Company
estimated that it had incurred or would incur costs of approximately $90
million in excess of the fixed contract prices as of September 30, 1996. At
December 31, 1996, the Company estimated that it would incur an additional $11
million of costs in excess of the fixed contract prices. As of December 31,
1996, the full amount of the excess costs has been reserved for by a charge
against income. The Company's estimates are based on the use of new robotic
technology and the utilization of a different building strategy going forward.
The Company believes that these factors, as well as the experience gained in
the construction of the first ship, will result in a very significant
reduction in the man-hours necessary to construct each of the remaining
vessels. There can be no assurance that these factors will produce this
result. The Company intends to review this situation at the end of each
quarter and, accordingly, there can be no assurance that the estimate of costs
to be incurred on these contracts will not be revised at that time based on
the facts then known to the Company.
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 $48 million that was not recoverable through that REA has been
recognized in the first nine months of 1996. Due to uncertainties inherent in
the estimation process there can be no assurance that the projection of costs
to be incurred will not be revised in the future. 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.
F-20
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
SALES EARNINGS PRINCIPLE PRINCIPLE EARNINGS
------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
millions
1996
1st Quarter..................... $ 438 $ 41 $ 32 $19 $19
2nd Quarter..................... 477 40 32 18 18
3rd Quarter..................... 522 36 28 15 15
------ ---- ---- --- ---
$1,437 $117 $ 92 $52 $52
====== ==== ==== === ===
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 Prospectus for items affecting quarterly results.
F-21
<PAGE>
SCHEDULE II
NEWPORT NEWS SHIPBUILDING INC.
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPA-
NY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE NEW NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CRE-
ATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iii
Prospectus Summary........................................................ 1
Summary Financial Data.................................................... 13
Recent Developments....................................................... 15
Risk Factors.............................................................. 16
The Exchange Offer........................................................ 24
Use of Proceeds........................................................... 30
Capitalization............................................................ 31
Unaudited Pro Forma Combined Financial Statements......................... 32
Selected Combined Financial Data.......................................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 37
Defense Industry Overview................................................. 50
Business.................................................................. 53
Management................................................................ 63
Certain Transactions...................................................... 74
Description of the Senior Credit Facility................................. 77
Description of the New Notes.............................................. 78
ERISA Considerations...................................................... 107
Certain U.S. Income Tax Considerations.................................... 108
Plan of Distribution...................................................... 110
Legal Matters............................................................. 111
Experts................................................................... 111
</TABLE>
----------------
UNTIL MARCH 24, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENT OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006 ($200,000,000 PRINCIPAL AMOUNT
OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
----------------
PROSPECTUS
----------------
FEBRUARY 11, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Restated Certificate of Incorporation of the Company (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
Section 145 of the DGCL gives Delaware corporations broad powers to
indemnify their present and former directors and officers and those of
affiliated corporations against expenses incurred in the defense of any
lawsuit to which they are made parties by reason of being or having been such
directors or officers, subject to specified conditions and exclusions, allows
the advancement of costs of defending against litigation, and permits the
Company to purchase insurance on behalf of directors, officers, employees, and
agents. Such indemnification is not exclusive of any other rights to which
those indemnified may be entitled under any bylaws, agreement, vote of
stockholders or otherwise.
The Amended and Restated By-laws of the Company (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 part 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.
II-1
<PAGE>
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, 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.
In addition, the directors and officers of the Company have been indemnified
by New Tenneco and Tenneco for certain liabilities for any violations or
alleged violations of securities or other laws arising out of certain
documents relating to, or filed or delivered by or on behalf of, Tenneco, or
New Tenneco in connection with the Distribution Transaction.
See "Item 22, Undertakings" for a description of the Commission's position
regarding such indemnification provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
*1.1 Purchase Agreement dated as of November 21, 1996 among NNS, the
Guarantors and the Initial Purchasers named therein.
*3.1 Restated Certificate of Incorporation of the Company dated as of
December 11, 1996.
*3.2 Amended and Restated By-laws of the Company dated as of December
11, 1996.
+4.1 Form of New Senior Note, including Guarantees.
+4.2 Form of New Senior Subordinated Note, including Guarantees.
*4.3 Senior Note Indenture dated as of November 26, 1996 among NNS,
Newport News and The Bank of New York, as Trustee.
*4.4 Senior Subordinated Note Indenture dated as of November 26, 1996
among NNS, Newport News and The Bank of New York, as Trustee.
*4.5 First Supplemental Senior Note Indenture dated as of December
11, 1996 among NNS, the Guarantors and The Bank of New York, as
Trustee.
*4.6 First Supplemental Senior Subordinated Note Indenture dated as
of December 11, 1996 among NNS, the Guarantors and The Bank of
New York, as Trustee.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*4.7 Senior Notes Registration Rights Agreement dated as of November
26, 1996 among NNS, the Guarantors and the Initial Purchasers.
*4.8 Senior Subordinated Notes Registration Rights Agreement dated as
of November 26, 1996 among NNS, the Guarantors and the Initial
Purchasers.
+5.1 Opinion of Stephen B. Clarkson, Esq.
*10.1 Distribution Agreement dated as of November 1, 1996 among
Tenneco Inc., New Tenneco Inc. and the Company.
+10.2 Amendment No. 1 to Distribution Agreement dated as of December
11, 1996 by and among Tenneco Inc., New Tenneco Inc. and the
Company.
*10.3 Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996, among El Paso Natural Gas Company, El Paso Merger
Company and Tenneco Inc.
*10.4 Debt and Cash Allocation Agreement, dated as of December 11,
1996, by and among Tenneco Inc., New Tenneco Inc. and the
Company.
*10.5 Benefits Agreement, dated as of December 11, 1996, by and among
Tenneco Inc., New Tenneco Inc. and the Company.
*10.6 Insurance Agreement, dated as of December 11, 1996, by and among
Tenneco Inc., New Tenneco Inc. and the Company.
*10.7 Tax Sharing Agreement, dated as of December 11, 1996, by and
among Tenneco Inc., the Company, New Tenneco Inc. and El Paso
Natural Gas Company.
*10.8 First Amendment to the Tax Sharing Agreement, dated as of
December 11, 1996, by and among Tenneco Inc., the Company, New
Tenneco Inc., and El Paso Natural Gas Company.
*10.9 Trademark Transition License Agreement, dated as of December 11,
1996, by and between Tenneco Management Company and the Company.
**10.10 Award/Contract N0024-95-C-2106, issued by Naval Sea Systems
Command to Newport News Shipbuilding for Aircraft Carrier CVN-
76.
**10.11 Professional Services Agreement, dated August 22, 1996, by and
between Tenneco Business Services Inc. and the Company.
*10.12 Employment agreement dated as of December 12, 1996 between
William P. Fricks and the Company.
*12.1 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of the Registrant.
+23.1 Consent of Arthur Andersen LLP.
+23.2 Consent of Stephen B. Clarkson, Esq. (contained in the opinion
filed as Exhibit 5.1 to this Registration Statement).
*24.1 Powers of Attorney (included on Signature Pages).
*25.1 Statement of Eligibility of Trustee, The Bank of New York, on
Form T-1 for New Senior Notes.
*25.2 Statement of Eligibility of Trustee, The Bank of New York, on
Form T-1, for New Senior Subordinated Notes.
+99.1 Form of Letter of Transmittal.
+99.2 Form of Notice of Guaranteed Delivery.
+99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
+99.4 Form of Letter from Registered Holders to Clients.
+99.5 Form of Exchange Agent Agreement.
</TABLE>
- --------
+Filed herewith
*Previously filed
**Incorporated herein by reference to the Company's Registration Statement
on Form 10 as amended (Registration No. 1-12385)
II-3
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defence of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, each of the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrants' annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
Bona Fide offering thereof.
(c) The undersigned Registrants hereby undertake:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not subject of and included in the Registration Statement when it
became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
NEWPORT NEWS SHIPBUILDING INC., A DELAWARE CORPORATION, HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED IN NEWPORT NEWS, VIRGINIA ON FEBRUARY 7, 1997.
NEWPORT NEWS SHIPBUILDING INC.
/s/ William P. Fricks
By: _________________________________
William P. Fricks
Chairman of the Board, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW ON THE 7TH DAY OF FEBRUARY, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President and Chief
___________________________________________ Executive Officer
William P. Fricks
* Senior Vice President and Chief Financial
___________________________________________ Officer
David J. Anderson
* Vice President--Finance and Corporate
___________________________________________ Controller
Thomas J. Bradburn
* Director
___________________________________________
Hon. Gerald L. Baliles
* Director
___________________________________________
Leon A. Edney, Admiral (Ret.)
* Director
___________________________________________
Dr. William R. Harvey
* Director
___________________________________________
Dana G. Mead
* Director
___________________________________________
Joseph J. Sisco
* Director
___________________________________________
</TABLE> Stephen R. Wilson
/s/ Stephen B. Clarkson
*By: ___________________________
Stephen B. Clarkson
Attorney-in-fact
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, A VIRGINIA CORPORATION, HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN NEWPORT NEWS, VIRGINIA ON FEBRUARY
7, 1997.
NEWPORT NEWS SHIPBUILDING AND DRY
DOCK COMPANY
/s/ Stephen B. Clarkson
By: _________________________________
Stephen B. Clarkson
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON THE 7TH DAY OF FEBRUARY, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President and Chief
___________________________________________ Executive Officer
William P. Fricks
* Senior Vice President and Chief Financial
___________________________________________ Officer
David J. Anderson
* Vice President--Finance and Corporate
___________________________________________ Controller
Thomas J. Bradburn
* Director
___________________________________________
Thomas C. Schievelbein
</TABLE>
/s/ Stephen B. Clarkson
*By: ___________________________
Stephen B. Clarkson
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, NNS
DELAWARE MANAGEMENT COMPANY, A DELAWARE CORPORATION, HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN NEWPORT NEWS, VIRGINIA ON FEBRUARY 7, 1997.
NNS DELAWARE MANAGEMENT COMPANY
/s/ Thomas J. Bradburn
By: _________________________________
Thomas J. Bradburn
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON THE 7TH DAY OF FEBRUARY, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President
___________________________________________
Thomas J. Bradburn
* Vice President
___________________________________________
D. R. Wyatt
* Treasurer
___________________________________________
Michael Tiller
* Director
___________________________________________
William P. Fricks
* Director
___________________________________________
David J. Anderson
* Director
___________________________________________
Thomas C. Schievelbein
* Director
___________________________________________
Edward J. Jones
* Director
___________________________________________
Phyllis L. Kucharczuk
</TABLE>
/s/ Stephen B. Clarkson
*By: ___________________________
Stephen B. Clarkson
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Purchase Agreement dated as of November 21, 1996 among NNS, the
Guarantors and the Initial Purchasers named therein.
*3.1 Restated Certificate of Incorporation of the Company dated as of
December 11, 1996.
*3.2 Amended and Restated By-laws of the Company dated as of December 11,
1996.
+4.1 Form of New Senior Note, including Guarantees.
+4.2 Form of New Senior Subordinated Note, including Guarantees.
*4.3 Senior Note Indenture dated as of November 26, 1996 among NNS,
Newport News and The Bank of New York, as Trustee.
*4.4 Senior Subordinated Note Indenture dated as of November 26, 1996
among NNS, Newport News and The Bank of New York, as Trustee.
*4.5 First Supplemental Senior Note Indenture dated as of December 11,
1996 among NNS, the Guarantors and The Bank of New York, as Trustee.
*4.6 First Supplemental Senior Subordinated Note Indenture dated as of
December 11, 1996 among NNS, the Guarantors and The Bank of New
York, as Trustee.
*4.7 Senior Notes Registration Rights Agreement dated as of November 26,
1996 among NNS, the Guarantors and the Initial Purchasers.
*4.8 Senior Subordinated Notes Registration Rights Agreement dated as of
November 26, 1996 among NNS, the Guarantors and the Initial
Purchasers.
+5.1 Opinion of Stephen B. Clarkson, Esq.
*10.1 Distribution Agreement dated as of November 1, 1996 among Tenneco
Inc., New Tenneco Inc. and the Company.
+10.2 Amendment No. 1 to Distribution Agreement dated as of December 11,
1996 by and among Tenneco Inc., New Tenneco Inc. and the Company.
*10.3 Amended and Restated Agreement and Plan of Merger, dated as of June
19, 1996, among El Paso Natural Gas Company, El Paso Merger Company
and Tenneco Inc.
*10.4 Debt and Cash Allocation Agreement, dated as of December 11, 1996,
by and among Tenneco Inc., New Tenneco Inc. and the Company.
*10.5 Benefits Agreement, dated as of December 11, 1996, by and among
Tenneco Inc., New Tenneco Inc. and the Company.
*10.6 Insurance Agreement, dated as of December 11, 1996, by and among
Tenneco Inc., New Tenneco Inc. and the Company.
*10.7 Tax Sharing Agreement, dated as of December 11, 1996, by and among
Tenneco Inc., the Company, New Tenneco Inc. and El Paso Natural Gas
Company.
*10.8 First Amendment to the Tax Sharing Agreement, dated as of December
11, 1996, by and among Tenneco Inc., the Company, New Tenneco Inc.,
and El Paso Natural Gas Company.
*10.9 Trademark Transition License Agreement, dated as of December 11,
1996, by and between Tenneco Management Company and the Company.
**10.10 Award/Contract N0024-95-C-2106, issued by Naval Sea Systems Command
to Newport News Shipbuilding for Aircraft Carrier CVN-76.
**10.11 Professional Services Agreement, dated August 22, 1996, by and
between Tenneco Business Services Inc. and the Company.
*10.12 Employment agreement dated as of December 12, 1996 between William
P. Fricks and the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*12.1 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of the Registrant.
+23.1 Consent of Arthur Andersen LLP.
+23.2 Consent of Stephen B. Clarkson, Esq. (contained in the opinion filed
as Exhibit 5.1 to this Registration Statement).
*24.1 Powers of Attorney (included on Signature Pages).
*25.1 Statement of Eligibility of Trustee, The Bank of New York, on Form
T-1 for New Senior Notes.
*25.2 Statement of Eligibility of Trustee, The Bank of New York, on Form
T-1, for New Senior Subordinated Notes.
+99.1 Form of Letter of Transmittal.
+99.2 Form of Notice of Guaranteed Delivery.
+99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
+99.4 Form of Letter from Registered Holders to Clients.
+99.5 Form of Exchange Agent Agreement.
</TABLE>
- --------
+Filed herewith
*Previously filed
**Incorporated herein by reference to the Company's Registration Statement on
Form 10 as amended (Registration No. 1-12385)
<PAGE>
EXHIBIT 4.1
(Form of Face of Security)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRE-
SENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESEN-
TATIVE OF THE DEPOSITORY TRUST COMPANY). ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGIS-
TERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUC-
CESSOR'S NOMINEE AND TRANSFERS OR PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.09 OF THE INDENTURE.
NEWPORT NEWS SHIPBUILDING INC.
NO. [CUSIP] [CINS] NO. $
8 5/8% SENIOR NOTE DUE 2006
Newport News Shipbuilding Inc. promises to pay to or registered as-
signs the principal sum of U.S. Dollars on the Maturity Date of December
1, 2006.
Interest Payment Dates: June 1 and December 1
Interest Record Dates: May 15 and November 15
<PAGE>
In Witness Whereof, Newport News Shipbuilding Inc. has caused this instrument
to be executed in its corporate name by the manual or facsimile signature of
its and its .
Newport News Shipbuilding Inc.
By _________________________________________
Name:
Title:
By _________________________________________
Name:
Title:
Certificate of Authentication:
This is one of the 8 5/8% Senior Notes due 2006 referred to in the within-
mentioned Indenture.
The Bank of New York, as Trustee
By _____________________________ Dated:
Authorized Signatory
<PAGE>
(Form of Reverse of Security)
NEWPORT NEWS SHIPBUILDING INC.
8 5/8% SENIOR NOTE DUE 2006
1. Interest.
Newport News Shipbuilding Inc., a Delaware corporation (the "Company"), prom-
ises to pay interest at the rate of 8 5/8% per annum on the principal amount
of this Security semiannually on June 1 and December 1 (each, an "Interest
Payment Date") commencing on June 1, 1997, until the principal hereof is paid
or made available for payment. Interest on the Securities will accrue from and
including the most recent date to which interest has been paid or duly pro-
vided for or, if no interest has been paid or duly provided for, from and in-
cluding November 26, 1996, through but excluding the date on which interest is
paid or duly provided for. If an Interest Payment Date falls on a day that is
not a Business Day, the interest payment to be made on such Interest Payment
Date will be made on the next succeeding Business Day with the same force and
effect as if made on such Interest Payment Date, and no additional interest
will accrue as a result of such delayed payment. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
2. Method of Payment.
The interest and Additional Interest (as defined below), if any, payable on
the Securities, and punctually paid or duly provided for, on any Interest Pay-
ment Date will, as provided in the Indenture, be paid to the person in whose
name this Security is registered at the close of business on the interest rec-
ord date, which shall be the May 15 or November 15 (whether or not a Business
Day) (each, an "Interest Record Date") next preceding such Interest Payment
Date. Any such interest or Additional Interest not so punctually paid or duly
provided for, and any interest payable on such defaulted interest or Addi-
tional Interest (to the extent lawful), will forthwith cease to be payable to
the Holder on such Interest Record Date and shall be paid to the person in
whose name this Security is registered at the close of business on a special
record date for the payment of such defaulted interest or Additional Interest
to be fixed by the Company, notice of which shall be given to Holders not less
than 15 days prior to such special record date. Payment of the principal of
and interest and Additional Interest, if any, on this Security will be made at
the agency of the Company maintained for
<PAGE>
that purpose in the Borough of Manhattan, the City of New York and at any
other office or agency maintained by the Company for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
at the option of the Company payment of interest may be made by check mailed
to the address of the person entitled thereto as such address shall appear in
the Security Register.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders of Securities. The Company or any of its Subsid-
iaries may act as Registrar, co-Registrar or, except in certain circumstances
specified in the Indenture, Paying Agent.
4. Indenture.
This Security is one of a duly authorized issue of Securities of the Company,
designated as its 8 5/8% Senior Notes due 2006 (the "Securities"), limited in
aggregate principal amount to $200,000,000 (except as otherwise provided in
the Indenture) issuable under an Indenture dated as of November 26, 1996 among
the Company, Newport News Shipbuilding and Dry Dock Company, as the Guarantor
(herein collectively called the "Guarantors", which term includes any succes-
sor Person or additional Guarantor under such Indenture) and the Trustee, as
supplemented and amended by the First Supplemental Indenture dated as of De-
cember 11, 1996 (as supplemented, the "Indenture"). The terms of the Securi-
ties include those stated in the Indenture and those made part of the Inden-
ture by the Trust Indenture Act of 1939, as amended (the "Act") (15 U.S. Code
(S)(S) 77aaa-77bbbb), as in effect on the date of the Indenture except as
stated in the Indenture. The Securities are subject to all such terms, and
Holders of Securities are referred to the Indenture and the Act for a state-
ment of them. Each Securityholder, by accepting a Security, agrees to be bound
to all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
Payment on each Security is guaranteed on a senior basis, jointly and sever-
ally, by the Guarantors pursuant to Article Ten of the Indenture.
Capitalized terms contained in this Security to the extent not defined herein
shall have the meanings assigned to them in the Indenture.
R-2
<PAGE>
5. Optional Redemption.
(a) The Securities are not redeemable prior to December 1, 2001, except as
provided in clauses (b) and (c) below of this paragraph 5. On and after such
date, the Securities may be redeemed at any time, in whole or in part, at the
option of the Company, on not less than 30 days' nor more than 60 days' no-
tice, at the redemption prices (expressed as percentages of the principal
amount) set forth below, if redeemed during the 12-month period beginning De-
cember 1 of the year indicated below, in each case together with interest and
Additional Interest, if any, accrued to the date fixed for redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................................ 104.3125%
2002............................................................ 102.8750%
2003............................................................ 101.4375%
2004 and thereafter............................................. 100.0000%
</TABLE>
(b) In addition, prior to December 1, 1999, the Company may, at its option,
redeem up to 35% of the principal amount of the Securities originally issued
with the net cash proceeds received by the Company from one or more Equity
Public Offerings, at a redemption price (expressed as a percentage of the
principal amount) of 108.625% of the principal amount thereof, plus accrued
and unpaid interest and Additional Interest, if any, to the date fixed for re-
demption; provided, however, that at least $100 million in aggregate principal
amount of the Securities remains outstanding immediately after any such re-
demption (excluding any Securities owned by the Company or any of its Affili-
ates); and provided, further, that any such redemptions shall be made pro rata
(based on the then outstanding principal amounts thereof) among the Senior
Subordinated Notes and the Securities. Notice of redemption pursuant to this
paragraph must be mailed to Holders of Securities not later than 60 days fol-
lowing consummation of such Equity Public Offering.
(c) On March 31, 1997 (the "Special Redemption Date"), the Securities will be
subject to mandatory redemption at a redemption price equal to 101% of the
principal amount of the Securities, plus accrued interest from the date of is-
suance of the Securities to the Special Redemption Date and Additional Inter-
est, if any, if the Shipbuilding Distribution is not consummated on or prior
to the Special Redemption Date. The Company will also have the option to re-
deem the Securities, in whole but not in part, at any time on or prior to the
Special Redemption Date, if the Shipbuilding Distribution has not been consum-
mated on or prior to
R-3
<PAGE>
such date and the Company delivers an Officers' Certificate to the Trustee
stating that a condition to the consummation of the Shipbuilding Distribution
will not be satisfied on or prior to the Special Redemption Date, at a redemp-
tion price equal to 101% of the principal amount thereof plus accrued and un-
paid interest from the date of issuance of the Securities to the Redemption
Date and Additional Interest, if any.
6. Purchase upon Occurrence of a Change of Control.
Within 30 days following the date of the consummation of a transaction re-
sulting in a Change of Control, the Company will offer to purchase the Securi-
ties, in whole and not in part, at a purchase price equal to 101% of the prin-
cipal amount thereof plus any accrued and unpaid interest and Additional In-
terest thereon.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30 days but
not more than 60 days before the Redemption Date (other than with respect to a
Special Redemption) to each Holder of Securities to be redeemed at such Hold-
er's registered address; provided, however, that notice of redemption pursuant
to paragraph 5(b) of this Security will be mailed no later than 60 days fol-
lowing the consummation of the relevant Equity Public Offering to each Holder
of Securities to be redeemed. In the event of a Special Redemption other than
on the Special Redemption Date, the Company shall mail notice of redemption to
each Holder of Securities at least three Business Days before the Redemption
Date at such Holders' registered address. Securities in denominations larger
than $1,000 may be redeemed in part. On and after the Redemption Date, inter-
est ceases to accrue on those Securities or portion of them called for
redemption.
8. Additional Interest.
There shall also be payable in respect of this Security all Additional Inter-
est that may have accrued on the Security for which this Security was ex-
changed (as defined in such Security) pursuant to the Exchange Offer or other-
wise pursuant to a Registration of such Security, such Additional Interest to
be payable in accordance with the terms of such Security.
9. Denominations; Transfer; Exchange.
The Securities are issuable only as registered Securities without coupons in
denominations of $1,000 and any multiple thereof. At the office or agency of
the
R-4
<PAGE>
Company referred to and in the manner and subject to the limitations provided
in the Indenture, Securities may be exchanged for a like aggregate principal
amount of Securities of other authorized denominations. Upon due presentment
for registration of transfer of this Security at the above-mentioned office or
agency of the Company, a new Security or Securities or authorized denomina-
tions, for a like aggregate principal amount, will be issued to the transferee
as provided in the Indenture. No service charge shall be made for any such
transfer, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto.
10. Persons Deemed Owners.
The registered Holder of this Security shall be treated as the owner of it
for all purposes.
11. Unclaimed Funds.
If funds for the payment of principal, interest or Additional Interest remain
unclaimed for two years, the Trustee or Paying Agent will repay the funds to
the Company at its request. After such repayment Holders of Securities enti-
tled to such funds must look to the Company for payment unless an abandoned
property law designates another person.
12. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and cancelled except for certain Sections
thereof, subject to the terms of the Indenture, upon the payment of all the
Secu-
rities or upon the irrevocable deposit with the Trustee of funds or United
States Government Obligations sufficient for such payment or redemption.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the outstanding Securities, and any past default or com-
pliance with any provision may be waived with the consent of the Holders of a
majority in principal amount of the outstanding Securities. Without notice to
or the consent of any Holder, the Company, the Guarantors and the Trustee may
amend or supplement the Indenture or the Securities to cure any ambiguity, de-
fect or inconsistency, or to make any change that does not adversely affect
the rights of any Holder of Securities.
R-5
<PAGE>
14. Restrictive Covenants.
The Securities are general unsecured senior obligations of the Company lim-
ited to the aggregate principal amount of $200,000,000. The Indenture re-
stricts, among other things, the ability of the Company or any of its Subsidi-
aries to permit any Liens to be imposed on their assets, to make certain pay-
ments and investments, limits the Indebtedness which the Company and its Sub-
sidiaries may incur and limits the terms on which the Company may engage in
Asset Dispositions. The Company is also obligated under certain circumstances
to make an offer to purchase Securities with the net cash proceeds of certain
Asset Dispositions. The Company must report quarterly to the Trustee on com-
pliance with certain covenants in the Indenture.
15. Successor Corporation.
Pursuant to the Indenture, the ability of the Company to consolidate with,
merge with or into or transfer its assets to another person is conditioned
upon certain requirements, including certain financial requirements applicable
to the surviving Person.
16. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the principal of all of
the outstanding Securities, plus all accrued and unpaid interest and Addi-
tional Interest, if any, to the date the Securities become due and payable,
may be declared due and payable in the manner and with the effect provided in
the Indenture.
17. Trustee Dealings with Company.
The Trustee in its individual or any other capacity, may become the owner or
pledgee of Securities and make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
18. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company or any
Guarantor shall not have any liability for any obligations of the Company or
any Guarantor under the Securities, the Guarantee of such Guarantor or the In-
denture or for any claim based on, in respect of or by reason of such obliga-
tions or their creation. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
R-6
<PAGE>
19. Authentication.
This Security shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Security.
20. Abbreviations.
Customary abbreviations may be used in the name of the Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the en-
tireties), JT TEN (= joint tenants with right of survivorship and not as ten-
ants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP or CINS numbers to be
printed on the Securities and has directed the Trustee to use CUSIP or CINS
numbers in notices of redemption as a convenience to Securityholders. No rep-
resentation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
22. Governing Law.
The laws of the State of New York shall govern the Indenture, this Security
and the Guarantees without regard to principles of conflicts of law.
23. Guarantees.
This Security may after the date hereof be entitled to certain Guarantees
made for the benefit of the Holders. Reference is hereby made to the Indenture
for the terms of any Guarantee.
The Company will furnish to any Holder of record of Securities upon written
request and without charge a copy of the Indenture.
R-7
<PAGE>
[Form of Notation on Security Relating to Guarantee]
SENIOR GUARANTEE
The Guarantors (as defined in the Indenture referred to in the Security upon
which this notation is endorsed) hereby unconditionally guarantee on a senior
basis (such guarantee by each Guarantor being referred to herein as the "Guar-
antee") the due and punctual payment of the principal of, premium, if any, and
interest and Additional Interest, if any, on the Securities, whether at matu-
rity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal, premium and interest and Additional Interest, if
any, on the Securities, and the due and punctual performance of all other ob-
ligations of the Company to the Holders or the Trustee, all in accordance with
the terms set forth in Article Ten of the Indenture.
The obligations of the Guarantors to the Holders of Securities and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth in
Article Ten of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose until the cer-
tificate of authentication on the Securities upon which the Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual sig-
nature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of law.
This Guarantee is subject to release upon the terms set forth in the Inden-
ture.
NNS Delaware Management Company
Newport News Shipbuilding and Dry Dock
Company
By: _______________________
By: ________________________________________
Name: Name:
Title: Title:
<PAGE>
[Form of Transfer Notice]
For Value Received the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
Please Print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ________________________________________________________________
attorney to transfer said Security on the books of the Company with full power
of substitution in the premises.
OPTION OF HOLDER TO ELECT PURCHASE
If you the Holder want to elect to have this Security purchased by the Compa-
ny, check the box: [_]
If you want to elect to have only part of this Security purchased by the Com-
pany, state the amount: $
Dated: ________________ Your signature: ___________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee: __________________________________________________________
<PAGE>
EXHIBIT 4.2
(Form of Face of Security)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY). ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.09 OF THE INDENTURE.
NEWPORT NEWS SHIPBUILDING INC.
NO. [CUSIP] [CINS] NO. $
9 1/4% SENIOR SUBORDINATED NOTE DUE 2006
Newport News Shipbuilding Inc. promises to pay to or registered
assigns the principal sum of U.S. Dollars on the Maturity Date of December
1, 2006.
Interest Payment Dates: June 1 and December 1
Interest Record Dates: May 15 and November 15
<PAGE>
In Witness Whereof, Newport News Shipbuilding Inc. has caused this instrument
to be executed in its corporate name by the manual or facsimile signature of
its and its .
Newport News Shipbuilding Inc.
By _________________________________________
Name:
Title:
By _________________________________________
Name:
Title:
Certificate of Authentication:
This is one of the 9 1/4% Senior Subordinated Notes due 2006 referred to in
the within-mentioned Indenture.
The Bank of New York, as Trustee
By _____________________________ Dated:
Authorized Signatory
<PAGE>
(Form of Reverse of Security)
NEWPORT NEWS SHIPBUILDING INC.
9 1/4% SENIOR SUBORDINATED NOTE DUE 2006
1. Interest.
Newport News Shipbuilding Inc., a Delaware corporation (the "Company"),
promises to pay interest at the rate of 9 1/4% per annum on the principal
amount of this Security semiannually on June 1 and December 1 (each, an
"Interest Payment Date") commencing on June 1, 1997, until the principal
hereof is paid or made available for payment. Interest on the Securities will
accrue from and including the most recent date to which interest has been paid
or duly provided for or, if no interest has been paid or duly provided for,
from and including November 26, 1996, through but excluding the date on which
interest is paid or duly provided for. If an Interest Payment Date falls on a
day that is not a Business Day, the interest payment to be made on such
Interest Payment Date will be made on the next succeeding Business Day with
the same force and effect as if made on such Interest Payment Date, and no
additional interest will accrue as a result of such delayed payment. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment.
The interest and Additional Interest (as defined below), if any, payable on
the Securities, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the person in
whose name this Security is registered at the close of business on the
interest record date, which shall be the May 15 or November 15 (whether or not
a Business Day) (each, an "Interest Record Date") next preceding such Interest
Payment Date. Any such interest or Additional Interest not so punctually paid
or duly provided for, and any interest payable on such defaulted interest or
Additional Interest (to the extent lawful), will forthwith cease to be payable
to the Holder on such Interest Record Date and shall be paid to the person in
whose name this Security is registered at the close of business on a special
record date for the payment of such defaulted interest or Additional Interest
to be fixed by the Company, notice of which shall be given to Holders not less
than 15 days prior to such special record date. Payment of the principal of
and interest and Additional Interest, if any, on this Security will be made at
the agency of the Company maintained for that purpose in the Borough of
Manhattan, the City of New York and at any other office or agency maintained
by the Company for such purpose, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the person entitled
thereto as such address shall appear in the Security Register.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
<PAGE>
without notice to the Holders of Securities. The Company or any of its
Subsidiaries may act as Registrar, co-Registrar or, except in certain
circumstances specified in the Indenture, Paying Agent.
4. Indenture.
The Securities are subordinated in right of payment to all Senior
Indebtedness of the Company to the extent and in the manner provided in the
Indenture (as defined below). Each Holder of a Security, by accepting a
Security, agrees to such subordination, authorizes the Trustee to give effect
to such subordination and appoints the Trustee as attorney-in-fact for such
purpose.
This Security is one of a duly authorized issue of Securities of the Company,
designated as its 9 1/4% Senior Subordinated Notes due 2006 (the
"Securities"), limited in aggregate principal amount to $200,000,000 (except
as otherwise provided in the Indenture) issuable under an Indenture dated as
of November 26, 1996, among the Company, Newport News Shipbuilding and Dry
Dock Company, as the Guarantor (herein collectively called the "Guarantors",
which term includes any successor Person or additional Guarantor under such
Indenture) and the Trustee, as supplemented and amended by the First
Supplemental Indenture dated as of December 11, 1996 (as supplemented, the
"Indenture"). The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by the Trust Indenture Act, as
amended of 1939 (the "Act") (15 U.S. Code (S)(S) 77aaa-77bbbb), as in effect
on the date of the Indenture except as stated in the Indenture. The Securities
are subject to all such terms, and Holders of Securities are referred to the
Indenture and the Act for a statement of them. Each Securityholder, by
accepting a Security, agrees to be bound to all of the terms and provisions of
the Indenture, as the same may be amended from time to time.
Payment on each Security is guaranteed on a senior subordinated basis,
jointly and severally, by the Guarantors pursuant to Article Eleven of the
Indenture.
Capitalized terms contained in this Security to the extent not defined herein
shall have the meanings assigned to them in the Indenture.
5. Optional Redemption.
(a) The Securities are not redeemable prior to December 1, 2001, except as
provided in clauses (b) and (c) below of this paragraph 5. On and after such
date, the Securities may be redeemed at any time, in whole or in part, at the
option of the Company, on not less than 30 days' nor more than 60 days'
notice, at the redemption prices (expressed as percentages of the principal
amount) set forth below, if redeemed during the 12-month period beginning
December 1 of the year indicated below, in each case together with interest
and Additional Interest, if any, accrued to the date fixed for redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................................ 104.625%
2002............................................................ 103.083%
2003............................................................ 101.542%
2004 and thereafter............................................. 100.000%
</TABLE>
R-2
<PAGE>
(b) In addition, prior to December 1, 1999, the Company may, at its option,
redeem up to 35% of the principal amount of the Securities originally issued
with the net cash proceeds received by the Company from one or more Equity
Public Offerings, at a redemption price (expressed as a percentage of the
principal amount) of 109.250% of the principal amount thereof, plus accrued
and unpaid interest and Additional Interest, if any, to the date fixed for
redemption; provided, however, that at least $100 million in aggregate
principal amount of the Securities remains outstanding immediately after any
such redemption (excluding any Securities owned by the Company or any of its
Affiliates); and provided, further, that any such redemptions shall be made
pro rata (based on the then outstanding principal amounts thereof) among the
Senior Notes and the Securities. Notice of redemption pursuant to this
paragraph must be mailed to Holders of Securities not later than 60 days
following consummation of such Equity Public Offering.
(c) On March 31, 1997 (the "Special Redemption Date"), the Securities will be
subject to mandatory redemption at a redemption price equal to 101% of the
principal amount of the Securities, plus accrued interest from the date of
issuance of the Securities to the Special Redemption Date and Additional
Interest, if any, if the Shipbuilding Distribution is not consummated on or
prior to the Special Redemption Date. The Company will also have the option to
redeem the Securities, in whole but not in part, at any time on or prior to
the Special Redemption Date, if the Shipbuilding Distribution has not been
consummated on or prior to such date and the Company delivers an Officers'
Certificate to the Trustee stating that a condition to the consummation of the
Shipbuilding Distribution will not be satisfied on or prior to the Special
Redemption Date, at a redemption price equal to 101% of the principal amount
thereof plus accrued and unpaid interest from the date of issuance of the
Securities to the Redemption Date and Additional Interest, if any.
6. Purchase upon Occurrence of a Change of Control.
Within 45 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company will offer to purchase the
Securities, in whole and not in part, at a purchase price equal to 101% of the
principal amount thereof plus any accrued and unpaid interest and Additional
Interest thereon.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30 days but
not more than 60 days before the Redemption Date (other than with respect to a
Special Redemption) to each Holder of Securities to be redeemed at such
Holder's registered address; provided, however, that notice of redemption
pursuant to paragraph 5(b) of this Security will be mailed no later than 60
days following the consummation of the relevant Equity Public Offering to each
Holder of Securities to be redeemed. In the event of a Special Redemption
other than on the Special Redemption Date, the Company shall mail notice of
redemption to each Holder of Securities at least three Business Days before
the Redemption Date at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part. On and after the
Redemption Date, interest ceases to accrue on those Securities or portion of
them called for redemption.
R-3
<PAGE>
8. Additional Interest.
There shall also be payable in respect of this Security all Additional
Interest that may have accrued on the Security for which this Security was
exchanged (as defined in such Security) pursuant to the Exchange Offer or
otherwise pursuant to a Registration of such Security, such Additional
Interest to be payable in accordance with the terms of such Security.
9. Denominations; Transfer; Exchange.
The Securities are issuable only as registered Securities without coupons in
denominations of $1,000 and any multiple thereof. At the office or agency of
the Company referred to and in the manner and subject to the limitations
provided in the Indenture, Securities may be exchanged for a like aggregate
principal amount of Securities of other authorized denominations. Upon due
presentment for registration of transfer of this Security at the above-
mentioned office or agency of the Company, a new Security or Securities or
authorized denominations, for a like aggregate principal amount, will be
issued to the transferee as provided in the Indenture. No service charge shall
be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.
10. Persons Deemed Owners.
The registered Holder of this Security shall be treated as the owner of it
for all purposes.
11. Unclaimed Funds.
If funds for the payment of principal, interest or Additional Interest remain
unclaimed for two years, the Trustee or Paying Agent will repay the funds to
the
Company at its request. After such repayment Holders of Securities entitled to
such funds must look to the Company for payment unless an abandoned property
law designates another person.
12. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and cancelled except for certain Sections
thereof, subject to the terms of the Indenture, upon the payment of all the
Securities or upon the irrevocable deposit with the Trustee of funds or United
States Government Obligations sufficient for such payment or redemption.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the outstanding Securities, and any past default or
compliance with any provision may be waived with the consent of the Holders of
a majority in principal amount of the outstanding Securities. Without notice
to or the consent of any Holder, the Company, the
R-4
<PAGE>
Guarantors and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency, or to make any
change that does not adversely affect the rights of any Holder of Securities.
14. Restrictive Covenants.
The Securities are general unsecured senior subordinated obligations of the
Company limited to the aggregate principal amount of $200,000,000. The
Indenture restricts, among other things, the ability of the Company or any of
its Subsidiaries to permit any Liens to be imposed on their assets, to make
certain payments and investments, limits the Indebtedness which the Company
and its Subsidiaries may incur and limits the terms on which the Company may
engage in Asset Dispositions. The Company is also obligated under certain
circumstances to make an offer to purchase Securities with the net cash
proceeds of certain Asset Dispositions. The Company must report quarterly to
the Trustee on compliance with certain covenants in the Indenture.
15. Successor Corporation.
Pursuant to the Indenture, the ability of the Company to consolidate with,
merge with or into or transfer its assets to another person is conditioned
upon certain requirements, including certain financial requirements applicable
to the surviving Person.
16. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the principal of all of
the outstanding Securities, plus all accrued and unpaid interest and
Additional Interest, if any, to the date the Securities become due and
payable, may be declared due and payable in the manner and with the effect
provided in the Indenture.
17. Trustee Dealings with Company.
The Trustee in its individual or any other capacity, may become the owner or
pledgee of Securities and make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
18. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company or any
Guarantor shall not have any liability for any obligations of the Company or
any Guarantor under the Securities, the Guarantee of such Guarantor or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Securities.
19. Authentication.
This Security shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Security.
R-5
<PAGE>
20. Abbreviations.
Customary abbreviations may be used in the name of the Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP or CINS numbers to be
printed on the Securities and has directed the Trustee to use CUSIP or CINS
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
22. Governing Law.
The laws of the State of New York shall govern the Indenture, this Security
and the Guarantees without regard to principles of conflicts of law.
23. Guarantees.
This Security may after the date hereof be entitled to certain Guarantees
made for the benefit of the Holders. Reference is hereby made to the Indenture
for the terms of any Guarantee (including any terms of subordination of such
Guarantee that may apply).
The Company will furnish to any Holder of record of Securities upon written
request and without charge a copy of the Indenture.
R-6
<PAGE>
R-7
[Form of Notation on Security Relating to Guarantee]
SENIOR SUBORDINATED GUARANTEE
The Guarantors (as defined in the Indenture referred to in the Security upon
which this notation is endorsed) hereby unconditionally guarantee on a senior
subordinated basis (such guarantee by the Guarantors being referred to herein
as the "Guarantee") the due and punctual payment of the principal of, premium,
if any, and interest and Additional Interest, if any, on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal, premium and interest and
Additional Interest, if any, on the Securities, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee, all in accordance with the terms set forth in Article Eleven of the
Indenture.
The obligations of the Guarantors to the Holders of Securities and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness of such Guarantors, to
the extent and in the manner provided, in Article Twelve of the Indenture, and
reference is hereby made to such Indenture for the precise terms of the
Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of law.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
NNS Delaware Management Company
Newport News Shipbuilding and Dry Dock
Company [/R]
By: _______________________
Name: By: _________________________________ [/R]
Title: Name: [/R]
Title:
<PAGE>
[Form of Transfer Notice]
For Value Received the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
Please Print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ________________________________________________________________
attorney to transfer said Security on the books of the Company with full power
of substitution in the premises.
OPTION OF HOLDER TO ELECT PURCHASE
If you the Holder want to elect to have this Security purchased by the
Company, check the box: [_]
If you want to elect to have only part of this Security purchased by the
Company, state the amount: $
Dated: ________________ Your signature: ___________________________________
(Sign exactly as name appears on
the other sideof this Security)
Signature Guarantee: __________________________________________________________
R-8
<PAGE>
LOGO
February 7, 1997
STEPHEN B. CLARKSON
Vice President, General Counsel and Secretary
Newport News Shipbuilding Inc.
Newport News Shipbuilding and
Dry Dock Company
NNS Delaware Management Company
4101 Washington Avenue
Newport News, Virginia 23607
Re:8 5/8% Senior Notes Due 2006
9 1/4% Senior Subordinated Notes Due 2006
and Related Guarantees
Ladies and Gentlemen:
I am General Counsel of Newport News Shipbuilding Inc., a Delaware
corporation (the "Company"), and Newport News Shipbuilding and Dry Dock
Company, a Virginia corporation, and NNS Delaware Management Company, a
Delaware corporation (the "Guarantors") and, as such, I have acted as counsel
to the Company and each of the Guarantors in connection with the Company's and
the Guarantors' Registration Statement on Form S-4 (Reg. No. 333-20285) (the
"Registration Statement") filed with the Securities and Exchange Commission
for the purpose of registering under the Securities Act of 1933, as amended
the ("Act"): (i) $200,000,000 aggregate principal amount of the Company's 8
5/8% Senior Notes due 2006 (the "Senior Notes") and the guarantees thereof
(the "Senior Note Guarantees") by the Guarantors, and (ii) $200,000,000
aggregate principal amount of the Company's 9 1/4% Senior Subordinated Notes
due 2006 (the "Senior Subordinated Notes," and together with the Senior Notes,
the "Notes") and the guarantees thereof (the "Senior Subordinated Note
Guarantees" and, together with the Senior Note Guarantees, the "Guarantees")
by the Guarantors.
The Senior Notes and the Senior Note Guarantees are to be issued under an
Indenture dated as of November 26, 1996, as supplemented and amended by the
First Supplemental Indenture dated as of December 11, 1996 (the "Senior Note
Indenture") among the Company, the Guarantors, and The Bank of New York, as
Trustee (the "Trustee"). The Senior Subordinated Notes and the Senior
Subordinated Note Guarantees are to be issued under an Indenture dated as of
November 26, 1996, as supplemented and amended by the First Supplemental
Indenture dated as of December 11, 1996 (the "Senior Subordinated Note
Indenture," and, together with the Senior Note Indenture, the "Indentures")
among the Company, the Guarantors and the Trustee.
I am familiar with the Registration Statement and the exhibits thereto, the
Indentures, and the forms of the Notes and the Guarantees. I, or attorneys
under my supervision, have also examined originals or copies, certified or
otherwise, of such other documents, evidence of corporate action and
instruments as I have deemed necessary or advisable for the purpose of
rendering this opinion. In all such examinations I have assumed the
genuineness of all signatures, the authority to sign, the authenticity of all
documents submitted to me as originals, and the conformity with the originals
of all documents submitted to me as copies.
<PAGE>
Newport News Shipbuilding Inc., et. al.
February 7, 1997
Page 2
Based on and subject to the foregoing, I am of the opinion that:
1. When the Senior Notes have been duly executed, authenticated,
registered, issued and delivered pursuant to and in accordance with the
terms of the Senior Note Indenture, the Senior Notes will constitute valid
and binding obligations of the Company.
2. When the Senior Subordinated Notes have been duly executed,
authenticated, registered, issued and delivered pursuant to and in
accordance with the terms of the Senior Subordinated Note Indenture, the
Senior Subordinated Notes will constitute valid and binding obligations of
the Company.
3. When the Senior Note Guarantees have been duly executed, registered,
issued and delivered pursuant to and in accordance with the terms of the
Senior Note Indenture, the Senior Note Guarantees will constitute valid and
binding obligations of the Guarantors.
4. When the Senior Subordinated Note Guarantees have been duly executed,
registered, issued and delivered pursuant to and in accordance with the
terms of the Senior Subordinated Note Indenture, the Senior Subordinated
Note Guarantees will constitute valid and binding obligations of the
Guarantors.
The opinions expressed above are limited to the federal laws of the United
States, the laws of the Commonwealth of Virginia, and, to the extent relevant
thereto, the General Corporation Law of the State of Delaware as currently in
effect. For the purposes of this opinion, I have assumed that the laws of the
State of New York are identical to the laws of the Commonwealth of Virginia. I
assume no obligation to supplement this opinion if any applicable laws change
after the date hereof or if I ~become aware of any facts that might change the
opinions expressed herein after the date hereof.
I hereby consent to the use of my name after the caption "Legal Matters" in
the Prospectus forming a part of the Registration Statement and to the filing,
as an exhibit to the Registration Statement, of this opinion. In giving this
consent, I do not hereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours
/s/ Stephen B. Clarkson
Stephen B. Clarkson
General Counsel
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
THIS AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT (this "Amendment") is made
and entered into as of this 11th day of December, 1996 by and among TENNECO
INC., a Delaware corporation ("Tenneco"), NEW TENNECO INC., a Delaware
corporation ("Industrial Company"), and NEWPORT NEWS SHIPBUILDING INC. (formerly
known as Tenneco InterAmerica Inc.), a Delaware corporation ("Shipbuilding
Company").
R E C I T A L S
A. Tenneco, Industrial Company and Shipbuilding Company previously
entered into a Distribution Agreement, dated as of November 1, 1996 (the
"Distribution Agreement"), pursuant to which, among other things, Tenneco will
separate and divide its existing business so that (i) its automotive, packaging
and business services businesses (the "Industrial Business") shall be owned
directly and indirectly by Industrial Company and (ii) the shipbuilding business
(the "Shipbuilding Business") shall be owned directly and indirectly
Shipbuilding Company.
B. Tenneco, Industrial Company and Shipbuilding Company desire to amend
the Distribution Agreement as specifically permitted thereunder.
NOW, THEREFORE, in consideration of the mutual promises and agreements of
the parties set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T S
1. Terms. Unless otherwise defined herein, terms used herein shall have
the meaning ascribed thereto as set forth in the Distribution Agreement.
2. Amendments. Tenneco, Industrial Company and Shipbuilding Company have
determined pursuant to Section 2.01 of the Distribution Agreement that: (a) it
is necessary to amend, supplement, modify and, in certain respects, eliminate
certain of the Corporate Restructuring Transactions to properly divide the
existing businesses of Tenneco so that (i) the Industrial Business shall be
owned directly and indirectly by Industrial Company and (ii) the Shipbuilding
Business shall be owned directly and indirectly by the Shipbuilding Company, and
(b) that such amendments, modifications, supplements and eliminations neither
individually or in the aggregate, adversely affect the Energy Business nor
materially delay or prevent the consummation of the Merger. Accordingly,
<PAGE>
pursuant to Section 2.01 and Section 8.08 of the Distribution Agreement, the
Distribution Agreement is hereby amended as follows:
a. Section 5.04(c) of the Distribution Agreement is hereby amended by
deleting the term "Shipbuilding Subsidiary" in the first line and inserting the
term "Shipbuilding Company" in lieu thereof.
b. Exhibit B to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit B attached hereto is substituted in lieu thereof.
c. Exhibit E to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit E attached hereto is substituted in lieu thereof.
d. Exhibit G to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit G attached hereto is substituted in lieu thereof.
e. Exhibit J to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit J attached hereto is substituted in lieu thereof.
3. Distribution Agreement in Full Force. Except as herein amended or
modified, the Distribution Agreement shall remain unchanged and in full force
and effect and is hereby ratified, approved and confirmed in all respects.
4. References. After the date hereof, all references in the Distribution
Agreement to "Agreement," "hereof" or similar terms shall refer to the
Distribution Agreement as hereby amended.
5. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of Tenneco, Industrial Company and Shipbuilding Company and their
respective successors and assigns.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws, and not the laws of conflict, of the State of
Delaware.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
TENNECO INC.
By: /s/ Karl A. Stewart
-------------------------
Name: Karl A. Stewart
------------------
Title: Vice President
------------------
NEW TENNECO INC.
By: /s/ Robert G. Simpson
-------------------------
Name: Robert G. Simpson
------------------
Title: Vice President
------------------
NEWPORT NEWS SHIPBUILDING INC.
By: /s/ Stephen B. Clarkson
--------------------------
Name: Stephen B. Clarkson
-------------------
Title: Vice President
-------------------
<PAGE>
Exhibit B
to the
Distribution Agreement
<PAGE>
PROJECT LIZA
TRANSACTION STEPS
Set forth below are the transactions that, as applicable, the members of
each of the Energy Group, Industrial Group, and Shipbuilding Group will
consummate in connection with the Distributions and Merger. Capitalized terms
used but not otherwise defined herein have the meaning ascribed to them under
the Distribution Agreement.
A. REALIGNMENT OF INTERCOMPANY ACCOUNTS
Except as otherwise provided in Section B below, the following transactions
will be effected as of October 31, 1996 to realign the intercompany accounts of
the Groups. As a result of these transactions, Tenneco will have one net
intercompany account receivable or payable with New Tenneco Inc. ("Industrial
Company") and one net intercompany account receivable or payable with Newport
News Shipbuilding Inc. ("Shipbuilding Company"), and all other intercompany
accounts payable or receivable of members of each Group (other than trade
accounts) will be exclusively between members of that Group. Following
completion of these transactions, there will be no further transfers of funds
between members of the different Groups other than pursuant to transactions
occurring in the ordinary course of business (trade accounts), transfers from or
to Tenneco and either Industrial Company or Shipbuilding Company, and transfers
required or otherwise permitted pursuant to these Corporate Restructuring
Transactions.
1. Realignment of Industrial Group Intercompany Accounts. Each member of
the Industrial Group having a net intercompany receivable from a member of the
Energy Group or the Shipbuilding Group (excluding trade accounts receivable)
will transfer such net intercompany receivable to Industrial Company in exchange
for an intercompany advance receivable from Industrial Company in an amount
equal to the amount of the net intercompany receivable transferred. Industrial
Company will assume the net intercompany payable of each member of the
Industrial Group having a net intercompany payable to a member of the Energy
Group or the Shipbuilding Group (excluding trade accounts payable) in exchange
for the issuance by each such Industrial Group member of an intercompany advance
payable to Industrial Company in an amount equal to the amount of the net
intercompany payable assumed. Industrial Company will consent to the assumption
of other net intercompany payables by Shipbuilding Company or Tenneco as
provided in this Section A.
2. Realignment of Shipbuilding Group Intercompany Accounts. Shipbuilding
Company will cause each member of the Shipbuilding Group having a net
intercompany receivable from a member of the Industrial Group or the Energy
Group to transfer such net intercompany receivable to Shipbuilding Company in
exchange for an intercompany advance receivable from Shipbuilding Company in an
amount equal to the amount of the net intercompany receivable transferred.
Shipbuilding Company will assume the net intercompany payable of each member of
the Shipbuilding Group having a net intercompany payable to a member of the
Industrial Group or the Energy Group (excluding trade accounts payable) in
exchange for the issuance by each such Shipbuilding Group member of an
intercompany advance payable to Shipbuilding Company in an amount equal to the
amount of the net intercompany payable assumed. Shipbuilding Company will
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Project Liza Transaction Steps
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consent to the assumption of other net intercompany payables by Industrial
Company or Tenneco as provided in this section A.
3. Realignment of Energy Group Intercompany Accounts. Tenneco will cause
each member of the Energy Group having a net intercompany receivable from a
member of the Industrial Group or the Shipbuilding Group to transfer such net
intercompany receivable to Tenneco in exchange for an intercompany advance
receivable from Tenneco in an amount equal to the amount of the net intercompany
receivable transferred. Tenneco will assume the net intercompany payable of each
member of the Energy Group having a net intercompany payable to a member of the
Industrial Group or the Shipbuilding Group (excluding trade accounts payable) in
exchange for the issuance by each such Energy Group member of an intercompany
advance payable to Tenneco in an amount equal to the amount of the net
intercompany payable assumed. Tenneco will consent to the assumption of other
net intercompany payables by Industrial Company or Shipbuilding Company as
provided in this section A.
4. Realignment of Intercompany Accounts Between Industrial Company and
Shipbuilding Company. If after the completion of steps A(1) through A(3),
Industrial Company has a net intercompany receivable from Shipbuilding Company
(excluding trade accounts), Tenneco will assume Shipbuilding Company's net
payable to Industrial Company in exchange for the issuance by Shipbuilding
Company of an intercompany advance payable to Tenneco in an amount equal to the
amount of the net intercompany payable assumed. If after the completion of steps
A(1) through A(3), Shipbuilding Company has a net intercompany receivable from
Industrial Company, Tenneco will assume Industrial Company's net payable to
Shipbuilding Company in exchange for the issuance by Industrial Company of an
intercompany advance payable to Tenneco having a face amount equal to the face
amount of the net intercompany payable assumed.
B. Preliminary Debt Realignment Transactions
1. Capitalization or Liquidation of Subsidiaries. The following
transactions will be effected to increase the capitalization of various
subsidiaries and to liquidate other subsidiaries. Except as otherwise noted, the
transfers are effective as of 10/31/96. Transfers of funds will be accomplished
by daylight overdrafts.
a. Newport News Shipbuilding and Dry Dock Company ("Newport News")
will transfer to Newport News Industrial Corporation ("NNIC") as a contribution
to capital $1,700,000. NNIC will transfer the funds to Newport News as an
intercompany advance.
b. NNIC will transfer to Newport News Industrial Corporation of Ohio
("NNICO") as a contribution to capital $200,000. NNICO will transfer the funds
to NNIC as an intercompany advance.
c. TGP will transfer to TII as a contribution to capital the
intercompany account payable owed by Tenneco Automotive Trading Company ("TATC")
to TGP as of August 31, 1996 ($___________).
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d. TII will transfer to TATC as a contribution to capital the
intercompany account payable received by TII in step B(1)(c).
e. TGP will transfer to Tenneco Brake Inc. as a contribution to
capital $15,000,000. Tenneco Brake Inc. will transfer the funds to TGP as an
intercompany advance. The intercompany advance will be settled as provided in
Section A above.
f. TGP will transfer to Walker Electronic Silencing Inc. as a
contribution to capital $10,000,000. Walker Electronic Silencing Inc. will
transfer the funds to TGP as a intercompany advance. The intercompany advance
will be settled as provided in Section A above.
g. TGP will transfer to TII as a contribution to capital the
intercompany account payable owed by Walker Europe Inc. to TGP as of October 31,
1996 ($_____________). TII will transfer to Walker Europe Inc. as a
contribution to capital (1) the intercompany account payable received pursuant
to the previous sentence, and (2) $10,000,000. Walker Europe Inc. will transfer
$10,000,000 to TII as an intercompany advance. The intercompany advance will be
settled as provided in Section A above.
h. Effective as of October 30, 1996, Tenneco will transfer to Tenneco
Liquidation Company (f/k/a Tenneco Business Services Inc.) ("TBS") as a
contribution to capital $60,000,000. TBS will transfer the funds to Tenneco as
an intercompany advance. The intercompany advance will be settled as provided
in Section A above. Effective as of October 31, 1996, Tenneco will transfer to
TBS as a contribution to capital the intercompany account payable owed by TBS to
Tenneco as of August 31, 1996 ($___________).
i. Tenneco Corporation will transfer to Tenneco Independent Power I
Company as a contribution to capital $5,000,000. Tenneco Independent Power I
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
j. Tenneco Corporation will transfer to Tenneco Independent Power II
Company as a contribution to capital $1,000,000. Tenneco Independent Power II
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
k. Tenneco Corporation will transfer to Tenneco Minerals Company -
Nevada as a contribution to capital $5,000,000. Tenneco Minerals Company -
Nevada will transfer the funds to Tenneco Corporation as an intercompany
advance.
l. Tenneco Corporation will transfer to Tenneco Oil Company as a
contribution to capital $700,000,000. Tenneco Oil Company will transfer the
funds to Tenneco Corporation as a intercompany advance.
m. Tenneco Corporation will transfer to Tenneco Power Generation
Company as a contribution to capital $5,000,000. Tenneco Power Generation
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
<PAGE>
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n. Tenneco Power Generation Company will transfer to Tenneco Ethanol
Company as a contribution to capital $10,000,000. Tenneco Ethanol Company will
transfer the funds to Tenneco Power Generation Company as an intercompany
advance.
o. The following subsidiaries will merge into their respective parent
corporations as indicated below:
Subsidiary Parent
- ------------------------------------- -----------------------------------
Holmes Machinery Company The Pullman Company
Pullman RSC Company The Pullman Company
Pullman Aircraft Products Inc. Pullman Aerospace, Inc.
Pullman Aerospace Inc. The Pullman Company
Peabody Instruments, Inc. Peabody International Corporation
Peabody Noise Control Inc. Peabody International Corporation
Holmes Blowers Inc. Peabody International Corporation
Peabody Solid Wastes Management Inc.- Peabody International Corporation
DeWald
Peabody ABC Corp. Peabody International Corporation
Peabody Pumps, Inc. Peabody International Corporation
Galco Inc. Peabody International Corporation
2. Refinancing of TIHC Liquidity Facility and TIHC Loans to Tenneco.
Effective as of November 1, 1996, Tenneco International Holding Corp. (Delaware)
("TIHC") will restructure its credit facility with Tenneco Credit corporation
("TCC") and its loans to Tenneco as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to $25,000,000.
b. Industrial Company will transfer the funds received in step B(2)(a)
to Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company; see step C(13))
("TAI") as an intercompany advance.
c. TAI will enter into a credit facility with TIHC on terms identical
to the terms of the credit facility currently existing between TIHC and TCC.
TAI will transfer the funds received in step B(2)(b) to TIHC as an advance of
funds under the terms of the TAI/TIHC credit facility.
d. Tenneco will transfer to TIHC an amount of funds equal to the
accrued balance through October 31, 1996 on TIHC's net intercompany loan to
Tenneco, and the loan shall be canceled.
e. From the funds received in steps B(2)(c) and B(2)(d), TIHC will
transfer to TCC an amount of funds equal to the accrued balance through October
31, 1996 under TIHC's credit facility with TCC, and the credit facility will be
terminated.
f. TCC will transfer the funds received in step B(2)(e) to Tenneco as
an intercomapny loan.
<PAGE>
Project Liza Transaction Steps
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g. TIHC will transfer any funds remaining after the transfer described
in step B(2)(e) to Industrial Company as an intercompany loan (on terms
substantively identical to the terms of the prior loan to Tenneco).
h. Industrial Company will transfer the funds received in step B(2)(g)
to Tenneco as an intercompany advance.
There will be no actual transfers of funds in step B(2); the intercompany
transfers will be accomplished though journal entries.
3. Purchase of Diamond Notes. Sara Lee Corporation currently holds a note
issued by Tenneco Packaging Inc. to Diamond International Inc. (the "TPI Diamond
Note") and two notes issued by Tenneco International Inc. ("TII") to Diamond
International Inc. (the "TII Diamond Note"). Tenneco Corporation's distribution
of the stock of Shipbuilding Company and Industrial Company in step C(16) may
violate certain provisions of a guarantee agreement executed by Tenneco
Corporation in connection with the issuance of the Diamond Note. To eliminate
the possibility of a violation of the agreement, the Diamond Notes will be
purchased from Sara Lee on November 15, 1996 as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the purchase price of the TPI Diamond Note
($1,365,000).
b. Industrial Company will transfer the funds received in Step B(3)(a)
to Tenneco Packaging Inc. as an intercompany advance.
c. Tenneco will transfer to TII as an intercompany advance an amount
of funds equal to the fair market value of the TII Diamond Notes ($3,769,000
plus $673,000).
d. Tenneco Packaging Inc. and TII will transfer the funds received in
steps B(3)(b) and B(3)(c) to Sara Lee Corporation in exchange for the TPI
Diamond Note and the TII Diamond Note, respectively.
Step B(3) will be accomplished by a direct transfer of funds ($5,807,000) from
Tenneco to Sara Lee Corporation. The intercompany transfers will be
accomplished through Journal entries.
4. TCC Sale of Case Receivables. Effective as of December 5, 1996, TCC will
sell all of its interest in the receivables relating to the business of Case
Corporation (the "Case Receivables") to a newly formed wholly owned Industrial
Company subsidiary ("Tenneco Retail Receivables Company") as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the fair market value of the Case
Receivables (approximately $160,000,000).
<PAGE>
Project Liza Transaction Steps
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b. Industrial Company will transfer the funds received in step B(4)(a)
to Tenneco Retail Receivables Company as an intercompany advance.
c. Tenneco Retail Receivables Company will transfer the funds received
in step B(4)(b) to TCC in exchange for the Case Receivables.
d. TCC will transfer the funds received in step B(4)(c) to Tenneco as
an intercompany loan.
e. Tenneco Retail Receivables Company will sell all or a portion of
the Case Receivables to a third party for cash.
f. Tenneco Retail Receivables Company will transfer the funds received
in step B(4)(e) to Industrial Company as a repayment of the intercompany advance
received from Industrial Company in step B(4)(b).
g. Industrial Company will transfer the funds received in step B(4)(e)
to Tenneco as a repayment of the intercompany advance received from Tenneco in
step B(4)(a). Tenneco will use the funds to repay short-term borrowings under
its credit facility or for other corporate purposes.
The funds to be received in step B(4)(e) will be transferred directly from the
third party's bank to Tenneco's credit facility administrative agent for credit
to Tenneco's account. No other funds transfers will be required in step B(4).
5. TCC Transfer of Interest in Industrial Group Receivables. Effective as of
December 9, 1996, TCC will transfer all of its interest and obligations
associated with the receivables relating to the Industrial Business (the
"Industrial Receivables"), including TCC's rights and obligations under
agreements with ASCC to the extent related to the Industrial Receivables, to a
newly formed wholly owned Industrial Company subsidiary ("TMC Texas Inc.") as
follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the fair market value of the Industrial
Receivables ($_________________).
b. Industrial Company will transfer the funds received in step B(5)(a)
to TMC Texas Inc. as an intercompany advance.
c. TMC Texas Inc. will transfer the funds received in step B(5)(b) to
TCC in exchange for the Industrial Receivables.
d. TCC will transfer the funds received in step B(5)(c) to Tenneco as
an intercompany loan.
6. Sale of Hvide Van Ommeren Interest. Intentionally omitted.
<PAGE>
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7. Termination of Eastern Insurance Company Non-Energy Business
a. On June 21, 1996, Eastern Insurance Company Limited ("Eastern")
paid a dividend of $20,118,711 out of its earned surplus to TGP. TGP transferred
the funds to Tenneco as an intercompany advance.
b. On September 23, 1996, Eastern transferred funds to Tenneco
Management Company in the amount of $34,200,289 representing the amount
described in Section 4.3(c)(i) of the Insurance Agreement attached as Exhibit H
to the Distribution Agreement (i.e., "all amounts which appear as reserves on
the books and records of the Eastern Insurance Provider as of the Termination
Time in respect of claims relating to any Industrial Covered Person which have
been reported prior to the Termination Time").
c. Effective as of [October 31, 1996], Eastern will transfer funds to
Industrial Company in the amount of $2,181,014 representing the amount described
in Section 4.3(c)(iii) of the Insurance Agreement attached as Exhibit H to the
Distribution Agreement (i.e., "50% of 'incurred but not reported' reserve
appearing on the books and records of the Eastern Insurance Provider as of the
Termination Time under the excess liability programs of the Eastern Policies
with respect to Industrial and Energy").
8. Consents of Lessors and Creditors. As soon as practical, the following
consents will be obtained to permit the transactions contemplated by the
Corporate Restructuring Transactions:
a. Counce. The lenders under loan agreements with Counce Finance
Corporation (the "Counce Noteholders") must consent to the distribution by
Tenneco Corporation of substantially all of its assets as contemplated
by paragraph 16 of the Corporate Restructuring Transactions and to the transfer
of the Counce Limited Partnership partnership interests as contemplated by
steps C(6), C(9), and C(15A).
b. GECC Leases. The lenders, equity holder, and trustee under the
Tenneco Packaging Inc. mill leases must consent to Tenneco Packaging Inc.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
c. Tenneco International Holding Corp. MW Investors L.L.C., as holder
of the Variable Rate Voting Participating Preferred Stock of Tenneco
International Holding Corp., must consent to Tenneco International Holding Corp.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
9. Execution of Underwriting Agreement. On November 12, 1996, Tenneco will
enter into a firm commitment underwriting agreement with a group of underwriters
relating to the issuance by Tenneco to the underwriter of shares of voting
junior preferred stock of Industrial Company ("New Preferred Stock") for
$300,000,000 cash less underwriting discount.
10. NPS Issuance. On November 18, 1996, Tenneco will issue the New
Preferred Stock to the underwriters in exchange for cash of $300,000,000 less
underwriting discount. Tenneco will use the funds to pay down existing credit
facilities.
<PAGE>
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11. Defeasance of a Portion of Tenneco's Consolidated Debt. On December 6,
1996, Tenneco will defease a portion of the debt of TGP and TCC as follows:
a. Tenneco will borrow $283,369,921.01 under Tenneco's existing credit
facilities to effect a defeasance of the following debt obligations:
----------------------------------------------------------------------
Interest
Issuer Face Amount Coupon Maturity at Maturity
----------------------------------------------------------------------
TGP $250,000,000 9.00% 01/15/97 $11,250,000
TCC $ 7,500,000 8.50% 01/30/97 $ 318,750
TCC $ 500,000 8.50% 03/17/97 $ 21,250
TCC $ 3,000,000 8.50% 03/24/97 $ 127,500
TCC $ 5,000,000 8.52% 03/28/97 $ 213,000
TCC $ 6,600,000 8.57% 03/18/97 $ 282,810
------------ -----------
Total $272,600,000 $12,213,310
============= ===========
b. Tenneco will transfer $23,237,635.59 to TCC from the funds
described in step B(11)(a) to defease the TCC debt identified in step B(11)(a).
The transfer will be treated as a payment by Tenneco against its intercompany
loan payable to TCC.
c. Tenneco will transfer $260,132,285.42 to TGP as an intercompany
advance from the funds described in step B(11)(a) to defease the TGP debt
identified in step B(11)(a).
d. TCC will transfer the funds received in step B(11)(b) to JP Morgan,
which will use such funds to purchase U.S. Treasury securities and will transfer
such securities to the indenture trustee in accordance with the terms of the
indenture relating to TCC's debt obligations identified in step B(11)(a) to
effect a legal defeasance of such obligations under the terms of the indenture.
e. TGP will transfer the funds received in step B(11)(c) to JP Morgan,
which will use such funds to purchase U.S. Treasury securities and will transfer
such securities to the indenture trustee in accordance with the terms of the
indenture relating to TGP's debt obligations identified in step B(11)(a) to
effect a legal defeasance of such obligations under the terms of the indenture.
f. The indenture trustee will transfer to Industrial Company any
proceeds from the defeasance portfolio (including investment of such proceeds)
in excess of the amounts necessary to pay the defeased debt at maturity.
12. Consent of $4.50 Preferred. Approval of the Transaction requires the
affirmative vote of holders of a majority of the outstanding shares of Tenneco's
$4.50 Preferred Stock and $7.40 Preferred Stock voting as a class. To ensure
that the holders of Tenneco's $4.50 Preferred Stock vote in favor of the
transaction, Tenneco will obtain an irrevocable proxy from the holders in
exchange for amending the Merger Agreement to fix the formula for determining
the number of shares of Acquiror Parent voting common stock to be paid to the
holders in the Merger.
13. Declaration of Accrued Dividends. Dividends on $4.50 Preferred Stock
otherwise due on March 12, 1997 will be declared on December 4, 1996, payable
to holders of record on December
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9, 1996, and payable on December 12, 1996. Dividends on $7.40 Preferred Stock
otherwise due on December 31, 1996 will declared on October 8, 1996, payable to
holders of record on November 22, 1996, and payable on December 31, 1996.
C. IMPLEMENTATION OF CORPORATE RESTRUCTURING TRANSACTIONS
The following transactions will be effected following the receipt of the
IRS Ruling Letter and on or before the Distribution Date (December 11, 1996)
pursuant to the requirement in Section 2.01 of the Distribution Agreement that
the parties and their affiliates "take such action or actions as is necessary
to cause, effect and consummate the Corporate Restructuring Transactions."
Transactions occurring on the same day shall be deemed to have occurred in the
order listed herein regardless of the order in which the documentation is
executed, filed, or accepted, and regardless of the order in which the funds or
other assets are transferred.
1. Effective as of October 31, 1996, TGP will transfer all of the assets
and associated liabilities of and relating to the Walker muffler shop
distribution center operation located in Carson, California (the "MSDC
BUSINESS") to Tenneco Corporation as a contribution to capital.
2. Effective as of October 31, 1996, Tenneco Corporation will transfer
the MSDC Business to Industrial Company as a contribution to capital. Any title
transfer documents required for steps C(1) and C(2) should reflect the transfer
of the assets directly from TGP to Industrial Company.
3. The following transactions will be effected implement the requirement
that Tenneco Corporation satisfy the active business requirements of I.R.C.(S)
355(b):
a. Effective as of October 31, 1996, TGP will transfer all of the
stock of Midwestern Gas Transmission Company (Delaware) ("MIDWESTERN") to
Tenneco Corporation as a contribution to capital.
b. Effective as of October 31, 1996, Tenneco Energy Resources
Corporation (Delaware)("TERC") will merge into Channel Industries Gas Company
(Delaware)("CIGC"), a wholly owned subsidiary of TERC, with CIGC as the
surviving corporation. In the merger, all of the shares of TERC stock held by
Tenneco Corporation will be canceled, and Tenneco Corporation will become the
owner of all of the shares of CIGC stock formerly held by TERC. As a result of
the merger, CIGC will become a wholly owned direct subsidiary of Tenneco
Corporation, and all of TERC's assets other than the stock of CIGC will become
assets of CIGC.
c. Effective as of October 31, 1996, Tenneco Corporation will
transfer to New Midwestern Inc., a newly formed wholly owned subsidiary of
Tenneco Corporation, as a contribution to capital all of Tenneco Corporation's
Energy Business assets other than stock of subsidiaries, and all of its
liabilities other than liabilities for accrued taxes.
d. Effective as of October 31, 1996, Tenneco Corporation will
transfer to Midwestern as a contribution to capital all of the stock of the
following companies:
Entrade Engine Company (Kentucky)
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H.T. Gathering Company (Texas) (50%)/1/
Petro-Tex Chemical Corporation (Delaware) (in dissolution)
SWL Security Corp. (Texas)
TGP Corporation (Delaware)
Tenneco Minerals Company - California (Delaware)
Tenneco Minerals Company - Nevada (Delaware)
Tenneco OCS Company, Inc. (Delaware)
Tenneco Oil Company (Delaware)
Tenneco Polymers, Inc. (Delaware)
Tennessee Overthrust Gas Company (Delaware)
New Midwestern Inc.
e. Effective as of October 31, 1996, Tenneco Corporation will
transfer to CIGC as a contribution to capital all of the stock owned by Tenneco
Corporation in the following companies:
Deepsea Ventures, Inc. (Delaware)
Tenneco Independent Power I Company (Delaware)
Tenneco Independent Power II Company (Delaware)
Tenneco Insurance Ventures (Delaware)
Tenneco Power Generation Company (Delaware)
Following step C(3), Tenneco Corporation will have no assets other than the
stock of the following companies:
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Channel Industries Gas Company (Delaware)
Midwestern Gas Transmission Company (Delaware)
Newport News Shipbuilding Inc. (Delaware)
New Tenneco Inc. (Delaware)
Tenneco Deutschland Holdinggesellschaft mbH (Germany) (99.97%)
Walker Deutschland GmbH (Germany) (1%)
Tenneco International Holding Corp. (7.82% interest in Common
Stock)
4. Effective as of October 31, 1996, Tenneco will transfer to TGP as a
contribution to capital all of its assets other than cash, the interest rate
swap contracts entered into in August 1996 relating to the Consolidated Debt,
the note receivable from I.C.H. Corporation, the stock to be transferred in step
C(12), and the stock of TGP, and all of its liabilities other than the
Consolidated Debt issued by Tenneco, accrued taxes, unpaid dividends, and the
intercompany payables due to Industrial Company and Shipbuilding Company. The
assets to be transferred to TGP include stock of the following companies:
- -----------
/1/ Tenneco Corporation owns 50% of the issued and outstanding Class A Voting
Stock and 20% of the Class B Nonvoting Stock, 29% of the total equity; and
Houston Pipe Line Company, an unaffiliated company, owns 50% of the issued and
outstanding Class A Voting Stock and 80% of the Class B Nonvoting Stock, 71% of
the total equity.
<PAGE>
Project Liza Transaction Steps
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Greater Houston Small Business Equity Fund, Inc. (Texas)
Kern County Land Company (Delaware)
MESBIC Financial Corporation of Houston (Texas)
Tenneco Credit Corporation (Delaware)
Tenneco MLP Inc. (Delaware)
5. Effective as of October 31, 1996, Newport News Industrial Corporation
(Virginia) will transfer all of its assets and trade accounts payable to
Shipbuilding Company in exchange for a Shipbuilding Company $4,000,000
promissory note.
6. Subject to receipt of the consent of the Counce Noteholders referred to
in step B(8)(a), effective as of November 30, 1996 TCC will transfer all of its
interest as a limited partner in Counce Limited Partnership, a Texas Limited
Partnership ("Counce"), to Tenneco Corporation in exchange for Voting Preferred
Stock of Tenneco Corporation having a fair market value equal to the aggregate
appraised value of the partnership interest transferred by TCC.
7. Effective as of November 30, 1996, Tenneco Equipment Corporation
("TEC") will transfer (a) all of TEC's interest in the shares of the Common
Stock of TIHC, and (b) all of TEC's interest in the shares of $8.00 Junior
Preferred Stock of TIHC to Tenneco Corporation in exchange for Voting Preferred
Stock of Tenneco Corporation having a fair market value equal to the aggregate
appraised value of the stock transferred by TEC.
8. Effective as of November 30, 1996, TII will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to Tenneco Corporation in exchange for (a) a $50,000 promissory note issued by
Tenneco Corporation and (b) Voting Preferred Stock of Tenneco Corporation. The
consideration issued by Tenneco Corporation will have an aggregate fair market
value equal to the aggregate appraised value of the stock transferred by TII.
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Omni-Pac GmbH (Germany) (1%)
Omni-Pac S.A.R.L. (France) (97%)
Tenneco Automotive Trading Company
Tenneco International Holding Corp. (71.84% interest in Common
Stock and 50% interest in $8.00 Junior Preferred Stock)
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
9. Subject to receipt of the consent of the Counce Noteholders referred to
in step B(8)(a), effective as of November 30, 1996 Shipbuilding Company will
transfer its interest as general partner in Counce Limited Partnership to PCA
Leasing Company as a contribution to capital.
10A. On or shortly before the Distribution Date, Shipbuilding Company will
issue $400,000,000 principal amount of high-yield notes, the proceeds of which
(after payment of issuance expenses) will be placed in an escrow account until
the Distribution Date, at which time the funds
<PAGE>
Project Liza Transaction Steps
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will be transferred to Shipbuilding Company account number 910-2-780 609 at The
Chase Manhattan Bank.
10B. On the Distribution Date, Shipbuilding Company will borrow
$215,000,000 under its credit facility. The funds will be deposited in
Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank.
From the proceeds of the credit facility borrowing and the proceeds of the high-
yield notes released from the escrow described in step C(10A), Shipbuilding
Company will transfer $600,000,000 to NNS Delaware Management Company as a
contribution to capital. NNS Delaware Management Company will loan the funds to
Newport News Shipbuilding and Dry Dock Company. Newport News Shipbuilding and
Dry Dock Company will transfer the proceeds of the loan, plus Shipbuilding
Company's net intercompany receivable from Tenneco, to Tenneco Corporation as a
dividend. Tenneco Corporation will loan the funds received from Shipbuilding
Company to Tenneco. Tenneco will use all of the funds to retire existing TGP
debt as contemplated by the tender offers described in step C(16B), and to
retire existing Tenneco and TCC debt as contemplated by step C(20). To document
that the funds received by Tenneco were used to retire debt, the funds will be
transferred directly from Shipbuilding Company account number 910-2-780 609 at
The Chase Manhattan Bank to the account to be used by The Chase Manhattan Bank
as Depositary for the offers to purchase debt of TGP, TCC, and Tenneco as
contemplated by steps C(16B) and C(20) (account number 910-2-758 084).
11. On the Distribution Date following consummation of step C(10B),
Shipbuilding Company will transfer all of its stock in Tenneco Packaging Inc. to
Tenneco Corporation as a distribution with respect to stock (i.e., return on
contributed surplus), and will transfer all of its stock of PCA Leasing Company
as a dividend.
12. Effective as of October 31, 1996, Tenneco will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to TGP as a contribution to capital and in exchange and consideration for
additional shares of stock of TGP.
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Tenneco Windsor Box & Display Inc. (f/k/a/ DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
13. Effective as of October 31, 1996, Monroe Auto Equipment Company will
change its name to Tenneco Automotive Inc., and will create three divisions:
Monroe Auto Equipment Company division
Walker Manufacturing Company division
Tenneco Automotive Headquarters division
<PAGE>
Project Liza Transaction Steps
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Effective as of October 31, 1996 following the name change referred to in the
previous sentence. TGP will transfer all of the assets and related liabilities
of the Walker Manufacturing Company division of TGP (other than the MSDC
Business transferred in step C(1) and (2)) to the Walker Manufacturing Company
Division of Tenneco Automotive Inc., and will transfer all of the assets and
liabilities of the Tenneco Automotive Headquarters Division to the Tenneco
Automotive Headquarters division of Tenneco Automotive Inc., in each case as a
contribution to capital. For purposes of this transfer, TGP's Asheville, N.C.
plant shall not be treated as part of the Walker Manufacturing Company
division's assets nor as part of the Tenneco Automotive Headquarters Division's
Assets. See Step 21 for the transfer of the Asheville, N.C. property.
14. Effective as of October 31, 1996 following consummation of step C(12)
TGP will transfer all of its ownership interest (100% unless otherwise
indicated) in the following assets to Tenneco Corporation as a contribution to
capital and in exchange and consideration for additional shares of common stock
of Tenneco Corporation.
Autopartes Walker, S.A. de C.V. (Mexico) (99.94)/2/
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico) (0.01%)
Proveedora Walker S.A. de C.V. (Mexico) (99.99%)/3/
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
Stock Received in Step (12) above
---------------------------------
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a/ 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
- ----------------------
/2/ Includes 0.02% interest acquired from Tenneco in step 12 above.
/3/ TGP owns 49,999 shares, and Tenneco Automotive Inc. (f/k/a Monroe Auto
Equipment Company) owns 1 share.
<PAGE>
Project Liza Transaction Steps
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15A. Effective as of October 31, 1996 following the consummation of step
C(14), Tenneco Corporation will transfer all of its ownership interest (100%
unless otherwise indicated) in the following entities to Industrial Company as a
contribution to capital and in exchange and consideration for additional shares
of stock of Industrial Company.
Stock Owned at October 30, 1996
-------------------------------
Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Tenneco Inc. (Nevada)
Walker Deutschland GmbH (Germany) (1%)
Stock and Assets Received in Step (14)
--------------------------------------
Autopartes Walker, S.A. de C.V. (Mexico) (99.96%)/4/
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico) (0.01%)
Proveedora Walker S.A. de C.V. (Mexico) (99.99%)
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
15B. Effective as of December 5, 1996 or December 6, 1996, TGP will
transfer to Tenneco Management Company as a contribution to capital the
following assets:
a. All trademarks, trade names, service marks, company or operating
unit names containing the word "Tenneco" or any variation of the name "Tenneco",
such as those names with a "Tenn" or "Ten" syllable and respective applications
or registrations therefor wherever used or registered, except that Tenneco and
the other members of the Energy Group shall retain the right to use the name
"Tennessee" in their respective corporate names or otherwise in respect of the
Energy Business.
- -------------------------
/4/ Includes: 0.02% interest owned by Tenneco Corporation at 12/31/95; and
99.94% interest acquired from TGP. Tenneco Automotive Inc. (f/k/a Monroe Auto
Equipment Company) continues to own 0.02% of the stock.
<PAGE>
Project Liza Transaction Steps
Page 15
b. All other intellectual property that does not solely and directly
relate to the Energy Business and/or the Shipbuilding Business, including but
not limited to patents, copyrights, trademarks, service marks, tradenames,
know-how, trade secrets, licenses and rights therein.
15C. Effective as of November 30, 1996 following the consummation of steps
C(6) through C(8), Tenneco Corporation will transfer all of its ownership
interest (100% unless otherwise indicated) in the following entities to
Industrial Company as a contribution to capital and in exchange and
consideration for additional shares of stock of Industrial Company. The transfer
of the Counce Limited Partnership interest is subject to receipt of the consent
of the Counce Noteholders referred to in step B(8)(a).
Stock and Partnership Interest Received in Steps (6)-(8)
--------------------------------------------------------
Counce Limited Partnership (95% limited partner interest)
Tenneco International Holding Corp. (100% interest in Common
Stock and 100% interest in $8.00 Junior Preferred Stock
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Omni-Pac Gmbh (Germany (1%)
Omni-Pac S.A.R.L. (France) (97%)
Tenneco Automotive Trading Company
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
15D. Effective as of December 1, 1996, TGP will transfer to Tenneco
Corporation as a contribution to capital the assets listed on Schedule 1.
Tenneco Corporation will transfer the assets to Industrial Company as a
contribution to capital. Industrial Company will transfer the assets to Tenneco
Management Company as a contribution to capital./5/
15E. On the Distribution Date following the consummation of step C(11),
Tenneco Corporation will transfer the stock of the following entities to
Industrial Company as a contribution to capital:
Stock Received in Step (11)
--------------------------
Tenneco Packaging Inc.
PCA Leasing Company
15F. On the Distribution Date following the consummation of steps C(1)
through C(15E), Tenneco Corporation will transfer all of its assets (excluding
the stock of Industrial Company, Shipbuilding Company, Midwestern, and CIGC, but
including the intercompany receivable from Tenneco received in step C(10B) and
all of its liabilities (excluding liabilities for accrued taxes) to Midwestern
as a contribution to capital. Midwestern will transfer such assets and
liabilities to New
- -----------------------------
/5/ These transfers are being effected as of December 1, 1996 because the
transfer of the partnership interest in Waukegan Corporate Aviation Facilities
cannot become effective earlier than the first day of the month following the
month in which the transfer is approved by the partnership.
<PAGE>
Project Liza Transaction Steps
Page 16
Midwestern as a contribution to capital. Tenneco Corporation shall not acquire
any assets following the consummation of step C(15F) and Tenneco Corporation and
Midwestern will enter into an agreement pursuant to which any assets
inadvertently acquired by Tenneco Corporation following the consummation in step
C(15F) will be deemed contributed to the capital of Midwestern immediately upon
acquisition without any further action by the parties.
16A. On the Distribution Date following the consummation of steps C(1)
through C(15F), Tenneco Corporation will transfer all of the stock of
Shipbuilding Company and Industrial Company to TGP as a distribution with
respect to stock (i.e., return of contributed surplus).
16B. On the Distribution Date following the consummation of step C(16A) and
prior to the consummation of step C(17), Tenneco will purchase the debt of TGP
as follows:
a. Pursuant to a tender offer made on November 8, 1996, Tenneco will
purchase the debt of TGP validly tendered by the holders (and not withdrawn) at
or prior to 5:00 p.m. New York City Time on December 10, 1996 (the "Expiration
Time")./6/ Using the funds received by Tenneco in step C(10B) (which are being
held by The Chase Manhattan Bank as Depositary for the offers to purchase TGP,
TCC, and Tenneco debt), on the Distribution Date Tenneco will purchase the
tendered TGP debt, excluding interest to be paid by TGP. Also on the
Distribution Date, TGP will transfer to The Chase Manhattan Bank as Depositary
for the tender offers an amount of funds equal to the interest to be paid by TGP
pursuant to the terms of the tender offer. To document TGP's payment of interest
on the tendered debt, on the Distribution Date Tenneco will make an actual
transfer of funds into a TGP account (as an intercompany advance), and TGP will
transfer funds from that account to Chase's Depositary account.
b. Tenneco will transfer the TGP debt acquired in step C(16B)(a) to
TGP in exchange for cash equal to Tenneco's cost of acquiring the debt
(including fees and expenses paid by Tenneco in connection with the purchase of
the TGP debt, but excluding accrued interest paid by TGP), thereby extinguishing
the debt.
c. Tenneco will transfer the cash received in step C(16B)(b) to TGP as
an intercompany advance.
The transfers of cash described in steps C(16B)(b) and C(16B)(c) will be
accomplished using a daylight overdraft.
17. On the Distribution Date following the consummation of steps C(16A) and
C(16B), TGP will transfer all of the stock of Shipbuilding Company and
Industrial Company to Tenneco as a distribution with respect to stock (i.e.,
return of contributed surplus).
18. On the Distribution Date following the consummation of step C(17),
Industrial Company will transfer to Tenneco as a dividend the net intercompany
account payable owed by Tenneco to Industrial Company.
- --------------------------
/6/ These Transaction Steps assume that the tender offer will not be extended or
earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 17
19. On the Distribution Date following the consummation of step C(17),
Industrial Company will participate in the Debt Realignment as follows:
a. Industrial Company will borrow $347,000,000 under a new credit
facility an amount equal to the amount necessary to fund, after payment of
credit facility expenses, a dividend to Tenneco (see step C(19)(d)) which, when
used by Tenneco to fund the retirement of debt pursuant to the Tenneco debt
tender offer, will cause the Actual Energy Debt Amount to be equal to the Base
Amount, as estimated on the Distribution Date.
b. Industrial Company's offer to exchange up to $1,950,000,000 face
amount of Industrial Company debt for certain Tenneco debt will expire at 5:00
p.m. New York City time on December 10, 1996 (the "expiration time")./7/
Pursuant to the exchange offer, Industrial Company will accept for exchange
Tenneco debt validly tendered and not withdrawn as of the expiration time, and
will acquire such Tenneco debt by issuing new debt in exchange therefor on the
first NYSE trading day following the expiration time (the "issuance date," which
is also the Distribution Date). On the Distribution Date, Industrial Company
will deliver the new debt certificates to The Chase Manhattan Bank as exchange
agent for the holders of Tenneco debt participating in the exchange. The
exchange agent will deliver the new debt certificates to such holders on the
third trading day following the expiration time (the "exchange date"). Also on
the Distribution Date, Industrial Company will transfer cash (from the funds
received in step C(19)(a)) to the exchange agent equal to the amount of interest
accrued on the exchanged Tenneco debt up to but excluding the issuance date;
provided that Tenneco, and not Industrial Company, will pay accrued interest up
to the issuance date on exchanged Tenneco debt for which the record date for any
interest payment is prior to the Distribution Date and for which the payment
date for such interest payment is after the issuance date. Interest on the new
debt will accrue from and including the issuance date ("straddle interest"). To
document Tenneco's payment of straddle interest on the exchange debt as required
by the exchange offer, Tenneco will transfer funds equal to the required payment
of straddle interest from a Tenneco Inc. account to the account to be used by
The Chase Manhattan Bank as exchange agent for the payment of such interest
pursuant to the exchange offer.
c. Tenneco will transfer to Industrial Company in exchange for the
Tenneco debt acquired by Industrial Company in step C(19)(b) an amount of funds
equal to the fair market value of the debt issued by Industrial Company to
acquire the Tenneco debt in step C(19)(b), plus the accrued interest to be paid
by Industrial Company on the Tenneco debt, plus any fees and expenses incurred
by Industrial Company in connection with the exchange.
d. Industrial Company will transfer to Tenneco as a dividend the
funds received in steps C(19)(a) and C(19)(c) remaining after payment of accrued
interest on the tendered Tenneco debt and expenses related to the credit
facility and debt exchange.
To document that the funds received in step C(19)(a) and transferred to Tenneco
in step C(19)(d) were used by Tenneco to retire debt, the funds will be
transferred directly from Morgan Guaranty
- ---------------------
/7/ These Transaction Steps assume that the exchange offer will not be extended
or earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 18
Trust Company of New York as administrative agent for the lenders under the
Industrial Company credit facility to The Chase Manhattan Bank as Depositary for
the Tenneco debt tender offer (see step C(20)(b)). The funds to be received by
Industrial Company in step C(19)(c) and then transferred to Tenneco in step
C(19)(d) will be arranged under a daylight overdraft facility.
20. On the Distribution Date following the consummation of step C(17),
Tenneco will participate in the Debt Realignment as follows:
a. Tenneco will borrow $2,164,000,000 under a new credit facility (the
"Tenneco Credit Facility") an amount equal to the amount necessary to cause the
Actual Energy Debt Amount to be equal to the Base Amount, as estimated on the
Distribution Date, taking into account funds utilized in the Debt Realignment.
b. Pursuant to a tender offer made on November 8, 1996, Tenneco will
purchase the debt of Tenneco and TCC validly tendered by the holders (and not
withdrawn) at or prior to 5:00 p.m. New York City Time on December 10, 1996 (the
"Expiration Time")./8/ From the funds received in step C(20)(a), on the
Distribution Date Tenneco will transfer to The Chase Manhattan Bank as
Depositary for the tender offers an amount of funds sufficient to fund the
purchases of the tendered Tenneco and TCC debt, taking into account the funds
deposited with Chase as Depositary as described in steps C(10B) and C(19)(d) and
the utilization of a portion of such funds as contemplated by step C(16B)(a).
Chase will use such funds to effect the purchases of the tendered Tenneco and
TCC debt on behalf of Tenneco.
c. Tenneco will transfer to TCC the debt of TCC acquired in step
C(20)(b) in exchange for cash equal to Tenneco's cost of acquiring the TCC debt,
including accrued interest plus any fees and expenses incurred by Tenneco in
connection with the acquisition of the TCC debt. Tenneco will use the cash to
repay its intercompany loan from TCC or to make an intercompany advance to TCC.
Step C(20)(c) will be accomplished using a daylight overdraft.
d. Tenneco will repay all of its outstanding bank debt and commercial
paper, pay transaction expenses, transfer funds to Shipbuilding Company and TGP
as necessary to fund the Guaranteed Shipbuilding Cash Amount and the Guaranteed
Energy Cash Amount, respectively (as defined in the Debt and Cash Allocation
Agreement), and fund cash expenditures of Tenneco and its affiliates for the
Distribution Date. To the extent the Shipbuilding Group cash and cash
equivalents on the Distribution Date (taking into account all of the foregoing
transactions) exceeds the Guaranteed Shipbuilding Cash Amount, the excess shall
be transferred by Shipbuilding Company to Tenneco as a dividend. To the extent
the Energy Group cash and cash equivalents on the Distribution Date (taking into
account all of the foregoing transactions, and including the dividend described
in the previous sentence) exceeds the Guaranteed Energy Cash Amount, Tenneco
shall transfer such excess to Industrial Company as a contribution to capital.
e. Tenneco will transfer to TGP as a contribution to capital all of
its assets other than the stock of TGP and the note receivable from I.C.H.
Corporation, and all of its liabilities other than
- ----------------
/8/ These Transaction Steps assume that the tender offer will not be extended or
earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 19
the Consolidated Debt issued by Tenneco (as defined in the Debt Realignment Plan
attached as Exhibit C to the Merger Agreement, including the untendered portions
of Tenneco public debt and the Tenneco Revolving Debt incurred under the Tenneco
Credit Facility), accrued taxes, and unpaid dividends.
Following step 20, Tenneco should have no assets other than the stock of TGP and
the note receivable from I.C.H. Corporation, and no liabilities other than the
Tenneco Credit Facility, the untendered portion of the Tenneco Consolidated
Debt, accrued taxes, and unpaid dividends. Tenneco shall not acquire any assets
following the consummation of step 20, and Tenneco and TGP will enter into an
agreement pursuant to which any assets inadvertently acquired by Tenneco
following the consummation of step 20 will be deemed contributed to the capital
of TGP immediately upon acquisition without any further action by the parties.
21. Effective as of November 30, 1996, TGP will transfer to Tenneco
Asheville Inc., a newly formed wholly owned subsidiary of TGP, as a contribution
to capital the assets and liabilities associated with the Walker Manufacturing
property located in Asheville, NC. TGP will then transfer the stock of Tenneco
Asheville Inc. to Tenneco Corporation as a contribution to capital, and Tenneco
Corporation will transfer the stock of Tenneco Asheville Inc. to Industrial
Company as a contribution to capital.
22. Effective as of November 1, 1996, Tenneco Liquidation Company
(formerly Tenneco Business Services Inc.) will transfer all of its assets and
liabilities to Tenneco Business Services Inc. (formerly Tenneco Technology
Services Inc.). Tenneco Liquidation Company will change its name to Tenneco
Business Services Holdings Inc.
23. On the Distribution Date immediately before the Distributions,
Industrial Company and Shipbuilding Company will issue a stock dividend to
Tenneco as provided in Section 2.02 of the Distribution Agreement.
D. Distributions and Merger
1. On the Distribution Date following the consummation of steps C(1)
through C(23), Tenneco will distribute all of the stock of Industrial Company
and Shipbuilding Company to Tenneco shareholders as a distribution with respect
to stock (i.e., return of contributed surplus) pro rata on the basis of one
share of Industrial Company stock for one share of Tenneco common stock
outstanding and on the basis of one share of Shipbuilding Company stock for five
shares of Tenneco common stock outstanding. Cash will be paid in lieu of issuing
fractional shares of Shipbuilding Company stock. Each share of stock of
Industrial Company and Shipbuilding Company will have attached to it stock
purchase rights (the "Rights") which will entitle the holder to purchase certain
stock of Industrial Company or Shipbuilding Company, as the case may be, upon
the occurrence of certain triggering events.
2. Effective as of the Distribution Date, the account of the employees of
the Shipbuilding Business in the Tenneco Thrift Plan will be transferred to a
Shipbuilding Company qualified plan (the "Shipbuilding Company Thrift Plan") as
of the distribution date. The Shipbuilding Company Thrift Plan will include an
employee stock ownership plan ("ESOP"), and Shipbuilding Company
<PAGE>
Project Liza Transaction Steps
Page 20
stock received with respect to Tenneco stock on their accounts will held subject
to the terms of the ESOP.
3. Effective as of 8:00 a.m. EST on the day following the Distribution
Date, Industrial Company, Acquiror, Acquiror Sub A1, and Acquiror Parent will
consummate the merger of Acquiror Sub A1 into Tenneco (the "Merger").
E. Post-Merger Transactions
1. [Describe transfers of 401(k) accounts and communication of opportunity
to sell shares of non-employer stock.]
2. [Describe settlement of cash under Debt and Cash Allocation Agreement.
If there is a transfer of excess cash from Shipbuilding Company to Industrial
Company, the transfer should be treated as dividend by Shipbuilding Company to
Tenneco and a contribution by Tenneco to the capital of Industrial Company
immediately prior to step D(1). If there is a transfer of cash from Industrial
Company to Shipbuilding Company, the transfer should be treated as dividend by
Industrial Company to Tenneco and a contribution by Tenneco to the capital of
Shipbuilding Company immediately prior to step D(1). Any transfer of cash from
Tenneco to Industrial Company should be treated as a contribution by Tenneco to
the capital Industrial Company immediately prior to step D(1), and any transfer
of cash from Industrial Company to Tenneco should be treated as a dividend by
Industrial Company to Tenneco immediately prior to step D(1).]
3. Effective as of December 12, 1996, Tenneco will make arrangements for
the funding of the Energy Business cash requirements without flowing cash
through Tenneco and without creating any intercompany receivables held by
Tenneco. As soon as practical after the Effective Time, Tenneco will close all
of its bank accounts.
<PAGE>
Project Liza Transaction Steps
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Schedule 1
Pursuant to the Corporate Restructuring Transactions, the following assets owned
by TGP shall be transferred to Tenneco Management Company.
1. Aviation Assets.
a. All fixed wing corporate aircraft (except the Gulfstream G-II,
serial number 248, and Rolls Royce Spey Model 511-8 engines, manufacturer's
Serial Numbers 9816 and 9844), and spare parts for the aircraft which as of the
Effective Time will not have a net book value in excess of $1 million.
b. Limited partner interest in the Waukegan Corporate Aviation
Facilities, an Illinois limited partnership (which owns the Waukegan, Illinois
airport hangar facility and common facilities), the furniture, fixtures, and
equipment owned by TGP located at the Waukegan aviation facilities, the stock of
Corporate Hangar Services, Inc., an Illinois corporation (which is the corporate
general partner of Waukegan Corporate Aviation Facility), and TGP's sublease of
the aviation facilities from Waukegan Corporate Aviation Facilities.
c. Certain furniture, fixtures, and equipment located in the
Houston, Texas airport hangar facilities associated with the fixed-wing aircraft
described in clause (a), which at the Effective Time will not have a net book
value in excess of $1 million.
2. Furniture, Fixtures, and Equipment. Furniture, fixtures, and equipment
(including furnishings and computer equipment) which as of the Effective Time
will not have a net book value in excess of $2 million located in:
a. Greenwich, CT Management Center.
b. Washington, D.C. office.
c. Houston, Texas office.
3. Albright & Wilson Note. The long-term note receivable from Albright &
Wilson Americas Inc. in the amount of $6,936,384 as of October 31, 1996.
<PAGE>
Exhibit E
to the
Distribution Agreement
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc. (Delaware)
Tennessee Gas Pipeline Company (Delaware)............................ 100%
Altamont Service Corporation (Delaware)............................ 100
Altamont Gas Transmission Canada Limited (Canada)................ 100
(Altamont Service Corporation is the registered holder of all
of the issued and outstanding shares of Altamont Gas
Transmission Canada Limited, as Trustee for Altamont Gas
Transmission Company, a Joint Venture)
Border Gas Inc. (Delaware) (a close corp.)......................... 37.5
(Tennessee Gas Pipeline Company owns 100% of the Class A Common
Stock, 37.5% of the total equity, and 37.5% of the total voting
stock; unaffiliated companies (Texas Eastern Transmission
Corporation, El Paso Natural Gas Company, Transcontinental Gas
Pipe Line Corporation, Southern Natural Gas Company, and Florida
Gas Transmission Company) own the remaining stock and equity.
Eastern Insurance Company Limited (Bermuda)........................ 100
East Tennessee Natural Gas Company (Tennessee)..................... 100
Tenneco East Natural Gas L.P. (Delaware Limited Partnership)..... 1
(East Tennessee Natural Gas Company, as General Partner, owns
1%; and Tenneco East Corporation, as Limited Partner, owns 99%.)
Energy TRACS, Inc. (Delaware)...................................... 100
Greater Houston Small Business Equity Fund, Inc. (Texas)........... ??
------------------------------------------------------------------------
Kern County Land Company (Delaware)................................ 100
Tenneco Equipment Corporation (Delaware)......................... 100
Marlin Drilling Co., Inc. (Delaware)
Bluefin Supply Company (Delaware)............................ 100
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)......... 0.16
(in dissolution)
Bluefin Supply Company owns 0.16%; and Marlin Drilling Co.,
Inc. owns 99.84%)
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)........ 99.84
(in dissolution)
Marlin Drilling Co., Inc. owns 99.84%; and Bluefin Supply
Company owns 0.16%)
Tenneco Equipment Holding I Company (Delaware)................. 100
Tenneco Equipment Holding II Company (Delaware)................ 100
Tenneco Equipment Holding III Company (Delaware)............... 100
Tenneco Equipment Holding V Company (North Dakota)............. 100
Tenneco Equipment Holding IV Company (Wisconsin)............... 100
Tenneco Equipment Holding VI Company (Illinois)................ 100
Tenneco West, Inc. (Delaware).................................... 100
Kern County Land Company, Inc. (California).................... 100
Kern River Corporation (Delaware).................................. 0.01
Land Ventures, Inc. (Delaware)..................................... 100
MESBIC Financial Corporation of Houston (Texas).................... ??
------------------------------------------------------------------------
Midwestern Gas Marketing Company (Delaware)........................ 100
Mont Belvieu Land Company (Delaware)............................... 100
1
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
New Tenn Company (Delaware)............................................ 100
(New Tenn Company and New Tennessee Gas Pipeline are in the process
of being merged into Tennessee Gas Pipeline Company.)
New Tennessee Gas Pipeline Company (Delaware).......................... 100
(New Tenn Company and New Tennessee Gas Pipeline are in the process
of being merged into Tennessee Gas Pipeline Company.)
S.K. Petroleum Company (Delaware)...................................... 100
Sandbar Petroleum Company (Delaware)................................... 100
Tennchase Inc. (Texas)................................................. 100
Tenneco Alaska, Inc. (Alaska).......................................... 100
Tenneco-Altamont Corporation (Delaware)................................ 100
Altamont Gas Transmission Company (Delaware Joint Venture)........... 53.34
(Tenneco-Altamont Corporation owns 53 1/3%; Amoco Altamont
Company, an unaffiliated company, owns 33 1/3%; and Entech
Altamont, Inc., an unaffiliated company, owns 13 1/3%.)
Tenneco Argentina Corporation (Delaware)............................... 100
Tenneco Baja California Corporation (Delaware)......................... 100
Tenneco Communications Corporation (Delaware).......................... 100
Tenneco Corporation (Delaware)......................................... 100
(Tennessee Gas Pipeline Company owns 100% of the Common Stock;
Tenneco Credit Corporation owns ___% of the Second Preferred
Stock; Tenneco Equipment Corporation owns ___% of the Second
Preferred Stock; and Tenneco International Inc. owns ___% of the
Second Preferred Stock.)
Channel Industries Gas Company (Delaware)............................ 100
Tenneco Energy Marketing Company (Kentucky)........................ 100
Creole Gas Pipeline Corporation (Louisiana)...................... 100
Entrade Pipeline Company (Kentucky).............................. 100
Channel Gas Marketing Company (Delaware)........................... 100
Oasis Pipe Line Company (Delaware)............................... 30
(Channel Gas Marketing Company owns 100% of the issued and
outstanding Series B Preference Stock and 30% of the Common
Stock, 30% of total equity; Dow Chemical Company, an
unaffiliated company owns 100% of the issued and outstanding
Series A Preference Stock and 70% of the Common Stock, 70%
of total equity.)
Tenneco Gas Processing Company (Delaware).......................... 100
Tenneco Independent Power I Company (Delaware)..................... 100
Tenneco Independent Power II Company (Delaware).................... 100
Tenneco Insurance Ventures (Delaware).............................. 100
Tenneco Offshore Gathering Company (Delaware)...................... 100
Tennessee Gas Marketing Company (Delaware)......................... 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Channel Industries Gas Company
Tenneco Power Generation Company (Delaware)........................ 100
Orange Acquisition, Inc. (Delaware).............................. 100
Orange Cogeneration Limited Partnership (Delaware Limited
Partnership)................................................... 49.5
(Orange Acquisition, Inc. owns 49.5% as a Limited Partner;
CSW Orange, Inc., an unaffiliated company, owns ___% as a
Limited Partner; and Orange Cogeneration GP, Inc. owns
---% as General Partner.)
Orange Cogeneration GP II, Inc. (Delaware)..................... 50
(Tenneco Power Generation Company owns 50%; and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Orange Cogeneration G.P., Inc. (Delaware)...................... 100
Polk Power GP II, Inc. (Delaware)................................ 50
(Tenneco Power Generation Company owns 50% and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Polk Power GP, Inc............................................. 100
Tenneco Ethanol Company (Delaware)............................... 100
Tenneco Ethanol Services Company (Delaware)...................... 100
West Campus Cogeneration Company (Delaware)...................... 100
Midwestern Gas Transmission Company (Delaware)....................... 100
Deepsea Ventures, Inc. (Delaware).................................. ??
Entrade Engine Company (Kentucky).................................. 100
H.T. Gathering Company (Texas)..................................... 50
(Midwestern Gas Transmission Company owns 50% of the issued
and outstanding Class A Voting Stock and 20% of the Class B
Nonvoting Stock, 29% of the total equity; and Houston Pipe
Line Company, an unaffiliated company, owns 50% of the issued
and outstanding Class A Voting Stock and 80% of the Class B
Nonvoting Stock, 71% of the total equity.)
New Midwestern Inc. (Delaware)..................................... 100
Petro-Tex Chemical Corporation (Delaware) (in dissolution)......... 100
(Certificate of Dissolution was filed in Delaware on
January 18, 1995, Final dissolution date will be
January 18, 1998, subject to settlement of any other outstanding
business.)
SWL Security Corp. (Texas)......................................... 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership).... 1
(Midwestern Gas Transmission Company, as General Partner, owns
1%; and Tenneco Midwest Corporation, as Limited Partner owns
99%.)
Tenneco Minerals Company - California (Delaware)................... 100
Tenneco Minerals Company - Nevada (Delaware)....................... 100
Tenneco OCS Company, Inc. (Delaware)............................... 100
Tenneco Oil Company (Delaware)..................................... 100
</TABLE>
3
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Midwestern Gas Transmission Company
Tenneco Polymers, Inc. (Delaware) ................................. 100
Tenneco Eastern Realty, Inc. (New Jersey) ......................... 100
Tennessee Overthrust Gas Company (Delaware) ....................... 100
Overthrust Pipeline Company (Delaware General Partner) .......... 18
(Tennessee Overthrust Gas Company owns an 18% general partnership
interest; unaffiliated parties own 82% partnership interest)
TCP Corporation (Delaware) ........................................ 100
Tenneco Credit Corporation (Delaware) ................................. 100
TenFac Corporation (Delaware) ....................................... 100
Tenneco Deepwater Gathering Company (Delaware) ........................ 100
Tenneco Delta XII Gas Co., Inc. (Delaware) ............................ 100
Tenneco East Corporation (Delaware) ................................... 100
Tenneco East Natural Gas L.P. (Delaware Limited Partnership) ........ 99
(Tenneco East Corporation, as Limited Partner, owns 99%; and East
Tennessee Natural Gas Company, as General Partner, owns 1%.)
Tenneco Energy Europe Inc. (Delaware) ................................. 100
Tenneco Energy Hungary Inc. (Delaware) .............................. 99
[Tenneco Energy Hungary B.V. (Netherlands) ......................... ??]
Tenneco Energy Ltd. (Canada) .......................................... 100
Tenneco Energy Services Company (Delaware) ............................ 100
GreyStar Corporation (Texas) ........................................ 50
(Tenneco Energy Services Company owns 50%, and unaffiliated parties
own 50%. Tenneco Energy Services Company owns 1,135,294 shares of
Series B Preferred Stock, $0.01 par value per share.)
Tenneco Energy AIRCO Inc. (Delaware) ............................... 100
Tenneco Energy OGS Inc. (Delaware) ................................. 100
Tenneco Energy TEPSCO Inc. (Delaware) .............................. 100
Tenneco Energy Inc. (Delaware) ....................................... 100
Tenneco EIS Company (Delaware) ..................................... 100
Tenneco EIS Canada Ltd. (Alberta) ................................ 100
Tenneco Gas Transporation Company (Delaware) ....................... 100
Tenneco Gas Canada, Ltd. (Ontario) ................................... 100
Tenneco Gas International Inc. (Delaware) ............................ 100
Tenneco Energy China Inc. (Delaware) ............................... 100
Tenneco Gas Brazil Corporation (Delaware) .......................... 100
Tenneco Gas International Servicos do Brasil Ltda (Brazil) ....... 100
Tenneco Gas Chile Corporation (Delaware) ........................... 100
Tenneco Energy International (East Asia/Pacific) Inc. (Delaware) ... 100
Tenneco Gas Services (Chile) Corporation (Delaware) ................ 100
Tenneco Gas Transportes S.A. (Chile) ............................. 100
Tenneco Gas Latin America Inc. (Delaware) .......................... 100
4
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Gas Louisiana Inc. (Delaware).................................... 100
Martin Exploration Company (Delaware).................................. 100
Tenneco Gas Production Corporation (Delaware)............................ 100
Tenneco Gas Properties Inc. (Delaware)................................... 100
Tenneco Gas Services, Inc. (Delaware).................................... 100
Tenneco Gas Supply Corporation (Delaware)................................ 100
Tenneco Gas Australia Inc. (Delaware).................................... 100
Tenneco Holdings Pty. Ltd. (Australia)................................. 100
Sulawesi Energy Pty Ltd. (Australia)................................. 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Holdings Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
PT Energi Sengkang (Indonesia)..................................... 95
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Sulawesi
Energy Pty. Ltd. will own 95% and an unaffiliated company
will own 5%.)
Tenneco Energy Australia Pty. Limited (Australia).................... 100
Tenneco Energy Queensland Pty. Limited (Australia)................. 100
Tenneco Energy South Australia Pty. Limited (Australia)............ 100
Tenneco Energy Operations and Maintenance Pty. Ltd. (Australia)...... 100
Energy Management Technical Systems Pty. Ltd. (Australia).......... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Energy Operations and Maintenance Pty. Ltd. will own 50%,
and an Unaffiliated company will own 50%.)
Tenneco Sulawesi Gas Pty. Ltd. (Australia)........................... 100
Energy Equity (Sengkang) Pty. Ltd. (Australia)..................... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated For the South Sulawesi Project, Tenneco
Sulawesi Gas Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
Galtee Limited (Cayman Islands)........................................ 100
Tenneco International Inc. (Delaware)..................................... 100
Tenneco Nederland B.V. (Netherlands)................................... 100
Tenneco Offshore Netherlands Company (Delaware)........................ 100
Tenneco Liquids Corporation (Delaware)................................... 100
Tenneco Marketing Services Company (Delaware)............................ 100
Tenneco MLP Inc. (Delaware).............................................. 100
Polk Power Partners, L.P. (Delaware Limited Partnership)............. 100
(Tenneco MLP Inc. owns ____% as a Limited Partner;
CSW Mulberry, Inc., an unaffiliated company, owns ____%
as a Limited Partner; GPSF-A Inc., an Unaffiliated
company owns ____% as Preferred Limited Partner; and
Polk Power GP, Inc. owns _____% as the General Partner.)
Tenneco MTBE, Inc. (Delaware)............................................ 100
</TABLE>
5
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Midwest Corporation (Delaware) ................................ 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership ...... 99
(Tenneco Midwest Corporation, as Limited Partner, owns 99%; and
Midwestern Gas Transmission Company, as General Partner, owns 1%.)
Tenneco Pittsfield Corporation (Delaware) ............................. 100
Tenneco Portland Corporation (Delaware) ............................... 100
Tenneco Realty, Inc. (Delaware) ....................................... 100
Tenneco SNG Inc. (Delaware) ........................................... 100
Tenneco Texas Acquisition Inc. (Delaware) ............................. 100
Tenneco Trinidad LNG, Inc. (Delaware) ................................. 100
Tenneco Ventures Bolivia Corporation (Delaware) ....................... 100
Tenneco Ventures Corporation (Delaware) ............................... 100
Tenneco Ventures Poland Corporation (Delaware) ........................ 100
Tenneco Western Market Center Corporation (Delaware) .................. 100
The Western Market Center Joint Venture (Joint Venture) ............. 50
(Tenneco Western Market Center Corporation owns 50%; Entech Gas
Ventures, Inc., an unaffiliated company, owns 15%; Questar WMC
Corporation, an unaffiliated company, owns 25%; and Fuels WMC
Corporation, an unaffiliated company, owns 10%.)
Tenneco Western Market Center Service Corporation (Delaware) ......... 100
TennEcon Services, Inc. (Delaware) ................................... 100
Tenneco Energy Technology Consulting Services Inc. (Delaware)....... 100
Tennessee Gas Transmission Company (Delaware) ........................ 100
Tennessee Storage Company (Delaware) ................................. 100
Tennessee Trailblazer Gas Company (Delaware) ......................... 100
Ten Ten Parking Garage Inc. (Delaware) ............................... 100
The Fontanelle Corporation (Louisiana)................................ 100
The F and E Oyster Partnership (Louisiana Partnership).............. 64
(The Fontanelle Corporation owns 64% as General Partner; and
Expedite Oyster, Inc., an unaffiliated company, owns 36% as
General Partner.)
The LaChute Corporation (Louisiana) .................................. 100
6
<PAGE>
Exhibit G
to the
Distribution Agreement
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Autopartes Walker, S.A. de C.V. (Mexico)................................ 99.98%
(Industrial Company owns 99.98% and Tenneco Automotive Inc. owns
.02%)
Counce Limited Partnership (Texas Limited Partnership).................. 95
(Industrial Company owns 95%, as Limited Partner; and PCA Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware)................................. 100
Monroe-Mexico S.A. de C.V. (Mexico)..................................... 0.01
(Industrial Company owns 0.01%; and Tenneco Automotive Inc. owns
99.99%)
Omni-Pac GmbH (Germany)................................................. 1
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Industrial
Company owns 1%)
Omni-Pac S.A.R.L. (France).............................................. 97
(Omni-Pac GmbH owns 3%; and Industrial Company owns 97%)
PCA Leasing Company (Delaware).......................................... 100
Counce Limited Partnership (Texas Limited Partnership)................ 5
(Industrial Company owns 95%, as Limited Partner; and PCA Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware)............................... 100
Proveedora Walker S.A. de C.V. (Mexico)................................. 99.99
(Industrial Company owns 49,999 shares, and Tenneco Automotive Inc.
owns 1 share)
Tenneco Asia Inc. (Delaware)............................................ 100
Tenneco Asheville Inc. (Delaware)....................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).......... 1
(Industrial Company owns 1%; and Tenneco Automotive Inc. owns 99%)
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) (Delaware) 100
Autopartes Walker, S.A. de C.V. (Mexico).............................. 0.02
(Industrial Company owns 99.98%; Tenneco Automotive Inc. owns
0.02%)
Beijing Monroe Automotive Shock Absorber Company Ltd (China).......... 51
(Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry
Corporation, ana unaffiliated company, owns 49%)
Consorcio Terranova S.A. de C.V. (Mexico)
Tenneco Automotive Inc. owns 99.99%; and Josan Latinamericana
S.A. de C.V., an unaffiliated company, owns 0.01%
McPherson Strut Company Inc. (Delaware)............................... 100
Monroe Auto Equipement France, S.A. (France).......................... 100
Monroe Europe Coordination Center N.V. (Belgium).................... 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement
France, S.A. owns 0.1%)
Monroe Packaging N.V. (Belgium)..................................... 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement
France, S.A. owns 0.1%)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Automotive Inc.
Tenneco Automotive Italia S.r.l. (Italy)............................. 15
(Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Monroe Auto Pecas S.A. (Brazil)........................................ 2.82
(Tenneco Automotive Inc. owns 2.82%; Monroe do Brasil Industria e
Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an
unaffiliated company, owns 14.47%)
Monroe-Mexico S.A. de C.V. (Mexico).................................... 99.99
(Tenneco Automotive Inc. owns 99.99%; and Industrial Company owns
0.01%)
Precision Modular Assembly Corp. (Delaware)............................ 100
Rancho Industries Europe B.V. (Netherlands)............................ 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)......... 99
(Tenneco Automotive Inc. owns 99%; and Industrial Company owns 1%)
Tenneco Automotive International Sales Corporation (DE-In Dissolution). 100
Tenneco Automotive Italia S.r.l. (Italy)............................... 85
(Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Tenneco Automotive Japan Ltd. (Japan).................................. 100
The Pullman Company (Delaware)......................................... 100
Axios Produtos de Elastomeros Limitada (Brazil)...................... 99
(99% The Pullman Company; 1% Peabody International Corporation)
Clevite Industries Inc. (Delaware)................................... 100
Peabody International Corporation (Delaware)......................... 100
Axios Produtos de Elastomeros Limitada (Brazil).................... 1
(99% The Pullman Company; 1% Peabody International Corporation)
Barasset Corporation (Ohio)........................................ 100
Peabody Galion Corporation (Delaware).............................. 100
Peabody Gordon-Piatt, Inc. (Delaware).............................. 100
Peabody N.E., Inc. (Delaware)...................................... 100
Peabody World Trade Corporation (Delaware)......................... 100
Pullmex, S.A. de C.V. (Mexico)................................... 0.1
(99% The Pullman Company; 0.1% Peabody World Trade Corporation)
Peabody-Myers Corporation (Illinois)............................... 100
Pullman Canada Ltd. (Canada)....................................... 61
(61% Peabody International Corporation; 39% The Pullman Company)
Pullman Canada Ltd. (Canada)......................................... 39
(61% Peabody International Corporation; 39% The Pullman Company)
Pullman Standard, Inc. (Delaware).................................... 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Pullmex, S.A. de C.V. (Mexico)....................................... 99.9
(99.9% The Pullman Company; 0.1% Peabody World Trade
Corporation)
Tenneco Automotive Trading Company (Delaware)............................ 100
Tenneco Brake, Inc. (Delaware)......................................... 100
Tenneco Brazil Ltda. (Brazil)............................................ 100
Monroe do Brazil Industria e Comercio Ltda. (Brazil)................... 100
Monroe Auto Pecas S.A. (Brazil)...................................... 82.71
(Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%;
Tenneco Automotive Inc. owns 2.82%; and Monteiro Aranha S/A,
an unaffiliated company owns 14.47%)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services
Inc.).................................................................. 100
Tenneco Business Services Inc. (f/k/a Tenneco Technology Services Inc.) 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)................... 99.97
(Industrial Company owns 99.97%; and Atlas Bermoegensverwaltung,
an unaffiliated company, owns 0.03%)
GILLET Unternehmesverwaltungs (Germany)................................ 100
Heinrich Gillet GmbH & Co. KG (Germany).............................. 0.1
(GILLET Unternehmesverwaltungs GmbH owns 0.1%; and
Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%)
Heinrich Gillet GmbH & Co. KG (Germany)................................ 99.9
(Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and
GILLET Unternehmesverwaltungs, mbH owns 0.1%)
Gillet-Abgassysteme Zwickau Gmbh (Germany)............................ 100
Mastra-Gillet Industria e Comercio Ltda. (Brazil)..................... 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria
e Comercio Ltda., an unaffiliated company, owns 50%)
Omni-Pac Ekco GmbH Verpackungsmittel (Germany)......................... 100
Omni-Pac Poland Sp. z o.o. (Poland).................................. 100
PCA Embalajes Espana, S.L. (Spain).................................. 1
(Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA
Verpackungsmittel GmbH owns 99%)
Omni-Pack GmbH (Germany)............................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%)
Omni-Pac ApS (Denmark).............................................. 100
Omni-Pac A.B. (Sweden)............................................... 100
Omni-Pack S.A.R.L. (France).......................................... 3
(Omni-Pac GmbH owns 3%; and Industrial Company owns 97%)
Walker Deutschland GmbH (Germany)...................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%
Walker Gillet (Europe) GmbH (Germany).................................. 100
Tenneco Foam Products Company............................................ 100
Tenneco Inc. (Nevada).................................................... 100
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Tenneco International Holding Corp. (Delaware)........................... 100
Monroe Australia Pty. Limited (Australia).............................. 100
Monroe Springs (Australia) Pty. Ltd. Australia)...................... 100
Monroe Superannuation Pty. Ltd. (Australia).......................... 100
Walker Australia Pty. Limited (Australia)................................ 100
S.A. Monroe Europe N.V. (Belgium)...................................... 100
Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey).................... 16.67
(S.A. Monroe Europe N.V. owns 16.67%; Borusan Holding AS, an
unaffiliated company, owns 83.03%; and various unaffiliated
individual stockholders own 0.3%)
Monroe Europe Coordination Center N.V. (Belgium)..................... 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto
Equipement France, S.A. owns 0.1%)
Monroe Europe (UK) Limited (United Kingdom).......................... 18
(S.A. Monroe Europe N.V. owns 18%; and Tenneco United
Kingdom Holdings Limited owns 82%)
Monroe Packaging N.V. (Belgium)...................................... 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto
Equipement France, S.A. owns 0.1%)
Tenneco Canada Inc. (Ontario).......................................... 51.28
(Tenneco International Holding Corp. owns 100% of the issued and
outstanding Common Stock, 51.28% of total equity; and Tenneco
United Kingdom Holdings Limited owns 100% of the Class A Stock,
48.72% of total equity)
98174 Ontario Limited (Ontario)...................................... 100
Tenneco Canada Wholesale Finance Company (Alberta)................... 100
Tenneco Credit Canada Corporation (Alberta).......................... 100
Tenneco Espana Holdings, Inc. (Delaware)............................... 100
Louis Minuzzi E. Hijos S.A.I.C. (Argentina)........................ 100??
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)................. 100
Monroe Spain, S.A. (f/k/a Tenneco Espana, S.A.) (Spain)............ 100
Gillet Iberica, S.A. (Spain)....................................... 100
Manufacturas Fonos, S.L. (Spain)................................... 100
Omni-Pac Embalajes S.A. (Spain).................................... 100
Reknowned Automotive Products Manufacturers Ltd. (India)............. 51
Thibault Investments Limited (Mauritius)............................. 100
Hydraulics Limited (India)......................................... 51
(Thibault Investments Limited owns 51% and Bangalore Union
Services Limited, an unaffiliated company, owns 49%)
Tenneco Holdings Denmark A/S (Denmark)................................. 100
Gillet Exhaust Technologie (Proprietary) Limited (South Africa)...... 100
Gillet Lazne Belohrad, s.r.o. (Republic of Czechoslovakia)........... 100
Heinrich Gillet Portuguesa - Sistemas de Escape, Lda. (Portugal)..... 100
Walker Denmark A/S (Denmark)......................................... 100
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of Tenneco Holdings Danmark A/S (Denmark)
Walker Inapal Escapes, S.A. (Portugal)............................... 90
(Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria Nacional
de Acessorios Para Automoveis, SA, an unaffiliated company, owns
9.99%; and Walker Danmark A/S owns 0.01%)
Walker France S.A. (France)............................................ 100
Constructions Metallurgiques de Wissembourg - Wimetal (France)....... 100
Societe Europeenne des Ensembles-Montes (France)................... 100
Gillet Tubes Technologies G.T.T. (France)............................ 100
Walker Sverige A.B. (Sweden)........................................... 100
Tenneco Management Company (Delaware).................................... 100
Tenneco Moorhead Acquisition Inc. (Delaware)............................. 100
Tenneco Packaging Hungary Holdings Inc. (Delaware)....................... 100
Tenneco Packaging Inc. (Delaware)........................................ 100
A&E Plastics, Inc. (Delaware).......................................... 100
Alupak A.G. (Switzerland).............................................. 100
American Cellulose Corporation (Delaware).............................. 50
(Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an
unaffiliated individual, owns 50%)
The Corinth and Counce Railroad Company (Mississippi).................. 100
Marinette, Tomahawk & Western Railroad Company (Wisconsin)........... 100
Valdosta Southern Railroad Company (Florida)......................... 100
Dahlonega Packaging Corporation (Delaware)............................. 100
Dixie Container Corporation (Virginia)................................. 100
Dixie Convoy Corporation (North Carolina).............................. 100
Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China)........... 50
(Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color
Printing & Packaging Factory, an unaffiliated company, owns
50%)
EKCO Products, Inc. (Illinois)......................................... 100
E-Z Por Corporation (Delaware)......................................... 100
Hexacomb Corporation (Illinois)........................................ 100
Hexacomb International Sales Corporation (U.S. Virgin Islands)....... 100
Packaging Corporation of America (Nevada).............................. 100
PCA Box Company (Delaware)............................................. 100
PCA-Budafok (Kartongyar) Kft. (Hungary)................................ 100
PCA Hydro, Inc. (Delaware)............................................. 100
PCA Romania Srl (Romania).............................................. 50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated
company owns 50%)
PCA Tomahawk Corporation (Delaware).................................... 100
PCA Valdosta Corporation (Delaware).................................... 100
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Packaging Inc.
PCA Verpackungsmittel GmbH (Germany).................................... 100
PCA Embalajes Espana S.L. (Spain).................................... 99
(PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco
GmbH Verpackungsmittel owns 1%)
PCA West Inc. (Delaware)............................................... 100
Coast-Packaging Company (California General Partnership)............. 50
(PCA West Inc. owns 50%, as General Partner; and J.G. Haddy
Sales Company, an unaffiliated Company, owns 50%, as General
Partner)
Pressware International, Inc. (Delaware)............................... 100
Revere Foil Containers, Inc. (Delaware)................................ 100
Tenneco Packaging-Romania S.R.L. (Romania)............................. 100
Tenneco Plastics Company (Delaware).................................... 100
798795 Ontario Limited (Ontario)....................................... 100
PCA Canada Inc. (Ontario)............................................ 100
Tenneco Retail Receivables Company (Delaware)............................ 100
Tenneco Romania Holdings Inc. (Delaware)................................. 100
Tenneco United Kingdom Holdings Limited (Delaware)....................... 100
Monroe Europe (UK) Limited (United Kingdom)............................ 82
(Tenneco United Holdings Limited owns 82%; and S.A. Monroe
Europe N.V. owns 18%)
Omni-Pac U.K. Limited (United Kingdom)................................. 100
Packaging Corporation of America (UK) Limited (Scotland)............... 100
Alpha Products (Bristol Limited (United Kingdom)..................... 100
Calendered Plastics Limited (United Kingdom)......................... 100
Delyn Packaging Limited (United Kingdom)............................. 100
Penlea Plastics Limited (United Kingdom)............................. 100
Polbeth Packaging Limited (Scotland)................................. 100
Brucefield Plastics Limited (Scotland)............................. 100
Polbeth Packaging (Corby) Limited (Scotland)....................... 100
Tenneco Canada Inc.(Ontario)........................................... 48.72
(Tenneco United Kingdom Holdings Limited owns 100% of the Class A
Stock, 48.72% of total equity; and Tenneco International Holding
Corporation owns 100% of the issued and outstanding common stock,
51.28% of total equity)
Tenneco Europe Limited (Delaware)....................................... 100
Tenneco Asia Limited (United Kingdom)................................ 100
Tenneco International Finance Limited (United Kingdom)................. 100
Tenneco International Finance B.V. (Netherlands)..................... 100
Tenneco Management (Europe) Limited (United Kingdom)................... 100
Tenneco Packaging (UK) Limited (United Kingdom)........................ 100
Tenneco West Limited (United Kingdom).................................. 100
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)....... 100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)....... 100
6
</TABLE>
<PAGE>
INDUSTRIAL SUBSIDIARIES
Subsidiaries of Industrial Company
Subsidiaries of Tenneco United Kingdom Holdings Limited (Delaware)
Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom) 100
Walker Limited (United Kingdom)................................. 100
Gillet Exhaust Manufacturing Limited (United Kingdom)......... 100
Gillet Pressings Cardiff Limited (United Kingdom)............. 100
Gillet Torsmaskiner UK Limited (United Kingdom)............... 50
(Walker Limited owns 100 A Ordinary Shares, 50% of total
equity; and AB Torsmaskiner, an unaffiliated company, owns
100 B Ordinary Shares, 50% of total equity)
Exhaust Systems Technology Limited (United Kingdom).......99.99
(Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich
Gillet Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated
company owns 0.01%)
Walker UK Ltd. (United Kingdom).............................. 100
J.W. Hartley (Motor Trade) Limited (United Kingdom)........ 100
Tenneco - Walker (UK) Limited (United Kingdom)............. 100
Tenneco Windsor Box & Display, Inc. (f/k/a Deline Box & Display)
(Delaware)..................................................... 100
TMC Texas Inc. (Delaware)........................................ 100
Walker Deutschland GmbH (Germany) ............................... 1
(Industrial Company owns 1%; and Tenneco Deutschland
Holdinggesellsschaft mbH owns 99%)
Walker Europe, Inc. (Delaware)................................... 100
Walker Electronic Silencing Inc. (f/k/a Walker Electronic
Mufflers) (Delaware)........................................... 100
Walker Noise Cancellation Technologies (New York Partnership).. 100
(Walker Electronic Silencing Inc. owns 50% as General
Partner; and Expedite Oyster, Inc., an unaffiliated company,
owns 50% as General Partner)
Walker Manufacturing Company (Delaware).......................... 100
Ced's Inc. (Illinois).......................................... 100
Walker Norge A/S (Norway)........................................ 100
7
<PAGE>
Exhibit J
to the
Distribution Agreement
<PAGE>
SHIPBUILDING SUBSIDIARIES
Subsidiaries of Newport News Shipbuilding Inc. (Delaware) formerly known as
Tenneco InterAmerica Inc.)
Newport News Shipbuilding and Dry Dock Company (Virginia ............ 100%
Asheville Industries Inc. (North Carolina) ........................ 100
Greeneville Industries Inc. (Virginia)............................. 100
Newport News Global Corporation (U.S. Virgin Islands).............. 100
Newport News Industrial Corporation (Virginia)..................... 100
Newport News Industrial Corporation of Ohio (Ohio)............... 100
Newport News Reactor Services, Inc. (Virginia)..................... 100
Tenneco Tanker Holding Corporation (Delaware)...................... 100
The James River Oyster Corporation (Virginia)...................... 100
NNS Delaware Management Company (Delaware).......................... 100
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Washington, D.C.,
February 7, 1997
<PAGE>
LETTER OF TRANSMITTAL
NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
PURSUANT TO THE PROSPECTUS, DATED FEBRUARY 11, 1997.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 13,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE BANK OF NEW YORK
By Registered or By Hand/Overnight
Certified Mail: By Facsimile Delivery:
Transmission:
The Bank of New York The Bank of New York
101 Barclay Street - (For Eligible 101 Barclay Street
7E Institutions Only) Corporate Trust
Services Window
New York, New York (212) 571-3080
10286 Confirm by Ground Level
Attn: Reorganization Telephone: Attn: Reorganization
Section (212) 815-6333 Section
Arwen Gibbens
For Information Call:
(212) 815-6333
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated February 11, 1997 (the "Prospectus") of Newport News Shipbuilding Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange
Offer") to exchange (i) $1,000 principal amount of its new 8 5/8% Senior Notes
due 2006 (the "New Senior Notes") for each $1,000 principal amount of its
outstanding 8 5/8% Senior Notes due 2006 (the "Old Senior Notes"), of which
$200,000,000 aggregate principal amount is outstanding and (ii) $1,000
principal amount of its new 9 1/4% Senior Subordinated Notes due 2006 (the
"New Senior Subordinated Notes," and together with the New Senior Notes, the
"New Notes") for each $1,000 principal amount of its outstanding 9 1/4% Senior
Subordinated Notes due 2006 (the "Old Senior Subordinated Notes," and together
with the Old Senior Notes, the "Old Notes") of which $200,000,000 aggregate
principal amount is outstanding. The New Notes will be fully and
unconditionally guaranteed on a joint and several basis by Newport News
Shipbuilding and Dry Dock Company and NNS Delaware Management Company (the
"Guarantors").
This Letter of Transmittal is to be used if certificates for the Old Notes
are to be forwarded herewith. If delivery of the Old Notes is to be made
through book-entry transfer into the Exchange Agent's account at the
Depository Trust Company
<PAGE>
(the "Book-Entry Transfer Facility"), this Letter need not be delivered;
PROVIDED, HOWEVER, that tenders of the Old Notes must be effected in
accordance with the Depository Trust Company's Automated Tender Offer Program
("ATOP") procedures and the procedures set forth in the "The Exchange Offer--
Exchanging Book-Entry Old Notes" section of the Prospectus, including the
delivery of an Agent's Message in lieu of this Letter of Transmittal. Holders
of Old Notes whose certificates are not immediately available, or who are
unable to deliver their certificates or confirmation of the book-entry tender
of their Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents
required by this Letter to the Exchange Agent on or prior to the Expiration
Date, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus. See Instruction 1 below. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Note. Interest on the Old Notes shall accrue from the last June 1 or December
1 on which interest was paid on the Old Notes so surrendered, or, if no
interest has been paid on such Old Notes, from November 26, 1996. No interest
will be paid on Old Notes accepted for exchange.
In the event that the Exchange Offer is not consummated or (unless the
Exchange Offer is consummated) a registration statement with respect to resale
of the Old Notes is not declared effective on or prior to the later of the
180th day following November 26, 1996 and the 120th day following the date of
the event the occurrence of which obligated the Company and the Guarantors to
file such registration statement (a "Registration Default"), then the Company
will pay additional interest (in addition to the interest otherwise due on the
Old Notes) to each holder of Old Notes during the first 90-day period
immediately following the occurrence of the Registration Default in an amount
equal to 0.25% per annum. The amount of interest will increase by an
additional 0.25% per annum for each subsequent 90-day period until the
Registration Default is cured, up to a maximum amount of additional interest
of 1.00% per annum. Such additional interest will cease accruing on such Old
Notes when the Registration Default has been cured.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any
extension by means of a press release or other public announcement prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action undersigned desires to take with respect to the
Exchange Offer.
2
<PAGE>
COMPLETE FOR TENDERS OF OLD SENIOR NOTES
List below the Old Senior Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Senior Notes should be listed on a separate signed schedule affixed
hereto.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
OF OLD
SENIOR
NOTES 1 2 3
- -----------------------------------------------
NAME(S) AND
ADDRESS(ES)
OF
REGISTERED AGGREGATE
HOLDER(S) PRINCIPAL
(PLEASE AMOUNT OF PRINCIPAL
FILL IN, IF CERTIFICATE* OLD SENIOR AMOUNT
BLANK) NUMBER(S) NOTE(S) TENDERED**
- -----------------------------------------------
--
--
--
<S> <C> <C> <C>
Total
- -----------------------------------------------
</TABLE>
* Need not be completed if Old Senior Notes are being tendered by book-
entry transfer in accordance with ATOP.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Senior Notes represented by the Old Senior Notes
indicated in column 2. See Instruction 2. Old Senior Notes tendered hereby
must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof. See Instruction 1.
[_]CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number ______________Transaction Code Number ______________
[_]CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
DTC Account Number ______________Transaction Code Number ______________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
----------------------------------------------------------------------
3
<PAGE>
COMPLETE FOR TENDERS OF OLD SENIOR SUBORDINATED NOTES
List below the Old Senior Subordinated Notes to which this Letter relates.
If the space provided below is inadequate, the certificate numbers and
principal amount of Old Senior Subordinated Notes should be listed on a
separate signed schedule affixed hereto.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
OF OLD
SENIOR
SUBORDINATED
NOTES 1 2 3
- --------------------------------------------------
NAME(S) AND
ADDRESS(ES)
OF AGGREGATE
REGISTERED PRINCIPAL
HOLDER(S) AMOUNT OF
(PLEASE FILL OLD SENIOR PRINCIPAL
IN, IF CERTIFICATE* SUBORDINATED AMOUNT
BLANK) NUMBER(S) NOTE(S) TENDERED**
- --------------------------------------------------
-----
-----
-----
<S> <C> <C> <C>
Total
- --------------------------------------------------
</TABLE>
* Need not be completed if Old Senior Subordinated Notes are being tendered
by book-entry transfer in accordance with ATOP.
**Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Senior Subordinated Notes represented by the Old
Senior Subordinated Notes indicated in column 2. See Instruction 2. Old
Senior Subordinated Notes tendered hereby must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof.
See Instruction 1.
[_]CHECK HERE IF TENDERED OLD SENIOR SUBORDINATED NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number ______________Transaction Code Number ______________
[_]CHECK HERE IF TENDERED OLD SENIOR SUBORDINATED NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
DTC Account Number ______________Transaction Code Number ______________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name __________________________________________________________________
Address _______________________________________________________________
-----------------------------------------------------------------------
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among
other things, to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that: (i) the New
Notes to be acquired by the holder and any beneficial owner(s) of Old Notes in
connection with the Exchange Offer are being acquired by the holder and any
beneficial owner(s) in the ordinary course of business of the holder and any
beneficial owner(s), (ii) at the time of the consummation of the Exchange
Offer the holder and each beneficial owner are not engaging in, do not intend
to engage in, and have no arrangement or understanding with any person to
participate in, the distribution of the New Notes in violation of the
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) the holder and each beneficial owner acknowledge and agree that any
person participating in the Exchange Offer for the purpose of distributing the
New Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Notes acquired by such person and cannot rely on the
position of the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters that are discussed under the
caption "Plan of Distribution" in the Prospectus, (iv) the holder and each
beneficial owner understands that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or 508,
as applicable, of Regulation S-K of the Commission, and (v) neither the holder
nor any beneficial owner(s) is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company except as otherwise disclosed to the
Company in writing.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Commission set forth in no-
action letters to third parties that the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by the holder or beneficial owner thereof (other
than any such holder or beneficial owner that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or a "broker" or
"dealer" registered under the Securities Exchange Act of 1934, as amended),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's or beneficial owner's business and that such holder or
beneficial owner have no arrangements with any person to participate in the
distribution of such New Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Notes. If the undesigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Senior Notes" or "Description of Old
Senior Subordinated Notes," as the case may be.
5
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SENIOR
NOTES" OR "DESCRIPTION OF OLD SENIOR SUBORDINATED NOTES" ABOVE AND SIGNING
THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD SENIOR NOTES OR THE OLD
SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE, AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certif- To be completed ONLY if certif-
icates for Old Notes not ex- icates for Old Notes not ex-
changed and/or New Notes are to changed and/or New Notes are to
be issued in the name of and sent be sent to someone other than the
to someone other than the person person or persons whose signa-
or persons whose signature(s) ap- ture(s) appear(s) on this Letter
pear(s) on this Letter above, or above or to such person or per-
if Old Notes delivered by book- sons at an address other than
entry transfer which are not ac- shown in the box entitled "De-
cepted for exchange are to be re- scription of Old Senior Notes" or
turned by credit to an account "Description of Old Senior Subor-
maintained at the Book-Entry dinated Notes," as the case may
Transfer Facility other than the be, on this Letter above.
account indicated above. [/R]
Mail to:
Issue to: [/R]
Name(s) __________________________
Name(s) __________________________ (Please Type or Print)
(Please Type or Print) ----------------------------------
---------------------------------- (Please Type or Print)
(Please Type or Print)
Address __________________________
Address __________________________ ----------------------------------
---------------------------------- (Zip Code)
(Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes de-
livered by book-entry transfer to
the Book-Entry Transfer Facility
account set forth below.
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
----------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
6
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON PAGE 11)
Dated: __________________________________________________ , 1997
x _________________________________________________________
x _________________________________________________________
Signature(s) of Owner
Area Code and Telephone Number__________________________________
If a holder is tendering any Old Notes this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on
the certificate(s) for the Old Notes or by any person(s)
authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s) ________________________________________________________
----------------------------------------------------------------
(Please Type or Print)
Capacity: ______________________________________________________
Address: _______________________________________________________
----------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: _______________________________________
(Authorized Signature)
----------------------------------------------------------------
(Title)
----------------------------------------------------------------
(Name and Firm)
Dated: ____________________________________________________
7
<PAGE>
INSTRUCTIONS
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
letter is to be completed by holders of Old Notes either if certificates are
to be forwarded herewith. If delivery of the Old Notes is to be made through
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, this Letter of Transmittal need not be delivered; PROVIDED,
HOWEVER, that tenders of the Old Notes must be effected in accordance with
ATOP procedures and the procedures set forth in "The Exchange Offer--
Exchanging Book-Entry Old Notes" section of the Prospectus. Certificates for
all physically tendered Old Notes, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof), and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, this Letter or
any other required documents to the Exchange Agent prior to the Expiration
Date or (iii) who cannot comply with the procedure for book-entry tender on a
timely basis, may effect a tender if: (a) the tender is made through an
Eligible Institution; (b) on or prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder, the
certificate number(s) of such Old Notes and the principal amount of the Old
Notes being tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
execution of the Notice of Guaranteed Delivery, this Letter (or facsimile
thereof) together with the certificate(s) representing the Old Notes and any
other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent; and (c) a properly completed and executed
Letter (or facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer and all other documents
required by this Letter, are received by the Exchange Agent within five New
York Stock Exchange trading days after the execution of the Notice of
Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit the
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer" section in the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY BOOK-
ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above
entitled "Description of Old Senior Notes--Principal Amount Tendered" or
"Description of Old Senior Subordinated Notes--Principal Amount Tendered," as
the case may be. A reissued certificate representing the balance of
nontendered Old Notes will be sent to such tendering holder, unless otherwise
provided in the appropriate box on this Letter, promptly after the Expiration
Date. All of the Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
3. SIGNATURE ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES. If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificate without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If this Letter is signed by a person other
than the registered holder of any Old Notes listed therein, such Old Notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such Old
Notes. Signatures on such certificate(s) must be guaranteed by an Eligible
Institution.
8
<PAGE>
If this Letter or any old Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member
of the following signature guarantee programs: the Securities Transfer Agents
Medallion Program (STAMP), the New York Stock Exchange Medallion Signature
Program (MSP) and the Stock Exchange Medallion Program (SEMP) (each, an
"Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in
the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Old Notes) who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old Notes
should indicate in the applicable box the name and address to which New Notes
issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this Letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to
such account maintained at the Book-Entry Transfer Facility as such noteholder
may designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires that a
tendering holder whose Old Notes are accepted for exchange must provide the
Company (as payor) with such holder's correct Taxpayer Identification Number
("TIN") on Substitute Form W-9 below, which in the case of a tendering holder
who is an individual, is his or her social security number. If the Company is
not provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, delivery to such tendering holder of New Notes
may be subject to backup withholding in an amount equal to 31% of all
reportable payments made after the exchange. If withholding results in an
overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue Service that
such holder is subject to a backup withholding as a result of a failure to
report all interest or dividends or (iii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Company a completed Form W-8, Certificate of Foreign Status. These forms may
be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult
the W-9 Guidelines for information on which TIN to report. If such holder does
not have a TIN, such holder should consult the W-9 Guidelines for instructions
on applying for a TIN, check the box in Part 3 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: Checking this box and writing
"applied for" on the form means that such holder has already applied for a TIN
or that such holder intends to apply for one in the near future. If such
holder does not provide its TIN to the Company within 60 days, backup
withholding will begin and continue until such holder furnishes its TIN to the
Company.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable
to the transfer of Old Notes to it or its order pursuant to the Exchange
Offer. If, however, New Notes and/or substitute Old Notes not exchanged are to
be delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered
9
<PAGE>
hereby, or if tendered Old Notes are registered in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed for
any reason other than the transfer of Old Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange. Neither the Company, the Exchange
Agent nor any other person is obligated to give notice of any defect or
irregularity with respect to any tender of Old Notes nor shall any of them
incur any liability for failure to give any such notice. All questions as to
the validity, form, eligibility (including time of receipt), acceptance and
withdrawal of tendered Old Notes will be determined by the Company, in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. WITHDRAWAL RIGHTS. Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written notice
of withdrawal must be received by the Exchange Agent at the address set forth
above prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes
to be withdrawn (including certificate number or numbers and the principal
amount of such Old Notes), (iii) contain a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (iv) be signed by
the holder in the same manner as the original signature on the Letter by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer to have the Trustee with respect to
the Old Notes register the transfer of such Old Notes in the name of the
person withdrawing the tender and (v) specify the name in which such Old Notes
are registered, if different from that of the Depositor. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer set forth in
"The Exchange Offer--Exchanging Book-Entry Old Notes" section of the
Prospectus, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Old Notes and otherwise comply with the procedures of such facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer and no New Notes will be issued with respect thereto unless the Old
Notes so withdrawn are validly retendered. Any Old Notes that have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures set forth in "The Exchange Offer--Exchanging Book-Entry Old Notes"
section of the Prospectus, such Old Notes will be credited to an account
maintained with the Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
the procedures described above at any time on or prior to 5:00 p.m., New York
City time, on the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address and telephone number indicated above.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: THE BANK OF NEW YORK
PART 1--PLEASE PROVIDE YOUR -----------------------
SUBSTITUTE TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW
Social Security Number
FORM W-9
OR
DEPARTMENT OF THE -----------------------
TREASURY Employer
INTERNAL REVENUE SERVICE Identification Number
--------------------------------------------------------
PAYER'S REQUEST FOR
TAXPAYER PART 2--Certification PART 3
IDENTIFICATION NUMBER
("TIN")
Under penalties of perjury, I certify [_]Awaiting
that:
(2) I am not subject to backup
withholding because (i) I am exempt
from backup withholding, (ii) I have
not been notified by the Internal
Revenue Service ("IRS") that I am
subject to backup withholding as a
result of failure to report all
interests or dividends, or (iii) the
IRS has notified me that I am no
longer subject to backup
withholding.
(1) The number shown on this form is my TIN
correct Taxpayer Identification
Number (or I am waiting for a number
to be issued to me) and
- --------------------------------------------------------------------------------
Certificate instructions--You must cross out item (2) in part 2 above if
you have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup
withholding you receive another notification from the IRS stating that you
are no longer subject to backup withholding, do not cross out item (2).
Signature: Date:
,
--------------------------------------------------
Name (Please Print)
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administrative office, or
(b) I intend to mail or deliver an application in the near future. I
understand that, notwithstanding that I have checked the box in Part 3 (and
have completed this Certificate of Awaiting Taxpayer Identification Number),
31% of all reportable payments made to me will be withheld until I provide a
properly-certified taxpayer identification number to the Exchange Agent.
----------------------------- -----------------------------
Signature Date
-----------------------------
Name (Please Print)
11
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE
FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
- ---------------------------------------------
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT SOCIAL SECURITY
NUMBER OF
- ---------------------------------------------
<S> <C>
1.Individual The individual
2. Two or more The actual owner of
individuals (Joint the account or, if
account) combined funds, the
first individual on
the account(1)
3. Custodian account of The minor(1)
a minor (Uniform
Gift to Minors Act)
4.a. The usual The grantor-
revocable savings trustee(1)
trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under State
law
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT IDENTIFICATION
NUMBER OF
--------------------------------------------------------------
<S> <C>
5.Sole proprietorship account The Owner(1)
6. A valid trust, estate, or pension trust Legal entity (Do
not furnish the
identifying number
of the personal
representative or
trustee) unless the
legal entity itself
is designated in
the account title
7.Corporate The Corporation
8. Association, club, religious, charitable, educational, or other tax-exempt organization The organization
9.Partnership The partnership
10.A broker or registered nominee The broker or
nominee
11. Account with the Department of Agriculture in the name of a public entity (such as a State or local The public entity
government, school district, or person) that receives agricultural program payments
</TABLE>
- -------------------------------------- --------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name issued.
12
<PAGE>
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must get your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, cancellation of debt, or contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the requester (the person requesting
your TIN) and, when applicable, (1) to certify the TIN you are giving is
correct (or you are waiting for a number to be issued), (2) to certify you are
not subject to backup withholding, or (3) to claim exemption from backup
withholding if you are an exempt payee. Giving your correct TIN and making the
appropriate certifications will prevent certain payments from being subject to
backup withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN,
you must use the requester's form if it is substantially similar to this Form
W-9.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions.
This is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications,
and report all your taxable interest and dividends on your tax return, your
payments will not be subject to backup withholding. Payments you receive will
be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because
you did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts
opened after 1983 only), or
5. You do not certify your TIN. See the Part III Instructions for
exceptions.
Certain payees and payments are exempt from backup withholding and
information reporting. See the Part II Instructions and the separate
Instructions for the Requester of Form W-9.
HOW TO GET A TIN.--If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5. Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
If you do not have a TIN, write "Applied For" in the space for the TIN in
Part I, sign and date the form, and give it to the requester. Generally, you
will then have 60 days to get a TIN and give it to the requester. If the
requester does not receive your TIN within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your TIN.
Note: Writing "Applied For" on the form means that you have already applied
for a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
Penalties
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
13
<PAGE>
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
Specific Instructions
NAME.--If you are an individual, you must generally enter the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security
Administration of the name change, please enter your name, the last name shown
on your social security card and your new last name.
SOLE PROPRIETOR.--You must enter your individual name. (Enter either your SSN
or EIN in Part I). You may also enter your business name or "doing business
as" name on the business name line. Enter your name as shown on your social
security card and business name as it was used to apply for your EIN on Form
SS-4.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on page 20 for further
clarification of name and TIN combinations. If you do not have a TIN, follow
the instructions under How To Get A TIN on page 13.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed Form W-8, Certificate of Foreign Status.
CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and
Broker Accounts Considered Active During 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. Interest, Dividend, Broker, and Barter Exchange Accounts Opened After
1983 and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester,
you must cross out Item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may cross
out Item 2 of the certification.
4. Other Payments. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified of an incorrect TIN.
Other payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise),
medical and health care services, payments to a nonemployee for services
(including attorney and accounting fees), and payments to certain fishing boat
crew members.
5. Mortgage Interest Paid by You, Acquisitions or Abandonment of Secured
Property, Cancellation of Debt, or IRA Contributions. You must give your
correct TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you
made to an IRA. The IRS uses the number for identification purposes and to
help verify the accuracy of your tax return. You must provide your TIN whether
or not you are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not give a TIN to a payer. Certain penalties may also apply.
14
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR NEWPORT NEWS SHIPBUILDING INC.
This form or one substantially equivalent hereof must be used to accept the
Exchange Offer relating to the $200,000,000 8 5/8% Senior Notes due 2006 (the
"Old Senior Notes") and $200,000,000 9 1/4% Senior Subordinated Notes due 2006
(the "Old Senior Subordinated Notes," and, together with the Old Senior Notes,
the "Old Notes") of Newport News Shipbuilding Inc. (the "Company") made
pursuant to the Prospectus, dated February 11, 1997 (the "Prospectus") and the
related Letter of Transmittal, if certificates for Old Notes of the Company
are not immediately available or if the procedures for book-entry transfer in
accordance with the Depository Trust Company's Automated Tender Offer Program
("ATOP") cannot be completed on a timely basis or time will not permit all
required documents to reach The Bank of New York (the "Exchange Agent") prior
to 5:00 p.m., New York City time, on the Expiration Date of the Exchange
Offer. Such form may be delivered or transmitted by facsimile transmission,
mail or hand delivery on or prior to the Expiration Date to the Exchange Agent
as set forth below. Capitalized terms not defined herein are defined in the
Prospectus.
THE BANK OF NEW YORK
By Registered or By Hand/Overnight
Certified Mail: By Facsimile Transmission: Delivery:
(For Eligible Institutions Only)
(212) 571-3080
The Bank of New York The Bank of New York [/R]
101 Barclay Street--7E 101 Barclay Street
New York, New York Confirm by Telephone: Corporate Trust Services
Attn: Reorganization (212) 815-6333 Window
Section Ground Level
Arwen Gibbens New York, New York 10286
Attn: Reorganization
Section
For Information Call:
(212) 815-6333
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the related
Letter of Transmittal, the undersigned hereby tenders to the Company the
principal amount of Old Notes set forth below, pursuant to the guaranteed
delivery procedure described in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus.
<PAGE>
A.Principal Amount of Old Senior Notes
Tendered:*
$ __________________________________
Certificate Nos. (if available):
____________________________________
If Old Senior Notes will be
delivered by book-entry transfer
to The Depository Trust Company in
Total Principal Amount Represented accordance with ATOP, provide
by Old Senior Notes Certificate(s): account number:
$ __________________________________ Account Number ____________________
B.Principal Amount of Old Senior Subordinated Notes Tendered:*
$ __________________________________
Certificate Nos. (if available):
____________________________________
If Old Senior Subordinated Notes
will be delivered by book-entry
transfer to The Depository Trust
Company in accordance with ATOP,
Total Principal Amount Represented provide account number:
by Old Senior Subordinated Notes
Certificate(s):
$ __________________________________ Account Number ____________________
- --------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
2
<PAGE>
- -------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X _____________________________________ -------------------------------------
X _____________________________________ -------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: _______________________________________________
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
Please print name(s) and address(es)
Name(s):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------
----------------------------------------------------------------------
Address(es):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
GUARANTEE
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program, hereby
guarantees that the certificates representing the principal amount at maturity
of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to ATOP procedures
and the procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus, together with a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof)
with any required signature guarantee and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent at the address
set forth above, no later than five New York Stock Exchange trading days after
the date of execution hereof.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Title
- ------------------------------------- Name: _______________________________
Zip Code (Please Type or Print)
Area Code and Telephone No. _________ Dated: ______________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
February 11, 1997
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We are enclosing herewith an offer by Newport News Shipbuilding Inc., a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated February 11, 1997, and the
related Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange: (i) $1,000 principal amount of its new 8 5/8% Senior
Notes due 2006 for each $1,000 principal amount of its outstanding 8 5/8%
Senior Notes due 2006 and (ii) $1,000 principal amount of its new 9 1/4%
Senior Subordinated Notes due 2006 for each $1,000 principal amount of its
outstanding 9 1/4% Senior Subordinated Notes due 2006. The new Senior Notes
and the new Senior Subordinated Notes are referred to herein as the "New
Notes," and the outstanding Senior Notes and the outstanding Senior
Subordinated Notes are referred to herein as the "Old Notes."
The form and terms of the New Senior Notes and the New Senior Subordinated
Notes are substantially identical to the form and terms of the Old Senior
Notes and the Old Senior Subordinated Notes, respectively, except that the New
Notes have been registered under the Securities Act of 1933, as amended (the
"Securities Act").
We are asking you to contact your clients for whom you hold Old Notes
registered in your name (or in the name of your nominee) or who hold Old Notes
registered in their own names. Please bring the Exchange Offer to their
attention as promptly as possible.
The Exchange Offer will expire at 5:00 p.m., New York City time, on March
13, 1997, unless extended (the "Expiration Date"). The Company will accept for
exchange any and all Old Notes validly tendered and not withdrawn on or prior
to the Expiration Date. The Exchange Offer provides a procedure for holders to
tender the Old Notes by means of guaranteed delivery.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
any holder or beneficial owner thereof (other than any such holder or
beneficial owner which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act of 1933, or a "broker" or "dealer"
registered under the Securities Exchange Act of 1934, as amended) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's or beneficial owner's business and that such holder or
beneficial owner is not engaged in, does not intend to engage in and has no
arrangement or understanding with any person to participate in the
distribution of such New Notes.
<PAGE>
Old Notes may be tendered only in integral multiples of $1,000 principal
amount. The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered. See "The Exchange Offer" in the Prospectus.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. The Prospectus, dated February 11, 1997.
2. The Letter of Transmittal for your use and for the information of your
clients, including Guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9
(included in Letter of Transmittal instruction number 5).
3. The Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if the Old Notes, the Letter of Transmittal, or any other required
documents cannot be delivered to the Exchange Agent on or prior to the
Expiration Date.
4. A printed form of letter which may be sent to your clients for whose
accounts you hold Old Notes registered in your name or in the name of your
nominee, with space for obtaining such client's instructions with regard to
the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY NOTEHOLDERS AS TO WHETHER TO TENDER ALL OR ANY OLD
NOTES. EACH NOTEHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO
TENDER OLD NOTES AND, IF SO, THE PRINCIPAL AMOUNT OF OLD NOTES TO TENDER.
NOTEHOLDERS ARE URGED TO CAREFULLY READ THE PROSPECTUS IN ITS ENTIRETY.
Any inquiries you may have with respect to the Exchange Offer may be
addressed to, and additional copies of the enclosed materials may be obtained
from, the Exchange Agent at the following telephone number: (212) 815-6333.
Very truly yours,
Newport News Shipbuilding Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
AS THE AGENT OF THE COMPANY, THE EXCHANGE AGENT OR THE DEPOSITORY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED HEREIN.
2
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
To Our Clients:
Enclosed for your consideration are the Prospectus, dated February 11, 1997
the "Prospectus"), and the related Letter of Transmittal (which together
constitute the "Exchange Offer"), in connection with the offer by Newport News
Shipbuilding Inc., a Delaware corporation (the "Company"), to exchange, upon
the terms and subject to the conditions set forth in the Exchange Offer, (i)
$1,000 principal amount of its new 8 5/8% Senior Notes due 2006 (the "New
Senior Notes") for each $1,000 principal amount of its outstanding 8 5/8%
Senior Notes due 2006 (the "Old Senior Notes"), of which $200,000,000
aggregate principal amount is outstanding and (ii) $1,000 principal amount of
its new 9 1/4% Senior Subordinated Notes due 2006 (the "New Senior
Subordinated Notes," and together with the New Senior Notes, the "New Notes")
for each $1,000 principal amount of its outstanding 9 1/4% Senior Subordinated
Notes due 2006 (the "Old Senior Subordinated Notes," and together with the Old
Senior Notes, the "Old Notes") of which $200,000,000 aggregate principal
amount is outstanding. The form and terms of the New Senior Notes and the New
Senior Subordinated Notes are substantially identical to the form and terms of
the Old Senior Notes and the Old Senior Subordinated Notes, respectively,
except that the New Notes have been registered under the Securities Act of
1933, as amended (the "Securities Act").
We are holding Old Notes for your account. An exchange of the Old Notes can
be made only by us and pursuant to your instructions. The Letter of
Transmittal is furnished to you for your information only and cannot be used
by you to exchange the Old Notes held by us for your account. The Exchange
Offer provides a procedure for holders to tender by means of guaranteed
delivery.
We request information as to whether you wish us to exchange any or all of
the Old Notes held by us for your account upon the terms and subject to the
conditions of the Exchange Offer.
Your attention is directed to the following:
1. The New Senior Notes will be exchanged for the Old Senior Notes at the
rate of $1,000 principal amount of New Senior Notes for each $1,000
principal amount of Old Senior Notes, and the New Senior Subordinated Notes
will be exchanged for the Old Senior Subordinated Notes at the rate of
$1,000 principal amount of New Senior Subordinated Notes for each $1,000
principal amount of Old Senior Subordinated Notes. Interest on the New
Notes shall accrue from the last June 1 or December 1 on which interest was
paid on the Old Notes so surrendered, or, if no interest has been paid on
such Old Notes, from November 26, 1996. No interest will be paid on Old
Notes accepted for exchange. As noted above, the form and terms of the New
Senior Notes and the New Senior Subordinated Notes are substantially
identical to the form and terms of the Old Senior Notes and the Old Senior
Subordinated Notes, respectively, except that the New Notes have been
registered under the Securities Act.
<PAGE>
2. Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to
third parties, the New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder or beneficial owner thereof (other than any such
holder or beneficial owner which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act or a "broker" or "dealer"
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's or beneficial owner's
business and that such holder or beneficial owner is not engaged in, does
not intend to engage in and has no arrangement or understanding with any
person to participate in the distribution of such New Notes.
3. The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered, except that Old Notes may be tendered
only in integral multiples of $1,000 principal amount.
4. The Company will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on March
13, 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may
be withdrawn on or prior to the Expiration Date.
5. Any transfer taxes applicable to the exchange of Old Notes pursuant to
the Exchange Offer will be paid by the Company, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes, please so
instruct us by completing, detaching and returning to us the instruction form
attached hereto. An envelope to return your instructions is enclosed. If you
authorize a tender of your Old Notes, the entire principal amount of Old Notes
held for your account will be tendered unless otherwise specified on the
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Old Notes in any jurisdiction in which the making
of the Exchange Offer or acceptance thereof would not be in compliance with
the laws of such jurisdiction or would otherwise not be in compliance with any
provision of any applicable securities law.
2
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 8 5/8% SENIOR NOTES DUE 2006
AND
ALL OUTSTANDING
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
$200,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
INSTRUCTIONS TO REGISTERED HOLDER FROM BENEFICIAL OWNER
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus and the related Letter of Transmittal in connection with the offer
by the Company to exchange the Old Notes.
This will instruct you to tender the principal amount of Old Notes indicated
below held by you for the account of the undersigned, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal.
The undersigned represents that (i) the New Notes to be acquired by the
holder and any beneficial owners of Old Notes in connection with the Exchange
Offer are being acquired in the ordinary course of business of the holder and
any beneficial owners, (ii) that at the time of the consummation of the
Exchange Offer the holder and each beneficial owner are not engaging, do not
intend to engage and have no arrangements or understanding with any person to
participate in the distribution of the New Notes in violation of the
provisions of the Securities Act, (iii) the holder and each beneficial owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction of the New Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in no-
action letters that are discussed under the caption "Plan of Distribution" in
the Prospectus, (iv) the holder and each beneficial owner understands that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling securityholder
information required by Item 507 or 508, as applicable, of Regulation S-K of
the Commission, and (v) neither the holder nor any benefical owner(s) is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company
except as otherwise disclosed to the Company in writing.
If the undersigned is a "broker" or "dealer" registered under the Exchange
Act that acquired Old Notes for its own account pursuant to its market-making
or other trading activities (other than Old Notes acquired directly from the
Company or an affiliate), the undersigned represents and agrees, consistent
with certain interpretive letters issued by the staff of the Division of
Corporation Finance of the Commission to third parties, that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. However, only broker-dealers who exchange Old
Notes that were acquired for their own account as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company or any affiliate of the Company), may use this Prospectus to
satisfy the prospectus delivery requirements of the Securities Act.
Notwithstanding the foregoing, the undersigned does not thereby admit that it
is an "underwriter" within the meaning of the Securities Act.
Sign Here
-------------------------------------
Signature(s)
<PAGE>
Notes which are to be tendered:
[_] Tender all of the Old Notes. By
checking this box, all Old Notes
held by us for your account will
be tendered. If fewer than all Old
Notes are to be tendered, please
check the box below and indicate
the aggregate principal amount of
Old Senior Notes and Old Senior
Subordinated Notes to be tendered
by us.
[_] Old Senior Notes: __________ Old Senior Subordinated Notes: _ [/R]
- -------------------------------------
Name(s) (Please Print)
- -------------------------------------
Address
- -------------------------------------
Zip Code
- -------------------------------------
Area Code and Telephone No.
Dated: _______________________ , 1997
2
<PAGE>
February , 1997
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street--21st Floor
New York, New York 10286
Ladies and Gentlemen:
Newport News Shipbuilding Inc. (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange all of its outstanding $200,000,000 8 5/8%
Senior Notes due 2006 for its new $200,000,000 8 5/8% Senior Notes due 2006
and to exchange all of its outstanding $200,000,000 9 1/4% Senior Subordinated
Notes due 2006 for new $200,000,000 9 1/4% Senior Subordinated Notes due 2006.
The outstanding 8 5/8% Senior Notes due 2006 and the outstanding 9 1/4% Senior
Subordinated Notes due 2006 are referred to herein as the "Old Securities,"
and the new 8 5/8% Senior Notes due 2006 and the new 9 1/4% Senior
Subordinated Notes due 2006 are referred to herein as the "New Securities."
The terms and conditions of the Exchange Offer as currently contemplated are
set forth in a Prospectus, dated February 11, 1997 (the "Prospectus"),
proposed to be distributed to all record holders of the Old Securities. The
Old Securities and the new Securities are collectively referred to herein as
the "Securities."
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or about
February 11, 1997. The Letter of Transmittal accompanying the Prospectus (or
in the case of book-entry securities, the ATOP system) is to be used by the
holders of the Old Securities to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Old Securities
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on March
13, 1997 or on such later date or time to which the Company may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves the right to
extend the Exchange Offer from time to time and may extend the Exchange Offer
by giving oral (confirmed in writing) or written notice to you before 9:00
A.M., New York City time, on the business day following the previously
scheduled Expiration Date.
The Company will give oral (confirmed in writing) or written notice of any
amendment, termination or nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Securities at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Securities by
causing the Book-Entry Transfer Facility to transfer such Old Securities into
your account in accordance with the Book-Entry Transfer Facility's procedure
for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Securities (or confirmation of book-entry transfer into your account
at the Book-Entry Transfer Facility) and any other documents delivered
<PAGE>
or mailed to you by or for holders of the Old Securities to ascertain whether:
(i) the Letters of Transmittal and any such other documents are duly executed
and properly completed in accordance with instructions set forth therein and
(ii) the Old Securities have otherwise been properly tendered. In each case
where the Letter of Transmittal or any other document has been improperly
completed or executed or any of the certificates for Old Securities are not in
proper form for transfer or some other irregularity in connection with the
acceptance of the Exchange Offer exists, you will endeavor to inform the
presenters of the need for fulfillment of all requirements and to take any
other action as may be necessary or advisable to cause such irregularity to be
corrected.
4. With the approval of the President, Senior Vice President, Executive Vice
President, or any Vice President of the Company (such approval, if given
orally, to be confirmed in writing) or any other party designated by such an
officer in writing, you are authorized to waive any irregularities in
connection with any tender of Old Securities pursuant to the Exchange Offer.
5. Except as provided in the Section of the Prospectus captioned "The
Exchange Offer--Exchanging Book-Entry Old Notes," tenders of Old Securities
may be made only as set forth in the Letter of Transmittal and in the section
of the Prospectus captioned "The Exchange Offer--Procedures for Tendering,"
and Old Securities shall be considered properly tendered to you only when
tendered in accordance with the procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Securities which the
President, Senior Vice President, Executive Vice President, or any Vice
President of the Company shall approve as having been properly tendered shall
be considered to be properly tendered (such approval, if given orally, shall
be confirmed in writing).
6. You shall advise the Company with respect to any Old Securities received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Securities
provided that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old
Securities to the transfer agent for split-up and return any untendered Old
Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date,
of all Old Securities properly tendered and you, on behalf of the Company,
will exchange such Old Securities for New Securities and cause such Old
Securities to be cancelled. Delivery of New Securities will be made on behalf
of the Company by you at the rate of $1,000 principal amount of New Securities
for each $1,000 principal amount of the corresponding series of Old Securities
tendered promptly after notice (such notice if given orally, to be confirmed
in writing) of acceptance of said Old Securities by the Company; provided,
however, that in all cases, Old Securities tendered pursuant to the Exchange
Offer will be exchanged only after timely receipt by you of certificates for
such Old Securities (or confirmation of book-entry transfer into your account
at the Book-Entry Transfer Facility), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees and any other required documents. You shall issue New Securities
only in denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and
the Letter of Transmittal, Old Securities tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date.
2
<PAGE>
10. The Company shall not be required to exchange any Old Securities
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Old Securities
tendered shall be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Securities tendered because of an invalid
tender or otherwise, you shall as soon as practicable after the expiration or
termination of the Exchange Offer return those certificates for unaccepted Old
Securities (or effect appropriate book-entry transfer), together with any
related required documents and the Letters of Transmittal relating thereto
that are in your possession, to the persons who deposited them.
12. All certificates for reissued Old Securities, unaccepted Old Securities
or for New Securities shall be forwarded by (a) first-class certified mail,
return receipt requested under a blanket surety bond protecting you and the
Company from loss or liability arising out of the non-receipt or non-delivery
of such certificates or (b) by registered mail insured separately for the
replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons
or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically set
forth herein or as may be subsequently agreed to in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any of the certificates or the Old Securities represented thereby deposited
with you pursuant to the Exchange Offer, and will not be required to and
will make no representation as to the validity, value or genuineness of the
Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which might
in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you
to be genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution
and validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a
proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions relating
to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of such counsel;
and
(h) shall not advise any person tendering Old Securities pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Securities.
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and
the Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish
3
<PAGE>
you with copies of such documents at your request. All other requests for
information relating to the Exchange Offer shall be directed to the Company,
Attention: Stephen B. Clarkson, Vice President, General Counsel and Secretary.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to Stephen B. Clarkson, Vice President, General
Counsel and Secretary of the Company and such other person or persons as it
may request, daily (and more frequently during the week immediately preceding
the Expiration Date and if otherwise requested) up to and including the
Expiration Date, as to the number of Old Securities which have been tendered
pursuant to the Exchange Offer and the items received by you pursuant to this
Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, you will also
inform, and cooperate in making available to, the Company or any such other
person or persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he or she reasonably
requests. Such cooperation shall include, without limitation, the granting by
you to the Company and such person as the Company may request of access to
those persons on your staff who are responsible for receiving tenders, in
order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old
Securities tendered, the aggregate principal amount of Old Securities accepted
and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or
credit agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be entitled
to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except
with respect to the duties, liabilities and indemnification of you as Exchange
Agent, which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including attorney's fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by you in reliance
upon any signature, endorsement, assignment, certificate, order, request,
notice, instruction or other instrument or document reasonably believed by you
to be valid, genuine and sufficient and in accepting any tender or effecting
any transfer of Old Securities reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Securities; provided, however, that the Company
shall not be liable for indemnification or otherwise for any loss, liability,
cost or expense to the extent arising out of your gross negligence or willful
misconduct. In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by you,
by letter or cable or by facsimile confirmed by letter, of the written
assertion of a claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or notice of
commencement of action. The Company shall be entitled to participate at its
own expense in the defense of any such claim or other action, and, if the
Company so elects, the Company shall assume the defense of any suit brought to
enforce any such claim. In the event that the Company shall assume the defense
of any such suit, the Company shall not be liable for the fees and expenses of
any additional counsel thereafter retained by you so long as the Company shall
retain counsel reasonably satisfactory to you to defend such suit.
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22. You shall arrange to comply with all requirements under the tax laws of
the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer
Identification Number or required certification. Such funds will be turned
over to the Internal Revenue Service in accordance with applicable
regulations.
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of
the exchange of Old Securities, your check in the amount of all transfer taxes
so payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Securities; provided,
however, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such
refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall be
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607
Facsimile: (757) 688-1408
Attention: Stephen B. Clarkson, Esq.
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 17, 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Company any certificates for Securities, funds or property then held by
you as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
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Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Newport News Shipbuilding Inc.
By: _________________________________
Name:
Title:
Accepted as the date
first above written:
The Bank of New York, as Exchange Agent
By: _________________________________
Name:
Title:
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SCHEDULE I
FEES
NEWPORT NEWS SHIPBUILDING, INC.
EXCHANGE OFFER FOR
$200MM--8 5/8% SENIOR NOTES DUE 12-1-06
$200MM--9 1/4% SENIOR SUBORDINATED NOTES DUE 12-1-06
I. ACCEPTANCE FEE Waived [/R]
Our Acceptance Fee includes review of all relevant documentation, closing of
transaction, setting up records and opening accounts.
II. ADMINISTRATIVE FEE $2,500 [/R]
Our administrative fee covers all duties of the Agent including distributing
exchange offer documents to DTC, reporting to company. Fees shall be billed
upon expiration of offer.
III. EXTENSIONS (IF APPLICABLE) $ 500 [/R]
IV. OUT OF POCKET EXPENSES
Fees quoted do not include any out-of-pocket expenses including, but not
limited to, travel, expenses of foreign depositaries, facsimile, stationery,
postage, telephone, overnight courier, and messenger costs. These expenses
will be billed, at our cost, when incurred. In the event the transaction
terminated before closing, all out-of-pocket expenses incurred, including our
counsel fees, if applicable, will be billed to the account.
V. EXTERNAL COUNSEL FEES
Fees quoted do not include external counsel fees. A bill for counsel fees
incurred up to closing will be presented for payment on the closing date.
VI. EXTRAORDINARY SERVICES
Charges for the performance of any service not of a routine administrative
nature or not contemplated at closing and specifically covered elsewhere in
this schedule of fees will be determined by appraisal in amounts commensurate
with the service rendered.
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