<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1997.
REGISTRATION NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000 per
$1,000
8 5/8% Senior Notes due principal
2006.................. $200,000,000 amount $200,000,000 $60,607.00
- --------------------------------------------------------------------------------------------
$1,000 per
9 1/4% Senior $1,000
Subordinated Notes due principal
2006................... $200,000,000 amount $200,000,000 $60,607.00
- --------------------------------------------------------------------------------------------
Subsidiary Senior
Guarantees(1).......... (2) (2) (2) (2)
- --------------------------------------------------------------------------------------------
Subsidiary Senior
Subordinated
Guarantees(1).......... (2) (2) (2) (2)
- --------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company's subsidiaries Newport News Shipbuilding and Dry Dock Company
("Newport News") and NNS Delaware Management Company will fully and
unconditionally guarantee on a joint and several basis: (i) the 8 5/8%
Senior Notes due 2006 being registered hereby and (ii) the 9 1/4% Senior
Subordinated Notes due 2006 being registered hereby. The Guarantors are
registering the Subsidiary Senior Guarantees and the Subsidiary Senior
Subordinated Guarantees. Pursuant to Rule 457(n) under the Securities Act
of 1933, as amended, no registration fee is required with respect to the
Subsidiary Senior Guarantees or with respect to the Subsidiary Senior
Subordinated Guarantees.
(2) Not applicable.
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JANUARY , 1997
PRELIMINARY 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 , 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 15 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 SECURITIES
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 , 1997
<PAGE>
The New Senior Notes will be issued under the New Senior Note Indenture (as
defined) which will be substantially identical to the Old Senior Note
Indenture (as defined) and the New Senior Subordinated Notes will be issued
under the New Senior Subordinated Note Indenture (as defined) which will be
substantially identical to the Old 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 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 , 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.
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 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 , 1997 (40 DAYS AFTER COMMENCEMENT OF THIS OFFERING), 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 recently been designated by legislation to build two of the
first four of the next generation of the Navy's new nuclear attack submarines
("NSSNs") commencing in late 1998.
As Newport News has built all the active Nimitz-class aircraft carriers and
believes it currently is the only non-government-owned shipyard capable of
refueling and overhauling nuclear-powered aircraft carriers, the Company has
had the leading share of the refueling and overhaul market for aircraft
carriers. A Nimitz-class aircraft carrier must be refueled at approximately the
midpoint of its estimated 50-year life. The Navy often commissions a major
overhaul of each carrier to coincide with a refueling. It normally takes two
years to complete a refueling and 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 two purchasers for a total of nine "Double Eagle" product
tankers. The initial ships under contract are being built at a loss, for which
the Company has created a reserve. This new line of double-hulled product
tankers is designed to meet all of the stringent domestic and international
shipping specifications. Additionally, drawing on its nearly four decades of
safe fuel handling and reactor services for the U.S. Navy, the Company won a
contract from the Department of Energy in 1995 to construct a facility to store
damaged fuel from Three Mile Island. The Company is pursuing bids on additional
projects from the Department of Energy.
In order to further strengthen its position as a leading U.S. Navy
contractor, the Company 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 [30 days
from the Exchange Offer], 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 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 As a result of the making of, and upon
Notes.......................... 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 Old Indentures (as defined)
and the Registration Rights Agreements,
except for any rights under the Old
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 Old
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. 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 Senior Notes and
the 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. 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 Senior Notes and the 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 (as defined) 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
10
<PAGE>
the obligations 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 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 an indenture governing the New
Senior Notes dated as of , 1997 (the
"New Senior Note Indenture"). The New Senior
Indenture will be substantially identical to
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 "Old 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 an
indenture governing the New Senior
Subordinated Notes dated as of , 1997
(the "New Senior Subordinated Note
Indenture," and together with the New Senior
Indenture, the "New Indentures"). The New
Senior Subordinated Indenture will be
substantially identical to the indenture
governing the Old Senior Subordinated Notes
dated as of November 26,
11
<PAGE>
1996, as supplemented and amended by the
First Supplemental Indenture dated as of
December 11, 1996 (the "Old Senior
Subordinated Note Indenture," and together
with the Old Senior Note Indenture, the "Old
Indentures").The New Indentures will 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 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
New Senior Subordinated Note Indenture will
also limit 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 New Indentures will also provide that
holders of the New Notes and the Private Ex-
change Securities will vote and consent to-
gether on all matters (to which such holders
are entitled to vote or consent) as one class
and that none of the holders of the New Notes
and the Private Exchange Securities shall
have the right to vote or consent as a sepa-
rate class on any matter (to which such hold-
ers are entitled to vote or consent). These
covenants are subject to a number of signifi-
cant exceptions and qualifications. See "De-
scription 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.
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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"). More recently, Congress preliminarily approved
authorization legislation to have the Company construct one of the Navy's new
nuclear attack submarines ("NSSNs," the class of submarines following the
Seawolf ) beginning in late 1998 and another NSSN beginning in late 2000,
although there can be no assurance that the NSSN program will continue to be
funded or proceed on schedule. Two NSSNs were also authorized to be built by
Electric Boat. Electric Boat has also been designated as the lead design yard
for NSSN submarines. Future contract awards (after the fourth ship) for the
construction of NSSNs, if made, are expected to be determined by competitive
bidding.
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 New
Indentures or the Old Indentures or the Company's other credit and contractual
arrangements.
The Senior Credit Facility and the Old Indentures contain, and the New
Indentures will 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.
22
<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) 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 Effectiveness 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.
23
<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 Agreement 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 New
Indentures, which are substantially identical to the Old Indentures (other
than such changes as are necessary to comply with any requirements of the
Commission to effect or maintain the qualification of such trust indenture
under the Trust Indenture Act.
As of the date of this Prospectus, of the $400,000,000 aggregate principal
amount of the Old Notes outstanding, $3,500,000 is registered in the name of
institutions and the remainder is 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 Old
Note 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 New 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 New Indentures will provide that the holders of any of the New Notes and
the 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 New Notes and the 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
, 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.
24
<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
"Instruction 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 Delivery Instructions" on the
Letter of Transmittal, or
25
<PAGE>
(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) (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.
26
<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 an
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 business days after the Expiration Date, 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
business days after the Expiration Date.
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
27
<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) 815-6285
or addressed as follows:
By Overnight Courier/Mail/Hand: By Facsimile:
The Bank of New York The Bank of New York
101 Barclay Street Attn: Mr. Byron Merino
21st Floor (212) 815-5915
New York, NY 10286
Attn: Mr. Byron Merino
(212) 815-6285
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 to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$ . Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees 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
28
<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 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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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.
34
<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.
35
<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.
36
<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.
37
<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
38
<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.
39
<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
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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. 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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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)
to construct four Double Eagle product tankers for affiliates of Eletson
Corporation ("Eletson") at a price of $36 million per ship. Construction of the
first tanker is substantially complete; construction has begun on the second
tanker; and a substantial portion of the materials needed for the construction
of the three uncompleted tankers has been ordered. The Company presently
estimates that these ships will be constructed over the period ending in
February, 1998. In connection with the construction of these four tankers, the
Company has incurred or estimates it will incur costs of approximately $90
million in excess of the fixed contract prices. As of September 30, 1996, the
full amount of these excess costs has been reserved for by a charge against
income. Disagreements have arisen with the purchasers during the course of
construction as to whether the first and second ships were and are being
constructed in compliance with the specifications set forth in the contracts,
and the purchasers sent letters to the Company purporting to invoke the
procedures set forth in the contracts for resolution of this situation and
requested that the Company in the interim stop construction on the ships. The
Company saw no reason to stop construction on the ships because of its
confidence that the ships will be in compliance with all contract and
classification society requirements. The purchasers have withdrawn both their
invocation of the dispute resolution procedures under the contracts and their
request that the Company cease further construction of the ships. Discussions
between the Company and the purchasers to date have resulted in the resolution
of a significant number of these disagreements, although some remain unresolved
and are the subject of further discussions. No assurances can be given as to
the effect the resolution of these remaining disagreements will have on the
Company (although the Company does not believe such resolution will materially
and adversely affect it) or the extent to which the remaining work on these
contracts can be completed without further disagreements with the purchasers or
the incurrence of additional losses in excess of current estimates. 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 Note 13 to the Combined
Financial Statements of the Company.
In 1995, the Company entered into fixed price contracts with limited
liability companies ("HVO") comprised principally of Hvide Partners, L.P. and
an affiliate of Van Ommeren International BV to construct an additional five
Double Eagle product tankers having a somewhat different design for the
domestic Jones Act market at a current average price of $43.4 million per ship.
The Company is in the process of completing its design work on these ships and
expects to begin construction in the first half of 1997. These ships are
scheduled for delivery in 1998. The Company presently estimates that it will
break even on these ships on an aggregate basis, but there can be no assurance
that the costs incurred in constructing these ships will not exceed the
contract prices for them for the reasons described in the immediately preceding
paragraph.
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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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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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 with Eletson
and HVO to construct a total of nine of its Double Eagle product tankers. The
Company has recorded losses of approximately $90 million related to its
contracts with Eletson for four of these product tankers. The Company presently
estimates that it will break even on its contracts for the five tankers from
HVO. The Company believes it can complete construction of these ships based on
its current estimate of costs. 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.
49
<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."
50
<PAGE>
U.S. NAVY FUTURE CARRIER FLEET
LOGO
As shown in the chart above, there are 12 carriers in 1996 in the Navy's
fleet. These ships range from the newest, Stennis, to the oldest,
Independence. In the year 2000, the Independence will be retired and be
replaced by the Truman. Beyond 2000, the USS Kitty Hawk is scheduled to be
replaced by the Reagan; the USS Constellation by CVN-77; and the Enterprise by
CVX-78.
SUBMARINES
The collapse of the former Soviet Union Navy, with its several hundred
submarines, has dramatically reduced the underwater threat to U.S. and allied
vessels. Currently, most of the U.S. Navy's submarines are Los Angeles-class
vessels which were first commissioned in 1976, and will begin to reach the end
of their service lives starting in 2000. The Los Angeles-class is a high
speed, nuclear-powered fast attack submarine used to locate and destroy
hostile submarines and surface ships. Newport News is the lead design yard for
the Los Angeles-class and has built 28 out of a total of the 61 currently
active submarines in this class. This program reached the end of its
production run when the last submarine, Cheyenne, was completed by Newport
News in 1996.
In the 1980s, the Navy, with the Company as the lead design yard, developed
the Seawolf-class submarine to augment and ultimately replace the Los Angeles-
class. However, the Company did not build any Seawolf submarines. Seawolf's
high unit cost (roughly $2 billion), coupled with the end of the Cold War, led
to calls for a new type of submarine and a truncation of the Seawolf program
after three ships. Consequently, the Navy plans to develop the new nuclear
attack submarine ("NSSN"), a smaller, more cost-effective, nuclear-powered
submarine beginning in 1998. Congress has approved legislation to have Newport
News construct one NSSN beginning in late 1998 and another NSSN beginning in
late 2000. Two contracts were also designated for Electric Boat, a wholly-
owned subsidiary of General Dynamics. Beyond 2001, NSSN contract awards are
expected to be determined by competitive bidding. See "Risk Factors--Reliance
on Major Customer and Uncertainty of Future Work."
51
<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 recently been
designated by legislation to build two of the first four of the next
generation of the Navy's new nuclear attack submarines ("NSSNs") commencing in
late 1998.
The Company built all the active Nimitz-class aircraft carriers. The Company
also believes it currently is the only non-government-owned shipyard currently
capable of refueling nuclear-powered aircraft carriers. Puget Sound, a
government-owned shipyard, could refuel nuclear-powered carriers if it made
additional investments in its facilities, and Portsmouth Naval Shipyard, a
government-owned shipyard in Kittery, Maine, is presently involved in nuclear
refueling, overhauling and de-activating Los Angeles-class submarines. As a
result, the Company has had the leading share of the refueling and overhaul
market for aircraft carriers. A Nimitz-class aircraft carrier must be refueled
at approximately the midpoint of its estimated 50-year life. The Navy often
commissions a major overhaul of each carrier to coincide with 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.
52
<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 two purchasers for a total of nine "Double Eagle" product
tankers. The initial ships under contract are being built at a loss, for which
the Company has created a reserve. This new line of double-hulled product
tankers is designed to meet all of the stringent domestic and international
shipping specifications. Additionally, drawing on its nearly four decades of
safe fuel handling and reactor services for the U.S. Navy, the Company won a
contract from the Department of Energy in 1995 to construct a facility to
store damaged fuel from Three Mile Island. The Company is pursuing bids on
additional projects from the Department of Energy.
In order to further strengthen its position as a leading U.S. Navy
contractor, the Company 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.
53
<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>
54
<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. More recently 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. After the fourth NSSN submarine, the Company and Electric Boat are
expected to compete against each other for additional NSSN construction
contracts by competitive bidding. The Company has constructed 53 nuclear-
powered submarines, including 39 attack submarines and 14 of the larger, fleet
ballistic missile submarines.
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) to construct four Double Eagle product tankers for affiliates of
Eletson at a price of $36 million per ship. Construction of the first tanker
is substantially complete; construction has begun on the second tanker; and a
substantial portion of the materials needed for the construction of the three
uncompleted tankers has been ordered. The Company presently estimates that
these ships will be constructed over the period ending in February 1998. In
connection with the construction of these four tankers, the Company has
incurred or estimates it will incur costs of approximately $90 million in
excess of the fixed contract prices. As of September 30, 1996, the full amount
of these excess costs has been reserved for by a charge against income.
Disagreements have arisen with the purchasers during the course of
construction as to whether the first and second ships were and are being
constructed in compliance with the specifications set forth in the contracts,
and the purchasers sent letters to the Company purporting to invoke the
procedures set forth in the contracts for resolution of this situation and
requested that the Company in the interim stop construction on the ships. The
Company saw no reason to stop construction on the ships because of its
confidence that the ships will
55
<PAGE>
be in compliance with all contract and classification society requirements.
The purchasers have withdrawn both their invocation of the dispute resolution
procedures under the contracts and their request that the Company cease
further construction of the ships. Discussions between the Company and the
purchasers to date have resulted in the resolution of a significant number of
these disagreements, although some remain unresolved and are the subject of
further discussions. No assurances can be given as to the effect the
resolution of these remaining disagreements will have on the Company (although
the Company does not believe such resolution will materially and adversely
affect it) or the extent to which the remaining work on these contracts can be
completed without further disagreements with the purchasers or the incurrence
of additional losses in excess of current estimates. 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Business Outlook" and Note 13 to the Combined Financial Statements of the
Company.
In 1995, the Company entered into fixed price contracts with HVO to
construct an additional five Double Eagle product tankers having a somewhat
different design for the domestic Jones Act market at a current average price
of $43.4 million per ship. The Company is in the process of completing its
design work on these ships and expects to begin construction in the first half
of 1997. These ships are scheduled for delivery in 1998. The Company presently
estimates that it will break even on these ships on an aggregate basis, but
there can be no assurance that the costs incurred in constructing these ships
will not exceed the contract prices for them for the reasons described in the
immediately preceding paragraph.
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
56
<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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<PAGE>
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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<PAGE>
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 in August 1992. 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, 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
Wylen G. Cooper(47)..... Vice President--Sourcing November 1995
William G. Cridlin,
Jr.(50)................ Vice President--Marketing January 1995
Vice President--Commercial Shipbuilding April 1992
Vice President--Manufacturing September 1988
T. Michael
Hatfield(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 1995, Wylen G.
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<PAGE>
Cooper was employed by GE Power Systems, last serving in the capacity of
Manager of Sourcing; (iii) from 1989 to 1993, T. Michael Hatfield was employed
by Lockheed Co., last serving in the capacity of Director of Communications;
(iv) from 1992 to 1996, Alfred Little, Jr. was employed by Sun Co., last
serving in the capacity of Vice President--Human Resources and from 1988 to
1992 in the capacity of Director--Human Resources; (v) from 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; (vi) from 1977 to
1991, John E. Shephard, Jr. was employed as an Infantry Officer by the United
States Army, last serving as Assistant G3, Operations of the 101st Airborne
Division; and from 1991 to 1993 was employed by the U.S. Army Reserves as an
Individual Mobilization Augmentee assigned to the U.S. Military Academy
faculty and to the 157th IMA Detachment in Washington, D.C.; and (vii) from
January 1996 to December 1996, Patrick A. Tucker was 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. See "Prospectus
Summary--The Shipbuilding Distribution."
<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........................... 1,300
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)................................... 310,946(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.
66
<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.
67
<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 for a term ending
December 12, 1999. Mr. Fricks will receive annual compensation 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.
68
<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.
69
<PAGE>
OPTION/SAR EXERCISES IN 1996 AND 1996 YEAR-END VALUES
The following table sets forth the number of 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 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.
70
<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
71
<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.
72
<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.
73
<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")
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
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Company at prices negotiated by TBS which are applicable to all participating
purchasers. TBS will charge the Company a fixed fee of $5,000 per month for
contract administration services including data collection, negotiations,
progress reporting, benefits reporting, follow-ups and consulting in connection
with the vendor agreements.
Insurance Agreement. Tenneco has historically maintained at the parent-
company level various insurance policies for the benefit or protection of
itself and its subsidiaries. The Insurance Agreement 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 an indenture to be dated as of
, 1997 (the "New 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 an indenture to be dated as of
, 1997 (the "New Senior Subordinated Note Indenture," and, together
with the New Senior Note Indenture, the "New 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"). Each New Indenture will be
substantially identical to the Old Senior Note Indenture or the Old Senior
Subordinated Note Indenture, as the case may be, other than such changes as are
necessary to comply with any requirements of the Commission to effect or
maintain the qualification of such trust indenture under the Trust Indenture
Act. The New Notes are subject to all such terms, and Holders of New Notes are
referred to the New Indentures and the Trust Indenture Act for a statement
thereof. A copy of the proposed forms of the New Indentures will be made
available to prospective investors upon request. The following summary of
certain provisions of the New Indentures does not purport to be complete and is
qualified in its entirety by reference to the New 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 New 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.
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.
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 New Indentures will provide that holders of the New Notes and the 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
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that none of the holders of the New Notes and the 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).
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 New 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 New 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 New
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 New 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 New 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 New 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 New Indenture will provide 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.
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Each 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 New Indenture will provide 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 New Indenture will provide that if the New Notes thereunder are defeased
in accordance with the terms of such New 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 New 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 New 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
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Subsidiary 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 New 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 New 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 New Senior Subordinated Note
Indenture will provide 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 New Senior Subordinated Note Indenture will provide
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
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secure 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 New 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 New 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 New Indentures will 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 New 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 New Indentures will 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
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connection with the 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
New Senior Note Indenture and the New Senior Subordinated Notes in the case of
the New 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 New Indentures, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to the terms of the New 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 New 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 New 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 New
Indentures will 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 Old
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 New
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 New Indentures and restrict the
transfer of property subject to such agreements.
LIMITATION ON CERTAIN ASSET DISPOSITIONS. The New Indentures will 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
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Directors of NNS 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 New Senior Note Indenture, or the New Senior Subordinated
Notes or Guarantees thereof, in the case of the New 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 New
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 New 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 New 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 New 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 New 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 New
Indentures will 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 New 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 New
Indentures will 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 New 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 New
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 New 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 New 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 New 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 New 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 New 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 New 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 New 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 New
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 New 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 New Indentures in connection with any
transaction complying with the provisions of the New Indentures described
under "--Limitation on Certain Asset Dispositions" above.
EVENTS OF DEFAULT
The following will be defined as "Events of Default" under the New
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 New 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 New 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
New 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 New Senior Note Indenture or the New Senior Subordinated Note Indenture,
as the case may be, or in the New Notes outstanding under such New 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 New 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
New Indenture and such Guarantee). With respect to the New 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 New Indentures relating to
the duties of the Trustees, in case an Event of Default (as defined) shall
occur and be continuing, each Trustee will be under no obligation to exercise
any of its rights or powers under the New 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 New 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
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become immediately due and payable; provided, however, that so long as the
Senior Credit Facility shall be in full force 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 New
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 New
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 New Indentures. For information as to
waiver of defaults, see "--Modification and Waiver."
Each New 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 New 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 New
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 New
Indenture and as to any default in such performance.
SATISFACTION AND DISCHARGE OF NEW 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 New 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 New 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 New
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 New 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 New 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 New 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 New Indenture.
NNS may make an irrevocable deposit pursuant to this provision pursuant to
the New Senior Subordinated Note Indenture only if at such time it is not
prohibited from doing so under the subordination provisions of such New
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 New Indentures, 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 New 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 New Senior Notes or the New
Senior Subordinated Notes, as the case may be, outstanding thereunder;
provided, however, that no such modification or amendment to the New Senior
Note Indenture or the New 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
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provisions of any such New Senior Note or New Senior Subordinated Note or such
New 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 New Indenture relating to the waiver of past defaults (other than to add
sections of such New 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 New
Indenture and such New Senior Notes or New Senior Subordinated Notes (other
than to add sections of such New 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
New 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 New Indenture and a waiver of the
payment default that resulted from such acceleration), (h) in the case of the
New 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 New Senior
Subordinated Note Indenture in any manner adverse to the Holders of New Senior
Subordinated Notes, (i) in the case of the New 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 New Indenture under which such New Note is outstanding
otherwise than in accordance with such New 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 New Senior Note Indenture and the New Senior Subordinated Note
Indenture, as the case may be. Subject to certain rights of the relevant
Trustee, as provided in the applicable New 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 New 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 New 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 New Indentures provide that, except during the continuance of a Default,
the Trustees will perform only such duties as are specifically set forth in the
New Indentures. During the existence of a Default under a New Indenture, the
relevant Trustee will exercise such rights and powers vested in it under such
New Indenture
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and use the same degree 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 New 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 New 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 New Indentures. Reference is made to the New 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 New Senior Subordinated Note Indenture, or "--
Certain Covenants--Relating to the New Senior Notes--Limitation on Liens"
above, in the case of the New 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 Old Senior Note Indenture and the
New 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
New 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 New
Indentures, the amount of such obligations shall be the amount determined in
respect thereof as of the end
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of the 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 New
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 New 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 New 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
New 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 New 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 New 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 New 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 New 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 New 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 New 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 New 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 New 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 New Senior Note Indenture or the New 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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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 Purchasing 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.
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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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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 matter discussed
in Note 2, as to which the date is December 11, 1996)
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 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 date
of the Distributions (the "Distribution Closing Date"), (ii) the Company's
employees will not accrue additional benefits under the TRP after 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
F-18
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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) to construct four Double Eagle product tankers for affiliates of
Eletson Corporation at a price of $36 million per ship. Construction of the
first tanker is substantially complete; construction has begun on the second
tanker; and a substantial portion of the materials needed for the construction
of the three uncompleted tankers has been ordered. The Company presently
estimates that these ships will be constructed over the period ending
February, 1998. In connection with the construction of these four tankers; the
Company has incurred or estimates it will incur costs of approximately $90
million in excess of the fixed contract prices. As of September 30, 1996, the
full amount of these excess costs has been reserved for by a charge against
income; $56.6 million in 1996, $29.7 million in 1995 and $5.0 million in 1994.
Disagreements have arisen during the course of construction as to whether the
first and second ships were and are being constructed in compliance with the
specifications set forth in the contracts, and the purchasers sent
F-19
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
letters to the Company purporting to invoke the procedures set forth in the
contracts for resolution of this situation and requested that the Company in
the interim stop construction on the ships. The Company saw no reason to stop
construction on the ships because of its confidence that the ships will be in
compliance with all contract and classification society requirements. The
purchasers have withdrawn both their invocation of the dispute resolution
procedures under the contracts and their request that the Company cease
further construction of the ships. Discussions between the Company and the
purchasers to date have resulted in the resolution of a significant number of
these disagreements, although some remain unresolved and are the subject of
further discussions. No assurances can be given as to the effect the
resolution of these remaining disagreements will have on the Company (although
the Company does not believe such resolution will materially and adversely
affect it) or the extent to which the remaining work on these contracts can be
completed without further disagreements with the purchasers or the incurrence
of additional losses in excess of current estimates. 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.
In 1995, the Company entered into fixed price contracts with limited
liability companies comprised principally of Hvide Partners, L.P. and an
affiliate of Van Ommeren International BV to construct an additional five
Double Eagle product tankers having a somewhat different design for the
domestic Jones Act market at a current average price of $43.4 million per
ship. The Company is in the process of completing its design work on these
ships and expects to begin construction in the first half of 1997. These ships
are scheduled for delivery in 1998. The Company presently estimates that it
will break even on these ships on an aggregate basis, but there can be no
assurance that the costs incurred in constructing these ships will not exceed
the contract prices for them for the reasons described in the immediately
preceding paragraph.
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..................... $ 476 $ 41 $ 32 $19 $19
2nd Quarter..................... 439 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
Risk Factors.............................................................. 15
The Exchange Offer........................................................ 23
Use of Proceeds........................................................... 29
Capitalization............................................................ 30
Unaudited Pro Forma Combined Financial Statements......................... 31
Selected Combined Financial Data.......................................... 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 36
Defense Industry Overview................................................. 49
Business.................................................................. 52
Management................................................................ 62
Certain Transactions...................................................... 73
Description of the Senior Credit Facility................................. 76
Description of the New Notes.............................................. 77
ERISA Considerations...................................................... 106
Certain U.S. Income Tax Considerations.................................... 107
Plan of Distribution...................................................... 109
Legal Matters............................................................. 110
Experts................................................................... 110
</TABLE>
----------------
UNTIL , 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
----------------
, 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 Senior Note Indenture dated as of , 1997 among
NNS, the Guarantors and The Bank of New York, as Trustee.
4.2 Form of Senior Subordinated Note Indenture dated as of
, 1997 among NNS, the Guarantors and The Bank of New York, as
Trustee.
4.3 Form of New Senior Note and Guarantees (included in Exhibit
4.1).
4.4 Form of New Senior Subordinated Note and Guarantees (included in
Exhibit 4.2).
*4.5 Senior Note Indenture dated as of November 26, 1996 among NNS,
Newport News and The Bank of New York, as Trustee.
*4.6 Senior Subordinated Note Indenture dated as of November 26, 1996
among NNS, Newport News and The Bank of New York, as Trustee.
*4.7 First Supplemental Senior Note Indenture dated as of December
11, 1996 among NNS, the Guarantors and The Bank of New York, as
Trustee.
*4.8 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>
*4.9 Senior Notes Registration Rights Agreement dated as of November
26, 1996 among NNS, the Guarantors and the Initial Purchasers.
*4.10 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
**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 JANUARY 23, 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 23RD DAY OF JANUARY, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
POWER OF ATTORNEY
Each of the undersigned, in his capacity as officer or director, or both as
the case may be, of Newport News Shipbuilding Inc. does hereby appoint Stephen
B. Clarkson and David J. Anderson, and each of them severally, his true and
lawful attorneys or attorney to execute in his name, place and stead, in his
capacity as director or officer, or both as the case may be, this Registration
Statement and any and all amendments and post-effective amendments thereto,
and all instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Each of said
attorneys shall have power to act hereunder with or without the other attorney
and shall have full power and authority to do and perform in the name and on
behalf of each of said directors or officers, or both as the case may be,
every act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as which each of said officers or
directors, or both as the case may be, might or could do in person, hereby
ratifying and confirming all that said attorneys or attorney may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ William P. Fricks Chairman of the Board, President and Chief
___________________________________________ Executive Officer
William P. Fricks
/s/ David J. Anderson Senior Vice President and Chief Financial
___________________________________________ Officer
David J. Anderson
/s/ Thomas J. Bradburn Vice President--Finance and Corporate
___________________________________________ Controller
Thomas J. Bradburn
/s/ Gerald L. Baliles Director
___________________________________________
Hon. Gerald L. Baliles
/s/ Leon A. Edney Director
___________________________________________
Leon A. Edney, Admiral (Ret.)
/s/ William R. Harvey Director
___________________________________________
Dr. William R. Harvey
/s/ Dana G. Mead Director
___________________________________________
Dana G. Mead
/s/ Joseph J. Sisco Director
___________________________________________
Joseph J. Sisco
/s/ Stephen R. Wilson Director
___________________________________________
Stephen R. Wilson
</TABLE>
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 JANUARY
23, 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 23RD DAY OF JANUARY, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
POWER OF ATTORNEY
Each of the undersigned, in his capacity as officer or director, or both as
the case may be, of Newport News Shipbuilding and Dry Dock Company does hereby
appoint Stephen B. Clarkson and David J. Anderson, and each of them severally,
his true and lawful attorneys or attorney to execute in his name, place and
stead, in his capacity as director or officer, or both as the case may be,
this Registration Statement and any and all amendments and post-effective
amendments thereto, and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange Commission.
Each of said attorneys shall have power to act hereunder with or without the
other attorney and shall have full power and authority to do and perform in
the name and on behalf of each of said directors or officers, or both as the
case may be, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as which each of said
officers or directors, or both as the case may be, might or could do in
person, hereby ratifying and confirming all that said attorneys or attorney
may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ William P. Fricks Chairman of the Board, President and Chief
___________________________________________ Executive Officer
William P. Fricks
/s/ David J. Anderson Senior Vice President and Chief Financial
___________________________________________ Officer
David J. Anderson
/s/ Thomas J. Bradburn Vice President--Finance and Corporate
___________________________________________ Controller
Thomas J. Bradburn
/s/ Thomas C. Schievelbein Director
___________________________________________
Thomas C. Schievelbein
</TABLE>
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 JANUARY 23, 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 23RD DAY OF JANUARY, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
POWER OF ATTORNEY
Each of the undersigned, in his capacity as officer or director, or both as
the case may be, of NNS Delaware Management Company does hereby appoint
Stephen B. Clarkson and David J. Anderson, and each of them severally, his
true and lawful attorneys or attorney to execute in his name, place and stead,
in his capacity as director or officer, or both as the case may be, this
Registration Statement and any and all amendments and post-effective
amendments thereto, and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange Commission.
Each of said attorneys shall have power to act hereunder with or without the
other attorney and shall have full power and authority to do and perform in
the name and on behalf of each of said directors or officers, or both as the
case may be, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as which each of said
officers or directors, or both as the case may be, might or could do in
person, hereby ratifying and confirming all that said attorneys or attorney
may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Thomas J. Bradburn President
___________________________________________
Thomas J. Bradburn
/s/ D. R. Wyatt Vice President
___________________________________________
D. R. Wyatt
/s/ Michael Tiller Treasurer
___________________________________________
Michael Tiller
/s/ William P. Fricks Director
___________________________________________
William P. Fricks
/s/ David J. Anderson Director
___________________________________________
David J. Anderson
/s/ Thomas C. Schievelbein Director
___________________________________________
Thomas C. Schievelbein
/s/ Edward J. Jones Director
___________________________________________
Edward J. Jones
/s/ Phyllis J. Kucharczuk Director
___________________________________________
Phyllis L. Kucharczuk
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
*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 Senior Note Indenture dated as of , 1997
among NNS, the Guarantors and The Bank of New York, as
Trustee.
4.2 Form of Senior Subordinated Note Indenture dated as of
, 1997 among NNS, the Guarantors and The Bank of New York,
as Trustee.
4.3 Form of New Senior Note and Guarantees (included in Exhibit
4.1).
4.4 Form of New Senior Subordinated Note and Guarantees (included
in Exhibit 4.2).
*4.5 Senior Note Indenture dated as of November 26, 1996 among
NNS, Newport News and The Bank of New York, as Trustee.
*4.6 Senior Subordinated Note Indenture dated as of November 26,
1996 among NNS, Newport News and The Bank of New York, as
Trustee.
*4.7 First Supplemental Senior Note Indenture dated as of December
11, 1996 among NNS, the Guarantors and The Bank of New York,
as Trustee.
*4.8 First Supplemental Senior Subordinated Note Indenture dated
as of December 11, 1996 among NNS, the Guarantors and The
Bank of New York, as Trustee.
*4.9 Senior Notes Registration Rights Agreement dated as of
November 26, 1996 among NNS, the Guarantors and the Initial
Purchasers.
*4.10 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 PAGE
------- ----------- ----
<C> <S> <C>
*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
**Incorporated herein by reference to the Company's Registration Statement on
Form 10 as amended (Registration No. 1-12385)
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
$200,000,000
8 5/8% SENIOR NOTES DUE 2006
AND
$200,000,000
9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
PURCHASE AGREEMENT
November 21, 1996
J.P. Morgan Securities Inc.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
BA Securities, Inc.
NationsBanc Capital Markets, Inc.
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
Ladies and Gentlemen:
Newport News Shipbuilding Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to J.P. Morgan Securities Inc., CS First Boston
Corporation, Morgan Stanley & Co. Incorporated, BA Securities, Inc. and
NationsBanc Capital Markets, Inc. (the "Initial Purchasers") $200,000,000
aggregate principal amount of its 8 5/8% Senior Notes due 2006 (the "Senior
Notes") and $200,000,000 aggregate principal amount of its 9 1/4% Senior
Subordinated Notes due 2006 (the "Senior Subordinated Notes," and, together
with the Senior Notes, the "Notes"). The Senior Notes will be issued pursuant
to the provisions of an Indenture to be dated as of November 26, 1996 (the
"Senior Note Indenture") among the Company, the Guarantor (as defined below)
and The Bank of New York, as trustee (the "Senior Note Trustee"). The Senior
Subordinated Notes will be issued pursuant to the provisions of an Indenture
to be dated as of November 26, 1996 (the "Senior Subordinated Note Indenture,"
and, together with the Senior Note Indenture, the "Indentures") among the
Company, the Guarantor and The Bank of New York, as trustee (the "Senior
Subordinated Note Trustee," and, together with the Senior Note Trustee, the
"Trustee"). The Notes will be initially guaranteed (the "Guarantees," and,
collectively with the Notes, the "Securities") by Newport News Shipbuilding
and Dry Dock Company, a Virginia corporation (the "Guarantor").
Holders of the Senior Notes will have the benefits of a Registration Rights
Agreement to be dated as of November 26, 1996 (the "Senior Notes Registration
Rights Agreement") among the Initial Purchasers, the Company and the
Guarantor. Holders of the Senior Subordinated Notes will have the benefits of
a Registration Rights Agreement to be dated as of November 26, 1996 (the
"Senior Subordinated Notes Registration Rights Agreement," and, together with
the Senior Notes Registration Rights Agreement, the "Registration Rights
Agreements") among the Initial Purchasers, the Company and the Guarantor.
The sale of the Securities to the Initial Purchasers will be made without
registration of the Securities under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon the exemption therefrom provided by
Section 4(2) of the Securities Act.
In connection with the sale of the Securities, the Company and the Guarantor
have prepared a preliminary offering memorandum, dated November 8, 1996 (the
"Preliminary Offering Memorandum"), and an offering memorandum, dated November
21, 1996 (the "Offering Memorandum"). Any reference to the Preliminary
Offering Memorandum or the Offering Memorandum, as the case may be, as amended
or supplemented as of any specified date, shall be deemed to include any Rule
144A(d)(4) Information (as defined in Section 5(m)) furnished by the Company
prior to completion of the distribution of the Securities. Capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed
to them in the Offering Memorandum.
<PAGE>
The Company and the Guarantor hereby agree with the Initial Purchasers as
follows:
1. Upon the basis of the representations, warranties and agreements
contained herein, the Company and the Guarantor agree to issue and sell the
Securities to the Initial Purchasers as hereinafter provided, and each Initial
Purchaser, upon the basis of the representations, warranties and agreements
herein contained, but subject to the conditions hereinafter stated, agrees to
purchase, severally and not jointly, from the Company (i) the respective
principal amount of Senior Notes set forth opposite such Initial Purchaser's
name in Schedule I hereto at a purchase price (the "Senior Note Purchase
Price") equal to 97.75% of their principal amount and (ii) the respective
principal amount of Senior Subordinated Notes set forth opposite such Initial
Purchaser's name in Schedule I hereto at a purchase price (the "Senior
Subordinated Note Purchase Price," and, together with the Senior Note Purchase
Price, the "Total Purchase Price") equal to 97.50% of their principal amount.
No additional consideration shall be paid by the Initial Purchasers for the
Guarantees.
2. The Company and the Guarantor understand that the Initial Purchasers
intend (i) to offer privately their respective portions of the Securities as
soon after this Agreement has become effective as in the judgment of the
Initial Purchasers is advisable and (ii) initially to offer the Securities
upon the terms set forth in the Preliminary Offering Memorandum and the
Offering Memorandum.
The Company and the Guarantor confirm that they have authorized the Initial
Purchasers, subject to the restrictions set forth below, to distribute copies
of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering of the Securities. Each Initial Purchaser hereby
makes to the Company and the Guarantor the following representations,
warranties and agreements:
(i) it is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act;
(ii) (A) neither it nor any person acting on its behalf will solicit
offers for, or offer to sell, the Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation
D under the Securities Act) or in a manner involving a public offering
within the meaning of Section 4(2) of the Securities Act and (B) it and
persons acting on its behalf will solicit offers for the Securities only
from, and will offer and sell the Securities only to, (1) in the case of
offers and sales in the United States, (x) persons whom it reasonably
believes to be "qualified institutional buyers" within the meaning of and
in accordance with Rule 144A under the Securities Act or (y) a limited
number of institutions which it reasonably believes are "accredited
investors," as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act, who, in the case of purchasers described in this
clause (B)(1)(y), provide it with a letter in the form of Exhibit A to the
Offering Memorandum and (2) in the case of offers and sales outside the
United States, persons whom it reasonably believes to be persons other than
U.S. persons, in reliance upon and in accordance with Regulation S under
the Securities Act;
(iii) except for offers and sales described in (ii)(B)(1) above, it will
not offer, sell or deliver the Securities to, or for the account or benefit
of, U.S. persons (a) as part of its distribution at any time or
(b) otherwise until 40 days after the later of the commencement of the
offering and the Closing Date (defined below), and it will send to each
dealer to whom it sells such Securities during such period a confirmation
or other notice setting forth the restrictions on offers and sales of the
Securities within the United States or to, or for the account or benefit
of, U.S. persons; and
(iv) neither it nor any person acting on its behalf will offer, sell or
deliver any of the Securities in any jurisdiction outside the United States
except under circumstances that will result in compliance with the
applicable laws thereof.
3. Payment for the Securities shall be made by wire transfer in immediately
available funds to an escrow account specified by the Trustee to the Initial
Purchasers no later than noon on the Business Day (as defined below) prior to
the Closing Date (as defined below), on November 26, 1996, or at such other
time on the same or such other date, not later than the fifth Business Day
thereafter, as the Initial Purchasers and the Company may agree upon in
writing. The time and date of such payment are referred to herein as the
"Closing Date." As used herein, the term "Business Day" means any day other
than a day on which banks are permitted or required to be closed in New York
City.
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Payment for the Securities shall be made against delivery (i) to the nominee
of The Depository Trust Company for the respective accounts of the Initial
Purchasers of one or more global Senior Notes and global Senior Subordinated
Notes (collectively, the "Global Notes") and/or (ii) to the Initial Purchasers
of one or more physical Senior Notes and physical Senior Subordinated Notes
(collectively, the "Physical Notes"), together representing the Securities,
with any transfer taxes payable in connection with the transfer to the Initial
Purchasers of the Securities duly paid by the Company. The Global Notes and
the Physical Notes will be made available for inspection by the Initial
Purchasers at the office of J.P. Morgan Securities Inc. at the address set
forth above not later than 1:00 P.M., New York City time, on the Business Day
prior to the Closing Date.
4. Each of the Company and the Guarantor represents and warrants to each
Initial Purchaser that:
(a) the Preliminary Offering Memorandum and the Offering Memorandum and
any amendments or supplements thereto did not and will not, as of their
respective dates, and, in the case of the Offering Memorandum, at all times
subsequent thereto up to the Closing Date, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this subclause (a) do not apply to statements or omissions
made in reliance upon and conformity with information specifically
furnished in writing to the Company by the Initial Purchasers through J.P.
Morgan Securities Inc. expressly for use in the Preliminary Offering
Memorandum, the Offering Memorandum or any amendment or supplement thereto;
(b) the financial statements, and the related notes thereto, included in
the Offering Memorandum present fairly in all material respects the
combined financial position, results of operations and changes in combined
cash flows of the shipbuilding business of Tenneco Inc. ("Tenneco") and its
subsidiaries as of the dates and for the periods indicated; and said
financial statements have been prepared in conformity with United States
generally accepted accounting principles and practices applied on a
consistent basis; and the pro forma financial information, and the related
notes thereto, included in the Offering Memorandum is based upon good faith
estimates and assumptions believed by the Company and the Guarantor to be
reasonable;
(c) since the respective dates as of which information is given in the
Offering Memorandum, there has not been (i) any change in the capital stock
or long-term debt of the Company and the Subsidiaries (as defined in the
Offering Memorandum) or (ii) any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the business, prospects, management, financial position,
stockholders' equity or results of operations of the Company and the
Subsidiaries, taken as a whole, otherwise than as set forth or contemplated
in the Offering Memorandum; and except as set forth or contemplated in the
Offering Memorandum, none of the Company, the Subsidiaries or Tenneco or
Tenneco's subsidiaries (with respect to the shipbuilding business of
Tenneco and its subsidiaries to be operated by the Company and the
Subsidiaries after the Shipbuilding Distribution (as defined in the
Offering Memorandum) as contemplated by the Offering Memorandum (the
"Shipbuilding Business")) has entered into any transaction (whether or not
in the ordinary course of business) material to the Company and the
Subsidiaries, taken as a whole;
(d) the Company has been duly incorporated and is validly existing as a
corporation under the laws of its jurisdiction of incorporation, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Offering Memorandum, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing (if applicable) under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the
business, prospects, management, financial position, stockholders' equity
or results of operations of the Company and the Subsidiaries, taken as a
whole (a "Material Adverse Effect");
(e) the Company has the capitalization set forth in the Offering
Memorandum; and the shares of capital stock of the Company to be
distributed in the Shipbuilding Distribution, when distributed by Tenneco
pursuant to the Distribution Agreement (as defined in the Offering
Memorandum), will be duly authorized
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and validly issued, and fully paid and non-assessable, owned free and clear
of all liens, encumbrances, security interests and claims;
(f) each corporation which after giving effect to the Shipbuilding
Distribution (as defined in the Offering Memorandum), will be a
"significant subsidiary" (as defined in Regulation S-X under the Securities
Act) of the Company (each, a "Subsidiary" and, collectively, "the
Subsidiaries") has been duly incorporated and is validly existing as a
corporation under the laws of its jurisdiction of incorporation, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Offering Memorandum, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing (if applicable) under the laws of each jurisdiction in
which it owns or leases properties or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a Material Adverse Effect; and all the
outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable, and
(except for any directors' qualifying shares and except as described in the
Offering Memorandum) are or will be immediately following the Shipbuilding
Distribution owned by the Company, directly or indirectly, free and clear
of all liens, encumbrances, security interests and claims, other than liens
securing the Senior Credit Facility (as defined in the Offering Memorandum)
and any other liens permitted under the Indentures;
(g) this Agreement has been duly authorized, executed and delivered by
each of the Company and the Guarantor;
(h) the Notes have been duly authorized and, when issued and delivered
pursuant to the Indentures and this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute valid and
binding obligations of the Company entitled to the benefits provided by the
Indentures, enforceable against the Company in accordance with their terms,
except as enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) equitable
principles of general applicability whether applied by a court of law or
equity; each of the Indentures has been duly authorized by the Company and,
when executed and delivered by each of the Company, the Guarantor and the
relevant Trustee, each of the Indentures will constitute a valid and
binding instrument of the Company, enforceable against the Company in
accordance with its terms, except as enforceability thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
equitable principles of general applicability whether applied by a court of
law or equity; and the Notes and the Indentures will conform to the
descriptions thereof in the Offering Memorandum;
(i) each of the Guarantees has been duly authorized and, when the Notes
are issued and delivered pursuant to the Indentures and this Agreement,
will have been duly executed, authenticated and delivered and will
constitute a valid and binding obligation of the Guarantor, enforceable
against the Guarantor in accordance with its terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) equitable principles of
general applicability whether applied by a court of law or equity; each of
the Indentures has been duly authorized by the Guarantor and, when executed
and delivered by the Guarantor and the relevant Trustee, each of the
Indentures will constitute a valid and binding instrument of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) equitable principles of
general applicability whether applied by a court of law or equity; and the
Guarantees will conform to the description thereof in the Offering
Memorandum;
(j) each of the Registration Rights Agreements has been duly authorized
by each of the Company and the Guarantor and, when executed and delivered
by each of the Company and the Guarantor, each of the Registration Rights
Agreements will constitute a valid and binding instrument of each of the
Company and the Guarantor, enforceable against each of the Company and the
Guarantor in accordance with its terms, except as (A) the enforceability
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
4
<PAGE>
moratorium or similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) equitable principles of general
applicability whether applied by a court of law or equity and (B) any
rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations; and the
Registration Rights Agreements will conform to the description thereof in
the Offering Memorandum;
(k) the Senior Credit Facility has been duly authorized by each of the
Company and the Guarantor and the Senior Credit Facility constitutes a
valid and binding instrument of each of the Company and the Guarantor,
enforceable against each of the Company and the Guarantor in accordance
with its terms, except as enforceability thereof may be limited by (i)
bankruptcy insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
equitable principles of general applicability whether applied by a court of
law or equity; and the Senior Credit Facility conforms to the description
thereof in the Offering Memorandum;
(l) the use of the proceeds from the sale of the Securities by the
Company will not violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
regulation promulgated thereunder, including, without limitation,
Regulations G, T, U, and X of the Board of Governors of the Federal Reserve
System;
(m) none of the Company, the Subsidiaries or Tenneco or its subsidiaries
(with respect to the Shipbuilding Business) is, or with the giving of
notice or lapse of time or both would be, in violation of or in default
under its Certificate of Incorporation or By-Laws or any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company, any of the Subsidiaries or Tenneco or any
of its subsidiaries (with respect to the Shipbuilding Business) is a party
or by which it or any of them or any of their respective properties is
bound, except for violations and defaults which individually and in the
aggregate would not have a Material Adverse Effect; the issue and sale of
the Securities and the performance by the Company and the Guarantor of all
of the provisions of their obligations under the Securities, the
Indentures, the Registration Rights Agreements, the Senior Credit Facility
and this Agreement (collectively, the "Transaction Documents") and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which the Company or
the Guarantor is or, following the Shipbuilding Distribution, will be a
party or by which any of them is or, following the Shipbuilding
Distribution, will be bound or to which any of the property or assets of
the Company or the Guarantor is or, following the Shipbuilding
Distribution, will be subject, nor will any such action result in any
violation of the provisions of the Certificate of Incorporation or By-Laws
of the Company or the Guarantor or any applicable law or statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company, the Guarantor or any of their
respective properties; and no consent, approval, authorization, order,
license, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Securities or the consummation by the Company and the Guarantor of the
transactions contemplated by the Transaction Documents, except such
consents, approvals, authorizations, registrations or qualifications as
have been obtained or may be required under state securities, Blue Sky Laws
or laws of other countries in connection with the purchase and distribution
of the Securities by the Initial Purchasers;
(n) other than as set forth or contemplated in the Offering Memorandum,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company and the Guarantor,
threatened against or affecting the Company, any of the Subsidiaries or
Tenneco or any of its subsidiaries (with respect to the Shipbuilding
Business) or any of their respective properties or to which the Company or
any of the Subsidiaries is or may be a party or to which any property of
the Company or any of the Subsidiaries is or may be the subject which will,
individually or in the aggregate, have a Material Adverse Effect and, to
the best of the Company's and the Guarantor's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
5
<PAGE>
(o) none of the Company, the Guarantor or their respective affiliates (as
defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")) has directly, or through any agent, sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be integrated
with the sale of the Securities in a manner that would require the
registration under the Securities Act of the offering contemplated by the
Offering Memorandum;
(p) none of the Company, the Guarantor, their respective affiliates or
any person acting on their behalf has offered or sold the Securities by
means of any general solicitation or general advertising within the meaning
of Rule 502(c) under the Securities Act or, with respect to Securities sold
outside the United States to non-U.S. persons (as defined in Rule 902 under
the Securities Act), by means of any directed selling efforts within the
meaning of Rule 902 under the Securities Act, and each of the Company, the
Guarantor, their respective affiliates and any person acting on their
behalf has complied with the "offering restriction" within the meaning of
such Rule 902;
(q) neither the Company nor the Guarantor is, nor, after giving effect to
the offering and sale of the Securities and the Shipbuilding Distribution,
will be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended;
(r) it is not necessary in connection with the offer, sale and delivery
of the Securities in the manner contemplated by this Agreement to register
the Securities under the Securities Act or to qualify the Indentures under
the Trust Indenture Act of 1939, as amended;
(s) the Securities satisfy the requirements set forth in Rule 144A(d)(3)
under the Securities Act;
(t) Arthur Andersen LLP, who have certified certain financial statements
of the Company and the Subsidiaries, are independent public accountants as
required by the Securities Act;
(u) except as described in the Offering Memorandum, after giving effect
to the Shipbuilding Distribution, the Company and the Subsidiaries will
have good and marketable title in fee simple to all material items of real
property and good and marketable title to all material personal property
owned by the Company and the Subsidiaries or by Tenneco and its
subsidiaries and used in the Shipbuilding Business, in each case free and
clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially
interfere with the use proposed to be made of such property by the Company
and the Subsidiaries; and after giving effect to the Shipbuilding
Distribution, any material real property and buildings to be held under
lease by the Company or the Subsidiaries will be held by them under valid,
existing and enforceable leases with such exceptions as are not material
and do not interfere with the use proposed to be made of such property and
buildings by the Company or the Subsidiaries;
(v) the Company and the Subsidiaries have complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida)
relating to doing business with the Government of Cuba or with any person
or affiliate located in Cuba;
(w) each of the Company, the Subsidiaries and Tenneco and its
subsidiaries (with respect to the Shipbuilding Business) has filed all
federal, state, local and foreign tax returns which have been required to
be filed and have paid all taxes shown thereon and all assessments received
by them or any of them to the extent that such taxes have become due and
are not being contested in good faith; and, except as disclosed in the
Offering Memorandum, there is no tax deficiency which has been or might
reasonably be expected to be asserted or threatened against the Company or
any of the Subsidiaries;
(x) the Company, immediately following the Shipbuilding Distribution,
will be subject to Section 13 or 15(d) of the Exchange Act;
(y) after giving effect to the Shipbuilding Distribution, each of the
Company and the Subsidiaries will own, possess or have obtained all
material licenses, permits, certificates, consents, orders, approvals and
other authorizations from, and Tenneco and its subsidiaries have made and,
after giving effect to the Shipbuilding Distribution, the Company and the
Subsidiaries will have made all declarations and filings
6
<PAGE>
with, all federal, state, local and other governmental authorities
(including foreign regulatory agencies), all self-regulatory organizations
and all courts and other tribunals, domestic or foreign, necessary to own
or lease, as the case may be, and to operate its properties and to carry on
the Shipbuilding Business as conducted as of the date hereof, except where
the failure to so obtain, individually and in the aggregate, would not have
a Material Adverse Effect; and neither the Company nor the Guarantor has
received any actual notice, or is aware of, any proceeding relating to
revocation or modification of any such license, permit, certificate,
consent, order, approval or other authorization, except as described in the
Offering Memorandum; and Tenneco and its subsidiaries (with respect to the
Shipbuilding Business) are, and after giving effect to the Shipbuilding
Distribution, each of the Company and the Subsidiaries will be in
compliance in all material respects with all laws and regulations necessary
to conduct the Shipbuilding Business;
(z) there are no existing or, to the best knowledge of the Company and
the Guarantor, threatened labor disputes with the employees of the Company
or the Subsidiaries which will have, singly or in the aggregate, a Material
Adverse Effect;
(aa) except as set forth in the Offering Memorandum, the Company and the
Subsidiaries are and, immediately after giving effect to the Shipbuilding
Distribution, will be (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) in possession of all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct the
Shipbuilding Business and (iii) in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance
with Environmental Laws, failure to possess required permits, licenses or
other approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals will not, singly or in the aggregate, have a
Material Adverse Effect; and after giving effect to the Shipbuilding
Distribution and the Transaction Documents (as defined in the Offering
Memorandum), associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and
any potential liabilities to third parties) would not, singly or in the
aggregate, have a Material Adverse Effect;
(ab) each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
that is or, after the Shipbuilding Distribution, will be maintained,
administered or contributed to by the Company or any affiliates of the
Company for employees or former employees of the Company and its affiliates
has been maintained in compliance with its terms and the requirements of
any applicable statutes, orders, rules and regulations, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended
("Code"), except where the failure to so comply, individually and in the
aggregate, would not have a Material Adverse Effect. No prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975 of
the Code has occurred or, after giving effect to the Shipbuilding
Distribution, will occur with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative exemption
and except for the occurrence of prohibited transactions which individually
and in the aggregate would not have a Material Adverse Effect. Except as
described in the Offering Memorandum, for each such plan which is subject
to the funding rules of Section 412 of the Code or Section 302 of ERISA (A)
no "accumulated funding deficiency" as defined in Section 412 of the Code
has been incurred, whether or not waived, and (B) the fair market value of
the assets of each such plan (excluding for these purposes accrued but
unpaid contributions) exceeds the present value of all benefits accrued
under such plan determined using reasonable actuarial assumptions other
than where the failure to so exceed would not have a Material Adverse
Effect; and
(ac) after giving effect to the Shipbuilding Distribution, each of the
Company and the Subsidiaries will own or possess adequate patents, patent
licenses, trademarks, service marks and trade names necessary to carry on
the Shipbuilding Business as conducted as of the date hereof; and none of
the Company nor the
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Guarantor has received any written notice of infringement of or conflict
with (or knows of any such infringement of or conflict with) asserted
rights of others with respect to any patents, patent licenses, trademarks,
service marks or trade names which will, singly or in the aggregate, have a
Material Adverse Effect.
5. Each of the Company and the Guarantor covenants and agrees with each of
the Initial Purchasers as follows:
(a) before distributing any amendment or supplement to the Offering
Memorandum, to furnish to the Initial Purchasers a copy of the proposed
amendment or supplement for review and not to distribute any such proposed
amendment or supplement to which the Initial Purchasers reasonably object;
(b) if, at any time prior to the completion of the initial placement of
the Securities, any event shall occur as a result of which it is necessary
to amend or supplement the Offering Memorandum in order that the Offering
Memorandum does not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances when the Offering Memorandum is delivered
to a purchaser, not misleading, or if it is necessary to amend or
supplement the Offering Memorandum to comply with law, forthwith to prepare
and furnish, at the expense of the Company, to the Initial Purchasers and
to the dealers (whose names and addresses the Initial Purchasers will
furnish to the Company) to which Securities may have been sold by the
Initial Purchasers on behalf of the Initial Purchasers and to any other
dealers upon request, such amendments or supplements to the Offering
Memorandum as may be necessary so that the statements in the Offering
Memorandum as so amended or supplemented will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
when the Offering Memorandum is delivered to a purchaser, not misleading or
so that the Offering Memorandum will comply with law;
(c) to endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Initial Purchasers
shall reasonably request and to continue such qualification in effect so
long as reasonably required for distribution of the Securities; provided
that the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction;
(d) so long as the Securities are outstanding, to furnish to the Initial
Purchasers copies of all reports or other communications (financial or
other) furnished to holders of Securities, and copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange;
(e) during the period beginning on the date hereof and continuing to and
including the Business Day following the Closing Date, not to offer, sell,
contract to sell, or otherwise dispose of any debt securities of or
guaranteed by the Company or the Guarantor which are substantially similar
to the Securities;
(f) to use the net proceeds received by the Company from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Memorandum under the caption "Use of Proceeds";
(g) to use its best efforts to cause such Securities to be eligible for
the PORTAL trading system of the National Association of Securities Dealer,
Inc.;
(h) to furnish to the holders of the Securities as soon as reasonably
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as reasonably practicable after the end of
each of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the date of the Offering Memorandum),
consolidated summary financial information of the Company and its
consolidated subsidiaries of such quarter in reasonable detail;
(i) during the period from the Closing Date to the earlier of (A) the
date the Exchange Offer (as defined in the Registration Rights Agreements)
is consummated and (B) the third anniversary of the Closing Date, the
Company will not, and will not permit any of its "affiliates" (as defined
in Rule 144 under the Securities
8
<PAGE>
Act) to, resell any of the Securities which constitute "restricted
securities" under Rule 144 that have been reacquired by any of them;
(j) whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation, issuance, execution,
authentication and delivery of the Securities, including any expenses of
the Trustee, (ii) incident to the preparation, printing and distribution of
the Offering Memorandum and any preliminary offering memorandum (including
in each case all exhibits, amendments and supplements thereto), (iii)
incurred in connection with the registration or qualification and
determination of eligibility for investment of the Securities under the
laws of such jurisdictions as the Initial Purchasers may designate
(including reasonable fees of counsel for the Initial Purchasers and their
reasonable disbursements), (iv) in connection with the printing (including
word processing and duplication costs) and delivery of this Agreement, the
Indentures, the Registration Rights Agreements, the Blue Sky Survey and any
Legal Investment Survey and the furnishing to Initial Purchasers and
dealers of copies of the Offering Memorandum and the Preliminary Offering
Memorandum, including mailing and shipping, as herein provided, (v) payable
to rating agencies in connection with the rating of the Securities, and
(vi) any expenses incurred by the Company in connection with a "road show"
presentation to potential investors.
(k) the Company will take all action that is appropriate or necessary to
assure that its offerings of other securities will not be integrated for
purposes of the Securities Act with the offerings contemplated hereby;
(l) the Company will not solicit any offer to buy or offer to sell
Securities by means of any form of general solicitation or general
advertising within the meaning of Rule 502(c) of Regulation D under the
Securities Act;
(m) while the Securities remain outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
the Company will, during any period in which it is not subject to Section
13 or 15(d) under the Exchange Act, make available to the Initial
Purchasers and any holder of Securities in connection with any sale thereof
and any prospective purchaser of Securities, in each case upon request, the
information specified in, and meeting the requirements of, Rule 144A(d)(4)
("Rule 144A(d)(4) Information") under the Securities Act (or any successor
thereto); and
(n) the Company will not take any action prohibited by Rule 10b-6 under
the Exchange Act in connection with the distribution of the Securities
contemplated hereby.
6. The several obligations of the Initial Purchasers hereunder to purchase
the Securities on the Closing Date are subject to the performance by each of
the Company and the Guarantor of its obligations hereunder and to the
following additional conditions:
(a) the representations and warranties of each of the Company and the
Guarantor contained herein are true and correct in all material respects on
and as of the Closing Date as if made on and as of the Closing Date and
each of the Company and the Guarantor shall have complied in all material
respects with all agreements and all conditions on its part to be performed
or satisfied hereunder at or prior to the Closing Date;
(b) subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, there shall not have occurred any downgrading, nor
shall any notice have been given of (i) any downgrading, (ii) any intended
or potential downgrading or (iii) any review or possible change that does
not indicate an improvement, in the rating accorded any securities of or
guaranteed by the Company by any "nationally recognized statistical rating
organization", as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act;
(c) otherwise than as set forth or contemplated in the Offering
Memorandum, since the respective dates as of which information is given in
the Offering Memorandum, there shall not have been (i) any change in
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the capital stock or long-term debt of the Company and the Subsidiaries or
(ii) any material adverse change or any development involving a prospective
material adverse change, in or affecting the business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and the Subsidiaries, taken as a whole, the
effect of which in the judgment of the Initial Purchasers makes it
impracticable or inadvisable to proceed with the offering or the delivery
of the Securities on the Closing Date on the terms and in the manner
contemplated in the Offering Memorandum; and none of the Company or the
Subsidiaries has sustained since the date of the latest audited financial
statements of the Company and the Subsidiaries included in the Offering
Memorandum any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Offering Memorandum;
(d) the Initial Purchasers shall have received on and as of the Closing
Date a certificate of an executive officer of each of the Company and the
Guarantor, with specific knowledge about the Company's or the Guarantor's
financial matters, as the case may be, satisfactory to the Initial
Purchasers to the effect set forth in subsections (a) and (b) of this
Section and to the further effect that, since the date of this Agreement,
there has not occurred any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
business, prospects, management, financial position, stockholders' equity
or results of operations of the Company and the Subsidiaries, taken as a
whole, except as set forth or contemplated in the Offering Memorandum;
(e) Stephen B. Clarkson, Vice President, General Counsel and Secretary of
the Company and the Guarantor, shall have furnished to the Initial
Purchasers his written opinion, dated the Closing Date, in form and
substance satisfactory to the Initial Purchasers, to the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Offering Memorandum;
(ii) each of the Company and the Subsidiaries has been duly qualified
as a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in
good standing would not have a Material Adverse Effect;
(iii) the shares of capital stock of the Company to be distributed in
the Shipbuilding Distribution, when distributed by Tenneco pursuant to
the Distribution Agreement, will be duly authorized and validly issued,
and fully paid and non-assessable;
(iv) all of the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued, are fully
paid and non-assessable;
(v) to such counsel's knowledge, other than as set forth or
contemplated in the Offering Memorandum, there are no legal or
governmental investigations, actions, suits or proceedings pending or
threatened in writing against or affecting the Company or any of the
Subsidiaries or any of their respective properties or to which the
Company or any of the Subsidiaries is or may be a party or to which any
property of the Company or any of the Subsidiaries is or may be the
subject which would individually or in the aggregate have a Material
Adverse Effect;
(vi) this Agreement has been duly authorized, executed and delivered
by the each of the Company and the Guarantor;
(vii) the Notes have been duly authorized, executed and delivered by
the Company and, when duly authenticated in accordance with the terms
of the relevant Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, will
constitute valid and binding obligations of the Company entitled to the
benefits provided by the relevant Indenture, enforceable against the
Company in accordance with their terms, except as enforceability
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter
10
<PAGE>
in effect relating to creditors' rights generally and (ii) equitable
principles of general applicability, whether applied by a court of law
or equity; the Notes conform to the descriptions thereof in the
Offering Memorandum;
(viii) each of the Indentures has been duly authorized, executed and
delivered by each of the Company and the Guarantor and constitutes a
valid and binding instrument of each of the Company and the Guarantor,
enforceable against each of the Company and the Guarantor in accordance
with its terms, except as enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
equitable principles of general applicability, whether applied by a
court of law or equity; the Indentures conform to the description
thereof in the Offering Memorandum;
(ix) each of the Guarantees has been duly authorized, executed and
delivered by the Guarantor and, when the Notes are executed by the
Company and authenticated in accordance with the relevant Indenture and
delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Agreement, will constitute a valid and binding
obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) equitable principles of general applicability,
whether applied by a court of law or equity; and, insofar as the
Guarantees are summarized in the Offering Memorandum, the Guarantees
conform to the descriptions thereof in the Offering Memorandum;
(x) each of the Registration Rights Agreements has been duly
authorized, executed and delivered by each of the Company and the
Guarantor and constitutes a valid and binding instrument of each of the
Company and the Guarantor; and, insofar as the Registration Rights
Agreements are summarized in the Offering Memorandum, the Registration
Rights Agreements conform to the descriptions thereof in the Offering
Memorandum;
(xi) the Senior Credit Facility has been duly authorized, executed
and delivered by each of the Company and the Guarantor and constitutes
a valid and binding obligation of each of the Company and the
Guarantor, enforceable against each of the Company and the Guarantor in
accordance with its terms, except as enforceability thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) equitable principles of general applicability
whether applied by a court of law or equity; and, insofar as the Senior
Credit Facility is summarized in the Offering Memorandum, the Senior
Credit Facility conforms to the description thereof in the Offering
Memorandum;
(xii) to such counsel's knowledge, none of the Company, any of the
Subsidiaries or Tenneco or any of Tenneco's subsidiaries (with respect
to the Shipbuilding Business) is, or with the giving of notice or lapse
of time or both would be, in violation of or in default under its
Certificate of Incorporation or By-Laws or any indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument
known to such counsel to which the Company, any of the Subsidiaries or
Tenneco or any of Tenneco's subsidiaries (with respect to the
Shipbuilding Business) is a party or by which it or any of them or any
of their respective properties is bound, except for violations and
defaults which individually and in the aggregate will not have a
Material Adverse Effect; to such counsel's knowledge, the issue and
sale of the Securities and the performance by the Company and the
Guarantor of their respective obligations under the Transaction
Documents and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach of any of the
terms of provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument known to such counsel to which the Company or the Guarantor
is or, following the Shipbuilding Distribution, will be a party or by
which the Company or the Guarantor is or, following the Shipbuilding
Distribution, will be bound or to which any of the property or assets
of the Company or the Guarantor is or, following the Shipbuilding
Distribution, will be subject, nor will any such action result in any
violation of the provisions of the Certificate of Incorporation or By-
Laws of the Company or the Guarantor or any applicable law or statute
or any
11
<PAGE>
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company, the Guarantor or any of their
respective properties;
(xiii) no consent, approval, authorization, order, license,
registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the Securities or
the consummation of the other transactions contemplated by this
Agreement or the Indentures, except such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws or the laws of other countries
in connection with the purchase and distribution of the Securities by
the Initial Purchasers or which have been previously obtained;
(xiv) it is not necessary in connection with the offer, sale and
delivery of the Securities in the manner contemplated by this Agreement
to register the Securities under the Securities Act or to qualify an
indenture under the Trust Indenture Act of 1939, as amended;
(xv) the Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act;
(xvi) the statements in the Offering Memorandum under "Business--
Investigations and Legal Proceedings", "Description of the Notes",
"Description of the Senior Credit Facility" and "ERISA Considerations",
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present such legal
matters, documents or proceedings;
(xvii) such counsel believes that (except for the financial
statements, supporting schedules, statistical data and other financial
information included therein as to which such counsel need express no
belief) the Offering Memorandum did not, as of its date of issuance,
and does not, as amended or supplemented, if applicable, as of the
Closing Date, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and
(xviii) neither the Company nor the Guarantor is or, after giving
effect to the offering and sale of the Securities and the Shipbuilding
Distribution, will be an "investment company" or entity "controlled" by
an "investment company", as such terms are defined in the Investment
Company Act.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and the States of Delaware and Virginia, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (reasonably satisfactory to the Initial Purchasers'
counsel) of other counsel, reasonably acceptable to the Initial Purchasers'
counsel, familiar with the applicable laws; (B) as to the opinions in
subparagraphs (xiv), (xv), (xvi) and (xviii) above, upon the opinion of
counsel referenced in paragraph (f) below; and (C) as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible
officers of the Company and the Guarantor. The opinion of such counsel
shall state that the opinion of any such other counsel upon which they
relied is in form satisfactory to such counsel and, in such counsel's
opinion, the Initial Purchasers and they are justified in relying thereon.
With respect to the matters to be covered in subparagraph (xvii) above
counsel may state their opinion and belief is based upon their
participation in the preparation of the Offering Memorandum and any
amendment or supplement thereto but is without independent check or
verification except as specified.
The opinion of Stephen B. Clarkson described above shall be rendered to
the Initial Purchasers at the request of the Company and shall so state
therein;
(f) Jenner & Block, special Counsel for the Company, shall have furnished
to the Initial Purchasers their written opinion, dated the Closing Date, in
form and substance satisfactory to the Initial Purchasers, (i) to the
effect that such counsel believes that (except for financial statements,
supporting schedules, statistical data and other financial information
included therein as to which such counsel need express no belief) the
Offering Memorandum did not, as of its date of issuance, and does not, as
amended or supplemented, if applicable, as of the Closing Date, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (such opinion of
such counsel may state their opinion and belief is based upon their
participation in the preparation of the Offering Memorandum and any
amendment or supplement
12
<PAGE>
thereto but it is without independent check or verification except as
specified) and (ii) as to Federal and Illinois law only, with respect to
subparagraphs (xiv), (xv), (xvi) and (xviii) of paragraph (e) above.
The opinion of Jenner & Block described above shall be rendered to the
Initial Purchasers at the request of the Company and shall so state
therein;
(g) on the date of the issuance of the Offering Memorandum and also on
the Closing Date, Arthur Andersen LLP shall have furnished to the Initial
Purchasers letters, dated the respective dates of delivery thereof, in form
and substance satisfactory to the Initial Purchasers, containing statements
and information of the type customarily included in accountants "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Offering Memorandum;
(h) the Initial Purchasers shall have received on and as of the Closing
Date an opinion of Cahill Gordon & Reindel, counsel to the Initial
Purchasers, with respect to the validity of the Indentures, the Securities
and the Registration Rights Agreements, and such other related matters as
the Initial Purchasers may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters; and
(i) on or prior to the Closing Date, the Company and the Guarantor shall
have furnished to the Initial Purchasers such further certificates and
documents as the Initial Purchasers shall reasonably request.
7. Each of the Company and the Guarantor, jointly and severally, agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any,
who controls any Initial Purchaser within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages and liabilities (including without limitation the
reasonable legal fees and other expenses incurred in connection with any suit,
action or proceeding or any claim asserted) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Memorandum (and any amendment or supplement thereto, if the Company shall have
furnished any amendments or supplements thereto) or any preliminary offering
memorandum, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Initial Purchaser specifically furnished to
the Company in writing by such Initial Purchaser through J.P. Morgan
Securities Inc. expressly for use therein; provided, however, that the Company
and the Guarantor shall not be liable in any such case to the extent that any
such losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or alleged omission made in
any preliminary offering memorandum if (a) such Initial Purchaser failed to
deliver a copy of the Offering Memorandum with or prior to the delivery of
written confirmation of the sale of a Note or Notes to the person asserting
such loss, claim, damage, liability or expense who purchased such Note or
Notes which are the subject thereof and (b) the Offering Memorandum would have
corrected such untrue statement or omission or alleged untrue statement or
alleged omission; and provided further, that the Company and the Guarantor
shall not be liable in any such case to the extent that any such losses,
claims, damages, liabilities or expenses are caused by an untrue statement or
omission or alleged untrue statement or alleged omission in the Offering
Memorandum if such untrue statement or omission or alleged untrue statement or
alleged omission is corrected in an amendment or supplement to the Offering
Memorandum and if, having previously been furnished by or on behalf of the
Company and the Guarantor with copies of the Offering Memorandum as so amended
or supplemented, such Initial Purchaser thereafter fails to deliver such
Offering Memorandum as so amended or supplemented, prior to or concurrently
with the sale of a Note or Notes to the person asserting such loss, claim,
damage, liability or expense who purchased such Note or Notes which are the
subject thereof.
Each Initial Purchaser agrees, severally and not jointly, to indemnify and
hold harmless each of the Company, the Guarantor, their respective directors
and officers and each person who controls the Company within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from each of the Company and the
Guarantor to each Initial Purchaser, but only with reference to information
relating to such Initial Purchaser furnished to the Company in writing by such
Initial
13
<PAGE>
Purchaser expressly for use in the Offering Memorandum, any amendment or
supplement thereto, or any preliminary offering memorandum.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any
person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses of such counsel related to such proceeding. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties
in any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to a conflict of
interest or the defendants in any such action including both the Indemnified
Person and the Indemnifying Person and the Indemnified Person shall have been
advised by counsel that there may be one or more legal defenses available to
it and/or the other Indemnified Persons that are different from or additional
to those of the Indemnifying Person. It is understood that the Indemnifying
Person shall not, in connection with any proceeding or related proceeding in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Indemnified Persons,
and that all such fees and expenses shall be reimbursed as they are incurred.
Any such separate firm for the Initial Purchasers and such control persons of
Initial Purchasers shall be designated in writing by J.P. Morgan Securities
Inc. and any such separate firm for any of the Company, the Guarantor, their
respective directors and officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees to indemnify any
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for fees and expenses of counsel as contemplated by the
third sentence of this paragraph, the Indemnifying Person agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying
Person is contesting, in good faith, the request for reimbursement. No
Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability on claims that are the subject matter of
such proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Guarantor on the one hand and the
Initial Purchasers on the other hand from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Guarantor on the one hand and the Initial Purchasers on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
14
<PAGE>
equitable considerations. The relative benefits received by the Company and
the Guarantor on the one hand and the Initial Purchasers on the other shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the total
discounts and commissions received by the Initial Purchasers, in each case as
set forth in the table on the cover of the Offering Memorandum, bear to the
aggregate offering price of the Securities. The relative fault of the Company
and the Guarantor on the one hand and the Initial Purchasers on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Guarantor or by the Initial Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
The Company, the Guarantor and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Person as a result of the losses, claims, damages and liabilities referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall an Initial Purchaser be required to contribute any amount in excess of
the amount by which the total price at which the Securities purchased by it
were offered exceeds the amount of any damages that such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amount of the Securities set forth opposite their names
in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of each of the Company and the Guarantor
set forth in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Initial Purchaser or any person
controlling any Initial Purchaser or by or on behalf of any of the Company,
the Guarantor, their respective officers or directors or any other person
controlling the Company and (iii) acceptance of and payment for any of the
Securities.
8. Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Initial Purchasers, by notice
given to the Company, if after the execution and delivery of this Agreement
and prior to the Closing Date (i) trading generally shall have been suspended
or materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of or
guaranteed by either the Company or Tenneco shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or
any calamity or crisis that, in the judgment of the Initial Purchasers, is
material and adverse and which, in the judgment of the Initial Purchasers,
makes it impracticable to market the Securities on the terms and in the manner
contemplated in the Offering Memorandum.
9. This Agreement shall become effective upon the execution and delivery
hereof by each of the parties hereto.
15
<PAGE>
If, on the Closing Date any one or more of the Initial Purchasers shall fail
or refuse to purchase Securities which it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Securities which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or
refused to purchase is not more than one-tenth of the aggregate principal
amount of the Securities to be purchased on such date, the other Initial
Purchasers shall be obligated severally in the proportions that the principal
amount of Securities set forth opposite their respective names in Schedule I
bears to the aggregate principal amount of Securities set forth opposite the
names of all such non-defaulting Initial Purchasers, or in such other
proportions as the Initial Purchasers may specify, to purchase the Securities
which such defaulting Initial Purchaser or Initial Purchasers agreed but
failed or refused to purchase on such date; provided that in no event shall
the principal amount of Securities that any Initial Purchaser has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such principal amount of Securities without
the written consent of such Initial Purchaser. If on the Closing Date any
Initial Purchaser or Initial Purchasers shall fail or refuse to purchase
Securities which it or they have agreed to purchase hereunder on such date,
and the aggregate principal amount of Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date, and arrangements satisfactory to the
Initial Purchasers and the Company for the purchase of such Securities are not
made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchaser or the
Company. In any such case either the Initial Purchasers or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Offering
Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Agreement.
10. If this Agreement shall be terminated by the Initial Purchasers, or any
of them, because of any failure or refusal on the part of either of the
Company or the Guarantor to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason either of the Company or
the Guarantor shall be unable to perform its obligations under this Agreement
or any condition of the Initial Purchasers' obligations cannot be fulfilled,
the Company agrees to reimburse the Initial Purchasers or such Initial
Purchasers as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and expenses of
their counsel) reasonably incurred by such Initial Purchasers in connection
with this Agreement or the offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Guarantor, the Initial Purchasers, any controlling persons
referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Securities from any Initial Purchaser shall be
deemed to be a successor by reason merely of such purchase.
12. Any action by the Initial Purchasers hereunder may be taken by J.P.
Morgan Securities Inc. alone on behalf of the Initial Purchasers, and any such
action taken by J.P. Morgan Securities Inc. alone shall be binding upon the
Initial Purchasers. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the Initial Purchasers
shall be given to the Initial Purchasers c/o J.P. Morgan Securities Inc., 60
Wall Street, New York, New York 10260-0060; Attention: Syndicate Department.
Notices to the Company shall be given to it at Newport News Shipbuilding Inc.,
4101 Washington Avenue, Newport News, Virginia 23607; Attention: Chief
Financial Officer.
13. This Agreement may be signed in counterparts, each of which shall be an
original and all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflicts of laws
provisions thereof.
16
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
Newport News Shipbuilding Inc.
By: /s/ David J. Anderson
-----------------------------
Name: David J. Anderson
Title: Senior Vice President
Newport News Shipbuilding and Dry
Dock Company
By: /s/ David J. Anderson
-----------------------------
Name: David J. Anderson
Title: Senior Vice President
Accepted: November 21, 1996
J.P. Morgan Securities Inc.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
BA Securities, Inc.
Nationsbanc Capital Markets, Inc.
By: J.P. Morgan Securities Inc.
By: /s/ Steven Tulip
---------------------------------
Name: Steven Tulip
Title: Vice President
17
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT AMOUNT OF SENIOR
OF SENIOR NOTES SUBORDINATED NOTES
INITIAL PURCHASER TO BE PURCHASED TO BE PURCHASED
----------------- ---------------- ------------------
<S> <C> <C>
J.P. Morgan Securities Inc. ................ $100,000,000 $100,000,000
CS First Boston Corporation................. 40,000,000 40,000,000
Morgan Stanley & Co. Incorporated........... 40,000,000 40,000,000
BA Securities, Inc. ........................ 10,000,000 10,000,000
NationsBanc Capital Markets, Inc. .......... 10,000,000 10,000,000
------------ ------------
Total:.................................... $200,000,000 $200,000,000
============ ============
</TABLE>
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:26 A.M. 12/11/1996
960362515-0626703
RESTATED CERTIFICATE OF INCORPORATION
OF
NEWPORT NEWS SHIPBUILDING INC.
* * * * *
The present name of the corporation is Newport News Shipbuilding Inc. The
corporation was incorporated under the name "Dixemer Petroleum Corporation" by
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware on June 16, 1965. This Restated Certificate of
Incorporation of the corporation, which both restates and further amends the
provisions of the corporation's Certificate of Incorporation, was duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and by the written consent of its
sole stockholder in accordance with Section 228 of the General Corporation Law
of the State of Delaware. The Certificate of Incorporation of the corporation
is hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is Newport News Shipbuilding Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
corporation shall be authorized to issue is 80,000,000 shares, divided into
70,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors") is
hereby expressly authorized, by resolution or resolutions thereof, to provide,
out of the unissued shares of Preferred Stock, for series of Preferred Stock
and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share
of Common Stock held of record by such holder on all matters on which
stockholders
<PAGE>
generally are entitled to vote, and no holder of any series of Preferred Stock,
as such, shall be entitled to any voting powers in respect thereof.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors
in its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than
three nor more than sixteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes, Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of
Directors. Class I directors shall be initially elected for a term expiring at
the first succeeding annual meeting of stockholders, Class II directors shall
be initially elected for a term expiring at the second succeeding annual
meeting of stockholders, and Class III directors shall be initially elected
for a term expiring at the third succeeding annual meeting of stockholders. At
each annual meeting of the stockholders following 1996, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting of stockholders. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, provided that a quorum is present, and any other vacancy occurring
in the Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold
2
<PAGE>
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires and until
such director's successor shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation shall
so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect
any right or protection of a director of the corporation hereunder in respect
of any act or omission occurring prior to the time of such amendment,
modification or repeal.
SEVENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article SEVENTH.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this 11th day of December, 1996.
Newport News Shipbuilding Inc.
By: /s/ William P. Fricks
----------------------------
Name: William P. Fricks
Office: President and Chief
Executive Officer
4
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:28 A.M. 12/11/1996
960362520-0626703
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING JUNIOR PREFERRED STOCK
NEWPORT NEWS SHIPBUILDING INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Chairman of the Board and Secretary of Newport News
Shipbuilding Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on December 11, 1996, adopted the following resolution
creating a series of 700,000 shares of Preferred Stock designated as Series A
Participating Junior Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
-----------------------
be designated as "Series A Participating Junior Preferred Stock" and the number
of shares constituting such series shall be 700,000.
Section 2. Dividends and Distributions.
---------------------------
(A) The dividend rate on the shares of Series A Participating Junior
Preferred Stock for each quarterly dividend period (hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
January 1, April 1, July 1 and October 1 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period, shall be equal (rounded to the nearest cent) to the greater of (a) $1.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in cash, based upon the fair market value
-1-
<PAGE>
at the time the non-cash dividend or other distribution is declared as
determined in good faith by the Board of Directors) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared (but not withdrawn) on the common stock, par value $.01 per
share, of this Corporation (the "Common Stock") during the immediately preceding
quarterly dividend period, or, with respect to the first quarterly dividend
period, since the first issuance of any share or fraction of a share of Series A
Participating Junior Preferred Stock. In the event the Corporation shall at any
time after December 11, 1996 (the "Record Date") (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Participating Junior Preferred Stock were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Junior Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in each of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Junior
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 45 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
--------------
Participating Junior Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Junior Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation and will vote together with the shares of Common
Stock as one class on all such matters. In the event the Corporation shall at
any time after the Record Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series A Participating Junior Preferred Stock were entitled
-2-
<PAGE>
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) (i) If at any time dividends on any Series A Participating
Junior Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the holders of the Series A Participating Junior Preferred
Stock, voting as a separate series from all other series of Preferred Stock and
classes of capital stock, shall be entitled to elect two members of the Board of
Directors in addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Participating Junior Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Participating
Junior Preferred Stock, voting as a separate series, shall be entitled and shall
have exercised their right to elect two Directors, then and during such time as
such right continues (a) the then authorized number of Directors shall be
increased by two, and the holders of Series A Participating Junior Preferred
Stock, voting as a separate series, shall be entitled to elect the additional
Directors so provided for, and (b) each such additional Director shall not be a
member of Class I, Class II or Class III of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election of
Directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3B.
(iii) A Director elected pursuant to the terms hereof may be removed
without cause by the holders of Series A Participating Junior Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Participating
Junior Preferred Stock shall be entitled to elect two Directors, there is no
such Director in office by reason of resignation, death or removal, then,
promptly thereafter, the Board of Directors shall cause a special meeting of the
holders of Series A Participating Junior Preferred Stock for the purpose of
filling such vacancy and such vacancy shall be filled at such special meeting.
Such special meeting shall in any event be held within 45 days of the occurrence
of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Participating Junior Preferred
Stock outstanding are paid, and, in addition thereto, at least one regular
dividend has been paid subsequent to curing such arrearage, the term of office
of any Director elected pursuant hereto, or his successor, shall automatically
terminate, and the authorized number of Directors shall automatically decrease
by two, the rights of the holders of the shares of the Series A Participating
Junior Preferred Stock to vote as provided in this Section 3(B) shall cease,
subject to renewal from time to time upon the
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<PAGE>
same terms and conditions, and the holders of shares of the Series A
Participating Junior Preferred Stock shall have only the voting rights elsewhere
herein set forth.
Section 4. Required Shares. Any shares of Series A Participating
----------------
Junior Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 5. Liquidation, Dissolution or Winding Up. In the event of
---------------------------------------
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Participating Junior Preferred Stock
shall be entitled to receive the greater of (a) $20.00 per share, plus accrued
dividends to the date of distribution, whether or not earned or declared, or (b)
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share to
holders of Common Stock. In the event the Corporation shall at any time after
the Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Junior Preferred
Stock were entitled immediately prior to such event pursuant to clause (b) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction of the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6. Optional Redemption. (a) The Company shall have the
--------------------
option to redeem the whole or any part of the Series A Participating Junior
Preferred Stock at any time at a redemption price equal to, subject to the
provision for adjustment hereinafter set forth, 100 times the "current per share
market price" of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. In the event the Company shall at any time after the Record Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Participating Junior Preferred Stock were
otherwise entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common
-4-
<PAGE>
Stock is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted the average of the high bid
and low asked prices in the over-the-counter market, as reported by The Nasdaq
Stock Market ("NASDAQ") or such other system then in use or, if on any such
date, the Common Stock is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors of the
Company. If on such date no such market maker is making a market in the Common
Stock, the fair value of the Common Stock on such date as determined in good
faith by the Board of Directors of the Company shall be used. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close.
(b) Notice of any such redemption shall be given by mailing to the
holders of the Series A Participating Junior Preferred Stock a notice of such
redemption, first class postage prepaid, not later than the thirtieth day and
not earlier than the sixtieth day before the date fixed for redemption, at their
last address as the same shall appear upon the books of the Company. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the shareholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Series A Participating Junior Preferred Stock shall not affect the
validity of the proceedings for the redemption of such Series A Participating
Junior Preferred Stock. If less than all the outstanding shares of Series A
Participating Junior Preferred Stock are to be redeemed, the redemption shall be
made by lot as determined by the Board of Directors.
(c) The notice of redemption to each holder of Series A Participating
Junior Preferred Stock shall specify (a) the number of shares of Series A
Participating Junior Preferred Stock of such holder to be redeemed, (b) the date
fixed for redemption, (c) the redemption price and (d) the place of payment of
the redemption price.
(d) If any such notice of redemption shall have been duly given or if
the Company shall have given to the bank or trust company hereinafter referred
to irrevocable written authorization promptly to give or complete such notice,
and if on or before the redemption date specified therein the funds necessary
for such redemption shall have been deposited by the Company with the bank or
trust company designated in such notice, doing business in Newport News,
Virginia, and having a capital, surplus and undivided profits aggregating at
least $25,000,000 according to its last published statement of condition, in
trust for the benefit of the holders of Series A Participating Junior Preferred
Stock called for redemption, then, notwithstanding that any certificate for such
shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit all such shares called for
redemption shall no longer be deemed outstanding and all rights with respect to
-5-
<PAGE>
such shares shall no longer be deemed outstanding and shall forthwith cease and
terminate, except the right of the holders thereof to receive from such bank or
trust company at any time after the time of such deposit the funds so deposited,
without interest, and the right to exercise, up to the close of business on the
fifth day before the date fixed for redemption. In case less than all the shares
represented by any surrendered certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. Any interest accrued on such funds
shall be paid to the Company from time to time. Any funds so deposited and
unclaimed at the end of six years from such redemption date shall be repaid to
the Company, after which the holders of shares of Series A Participating Junior
Preferred Stock called for redemption shall look only to the Company for payment
thereof.
Section 7. Fractional Shares. Series A Participating Junior
------------------
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Participating Junior Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of the
11th day of December, 1996.
NEWPORT NEWS SHIPBUILDING INC.
/s/ William P. Fricks
-------------------------------
William P. Fricks
President and Chief Executive Officer
Attest:
/s/ Stephen B. Clarkson
- -----------------------------
Stephen B. Clarkson
Vice President, General Counsel
and Secretary
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<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
NEWPORT NEWS SHIPBUILDING INC.
AMENDED AND RESTATED AS OF DECEMBER 11, 1996
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS
Section 1. All meetings of the stockholders of the corporation shall be held
at such place or places, within or without the State of Delaware, as may from
time to time be fixed by the Board of Directors of the corporation (the
"Board"), or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
ANNUAL MEETING
Section 2. The Annual Meeting of Stockholders shall be held on such date and
at such time as may be fixed by the Board and stated in the notice thereof,
for the purpose of electing directors and for the transaction of only such
other business as is properly brought before the meeting in accordance with
these By-Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting
by or at the direction of the Board, or (c) otherwise properly brought before
the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before the Annual Meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 50 days nor more than 75 days prior
to the meeting; provided, however, that in the event that less than 65 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 15th day following the day on
which such notice of the date of the Annual Meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the Annual Meeting (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall
be transacted at the Annual Meeting except in accordance with the procedures
set forth in this Section, provided, however, that nothing in this Section
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the Annual Meeting.
The Chairman of the Annual Meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SPECIAL MEETING
Section 3. Subject to the rights of the holders of any series of preferred
stock, par value $.01 per share, of the corporation (the "Preferred Stock") to
elect additional directors under specified circumstances, special meetings of
the stockholders shall be called by the Board. The business transacted at a
special meeting shall be confined to the purposes specified in the notice
thereof. Special meetings shall be held at such date and at such time as the
Board may designate.
<PAGE>
NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof,
shall be mailed not less than ten nor more than sixty days before the date of
such meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares of
stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary
of the corporation or in his absence an Assistant Secretary or an appointee of
the presiding officer of the meeting, shall act as the Secretary of the
meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated Certificate
of Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person or by written proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
By-Laws for determining the stockholders entitled to vote at such meeting.
Except as otherwise provided by law, the Restated Certificate of Incorporation
or these By-Laws, the vote of a majority of any quorum shall be sufficient to
elect directors and to pass any resolution within the power of the holders of
all the outstanding shares.
Elections of directors need not be by written ballot; provided, however,
that by resolution duly adopted, a vote by written ballot may be required.
PROXIES
Section 7. Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting
in person or by filing an instrument revoking the proxy or by delivering a
proxy in accordance with applicable law bearing a later date to the Secretary
of the corporation. In order to be exercised at a meeting of stockholders,
proxies shall be delivered to the Secretary of the corporation or his
representative at or before the time of such meeting.
INSPECTORS
Section 8. At each meeting of the stockholders the polls shall be opened and
closed; the proxies and ballots shall be received and be taken in charge, and
all questions touching the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by three Inspectors,
two of whom shall have power to make a decision. Such Inspectors shall be
appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful
performance of their duties. If any of the Inspectors previously appointed
shall fail to attend or refuse or be unable to serve, substitutes shall be
appointed by the presiding officer.
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CONDUCT OF MEETINGS
Section 9. The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the chairman of the meeting. The Board may adopt
by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment
of such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed
by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and
the safety of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the corporation,
their duly authorized and constituted proxies or such other persons as the
chairman of the meeting shall determine; (iv) restrictions on entry to the
meeting after the time fixed for the commencement thereof; and (v) limitations
on the time allotted to questions or comments by participants. Unless and to
the extent determined by the Board or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
NUMBER; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall
constitute the entire Board shall not be less than three nor more than sixteen
and shall be determined from time to time by resolution adopted by a majority
of the entire Board.
Nominations of persons for election to the Board of the corporation at the
Annual Meeting of Stockholders may be made at a meeting of stockholders by or
at the direction of the Board of Directors by any nominating committee or
person appointed by the Board or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies
with the notice procedures set forth in this Article II. Such nominations,
other than those made by or at the direction of the Board, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To
be timely, a stockholder's notice shall be delivered to or mailed and received
at the principal executive offices of the corporation not less than 50 days
nor more than 75 days prior to the meeting; provided, however, that in the
event that less than 65 days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the person and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14A under the Securities Exchange Act of 1934 as
amended; and (b) as to the stockholder giving the notice (i) the name and
record address of the stockholder and (ii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as director of the
corporation. No person shall be eligible for election as a director of the
corporation at the Annual Meeting of Stockholders unless nominated in
accordance with the procedures set forth herein. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
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Any director may resign his office at any time by delivering his resignation
in writing to the corporation, and the acceptance of such resignation unless
required by the terms thereof shall not be necessary to make such resignation
effective.
No person who shall have attained the age of 72 shall be eligible for
election or reelection, as the case may be, as a director of the corporation,
except that the foregoing qualification shall not apply to any director who,
at the time of the adoption of these By-Laws, is then in office and has
attained such age.
MEETINGS
Section 2. The Board may hold its meetings and have an office in such place
or places within or without the State of Delaware as the Board by resolution
from time to time may determine.
The Board may in its discretion provide for regular or stated meetings of
the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other
electronic communication or transmission. If mailed, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least three days before such
meeting. If by telegram, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph corporation at least twenty-four
hours before such meeting. If by facsimile, telephone or other electronic
communication or transmission, such notice shall be transmitted at least
twenty-four hours before such meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may
be transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or by
statute, a majority of the directors then in office (but not less than one-
third of the total number of directors constituting the entire Board) shall be
present at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of the
directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a salaried officer of
the corporation or of any subsidiary of the corporation), in consideration of
his serving as such, shall be entitled to receive from the corporation such
amount per annum and such fees for attendance at meetings of the Board or of
any committee of the Board (a "Committee"), or both, as the Board shall from
time to time determine. The Board may likewise provide that the corporation
shall reimburse each director or member of a Committee for any expenses
incurred by him on account of his attendance at any such meeting. Nothing
contained in this Section shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
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ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Executive Committee,
an Audit Committee, a Compensation Committee and any other Committee which the
Board may by resolution prescribe. Any such other Committee shall be comprised
of such persons and shall possess such authority as shall be set forth in such
resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and shall
meet where and as provided by such rules. Unless otherwise stated in these By-
Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Fees in connection with such appointments shall
be established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Executive, Audit and Compensation
Committees shall be reported to the Board at the next succeeding Board meeting
and shall be subject to revision or alteration by the Board, provided, that no
acts or rights of third parties shall be affected by any such revision or
alteration.
EXECUTIVE COMMITTEE
Section 4. The Board shall elect an Executive Committee comprised of the
Chief Executive Officer and not less than four additional members of the
Board. During the interval between the meetings of the Board, the Executive
Committee shall possess and may exercise all the powers of the Board in the
management and direction of all the business and affairs of the corporation
(except the matters hereinafter assigned to the Compensation Committee)
including, without limitation, the power and authority to declare dividends
and to authorize the issuance of stock, in such manner as the Executive
Committee shall deem best for the interests of the corporation in all cases in
which specific directions shall not have been given by the Board.
COMPENSATION COMMITTEE
Section 5. The Board shall elect a Compensation Committee consisting of at
least four members of the Board, none of whom shall be officers or employees
of the corporation or of any subsidiary corporation. The Board shall appoint a
chairman of such Committee who shall be one of its members. The Compensation
Committee shall have such authority and duties as the Board by resolution
shall prescribe.
AUDIT COMMITTEE
Section 6. The Board shall elect from among its members an Audit Committee
consisting of at least three members. The Board shall appoint a chairman of
said Committee who shall be one of its members. The Audit Committee shall have
such authority and duties as the Board by resolution shall prescribe. In no
event shall a director who is also an officer or employee of the corporation
or any of its subsidiary companies serve as a member of such Committee. The
Chief Executive Officer shall have the right to attend (but not vote at) each
meeting of such Committee.
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NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE
Section 7. The Board shall elect from among its members a Nominating and
Management Development Committee consisting of at least three members. The
Board shall appoint a chairman of said Committee who shall be one of its
members. The Nominating and Management Development Committee shall have such
authority and duties as the Board by resolution shall prescribe. In no event
shall a director who is also an officer or employee of the corporation or any
of its subsidiary companies serve as a member of such Committee. The Chief
Executive Officer shall have the right to attend (but not vote at) each
meeting of such Committee.
ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of the
following: a Chairman and/or a President, one of whom shall be designated
Chief Executive Officer and each of whom shall be chosen from the Board; one
or more Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one
or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers,
a Controller, and such other officers as the Board may from time to time
designate. Insofar as permitted by statute, the same person may hold two or
more offices. All officers chosen by the Board shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV.
The Chairman and/or President, each Vice Chairman, Executive Vice President,
Senior Vice President and Vice President, the Secretary and the Treasurer
shall be elected by the Board. Each such officer shall hold office until his
successor is elected or appointed and qualified or until his earlier death,
resignation or removal.
Any officer may be removed, with or without cause, at any time by the Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject
to the Board, the Executive Committee and the provisions of these By-Laws. The
Chief Executive Officer or in his absence such other individual as the Board
may select, shall preside at all meetings of the stockholders. He shall also
preside at meetings of the Board and the Executive Committee, and in his
absence the Board or the Executive Committee, as the case may be, shall
appoint one of their number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to
him by the Board. He shall have the power to appoint and remove, with or
without cause, such officers, other than those elected by the Board as
provided for in these By-Laws, as in his judgment may be necessary or proper
for the transaction of the business of the corporation, and shall determine
their duties, all subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
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Section 4. Each Vice Chairman shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 5. The President shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 6. Each Executive Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 7. Each Senior Vice President shall perform such duties as may from
time to time be assigned to him by the Board, the Executive Committee or the
Chief Executive Officer.
Section 8. Each Vice President and Assistant Vice President shall perform
such duties as may from time to time be assigned to him by the Board, the
Executive Committee, the Chief Executive Officer or an Executive Vice
President.
Section 9. The General Counsel shall have general supervision and control of
all of the corporation's legal business. He shall perform such other duties as
may be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 10. The Secretary or an Assistant Secretary shall record the
proceedings of all meetings of the Board, the Executive Committee of the Board
and the stockholders, in books kept for that purpose. The Secretary shall be
the custodian of the corporate seal, and he or an Assistant Secretary shall
affix the same to and countersign papers requiring such acts; and he and the
Assistant Secretaries shall perform such other duties as may be required by
the Board, the Executive Committee or the Chief Executive Officer.
Section 11. The Treasurer and Assistant Treasurers shall have care and
custody of all funds of the corporation and disburse and administer the same
under the direction of the Board, the Executive Committee or the Chief
Executive Officer and shall perform such other duties as the Board, the
Executive Committee or the Chief Executive Officer shall assign to them.
Section 12. The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation and see that audits thereof
are currently and regularly made; and he shall perform such other duties as
may be required by the Board, the Executive Committee or the Chief Executive
Officer.
SALARIES AND APPOINTMENTS
Section 13. The salaries of corporate officers shall be fixed by the
Compensation Committee provided for in Section 5 of Article III hereof, except
that the fixing of salaries below certain levels, determinable from time to
time by the Compensation Committee, may in the discretion of the Committee be
delegated to the Chief Executive Officer, subject to the approval of the
Board.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14. (1) The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including appeals (a "proceeding"), by reason of the fact that he, or a person
for whom he is the legal representative, is or was a director or officer of
the corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer,
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employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in
paragraph (3) of this Section 14, the corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Indemnitee to repay
all amounts advanced if it should be ultimately determined that the Indemnitee
is not entitled to be indemnified under this Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this Section
14 is not paid in full within thirty days after a written claim therefor by
the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 14 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Restated Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(6) Any repeal or modification of the foregoing provisions of this Section
14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of
such repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned shall
be issued to each stockholder in such form not inconsistent with the Restated
Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary. Any and all the signatures on the certificates may be
a facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed
and filed with the Secretary of the corporation, and on the surrender of
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the certificate or certificates of such shares, properly assigned. The
corporation may, if and whenever the Board shall so determine, maintain one or
more offices or agencies, each in charge of an agent designated by the Board,
where the shares of the capital stock of the corporation shall be transferred
and/or registered. The Board may also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock of
the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the
corporation may, but shall not be obligated to, require the owner of the
alleged lost, stolen or destroyed certificate, or his legal representatives,
to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate,
as the officers of the corporation may, in their discretion, require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board; and
(3) in the case of any other action, shall not be more than sixty days prior
to such other action. If no record date is fixed by the Board: (1) the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall be determined
in accordance with Article VI of these By-Laws; and (3) the record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
ARTICLE VI
CONSENTS TO CORPORATE ACTION
RECORD DATE
Section 1. The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall be as fixed by
the Board or as otherwise established under this Section. Any person seeking
to have the stockholders authorize or take corporate action by written consent
without a meeting shall by written notice addressed to the Secretary and
delivered to the corporation, request that a record date be fixed for such
purpose. The Board may fix a record date for such purpose which shall be no
more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board and shall not precede the date such resolution is
adopted. If the Board fails within 10 days after the corporation receives such
notice to fix a record date for such purpose, the record date shall be the day
on which the first written consent is delivered to
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the corporation in the manner described in Section 2 below unless prior action
by the Board is required under the General Corporation Law of Delaware, in
which event the record date shall be at the close of business on the day on
which the Board adopts the resolution taking such prior action.
PROCEDURES
Section 2. Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written
consent and related revocation is referred to in this Article VI as a
"Consent") shall bear the date of signature of each stockholder who signs the
Consent, and no Consent shall be effective to take the corporate action
referred to therein unless, within 60 days of the earliest dated Consent
delivered in the manner required by this Section 2, Consents signed by a
sufficient number of stockholders to take such action are delivered to the
corporation.
A Consent shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery to the corporation of a Consent, the Secretary
of the corporation shall provide for the safe-keeping of such Consent and
shall promptly conduct such ministerial review of the sufficiency of the
Consents and of the validity of the action to be taken by shareholder consent
as he deems necessary or appropriate, including, without limitation, whether
the holders of a number of shares having the requisite voting power to
authorize or take the action specified in the Consent have given consent;
provided, however, that if the corporate action to which the Consent relates
is the removal or replacement of one or more members of the Board, the
Secretary of the corporation shall promptly designate two persons, who shall
not be members of the Board, to serve as Inspectors with respect to such
Consent and such Inspectors shall discharge the functions of the Secretary of
the corporation under this Section 2. If after such investigation the
Secretary or the Inspectors (as the case may be) shall determine that the
Consent is valid and that the action therein specified has been validly
authorized, that fact shall forthwith be certified on the records of the
corporation kept for the purpose of recording the proceedings of meetings of
stockholders, and the Consent shall be filed in such records, at which time
the Consent shall become effective as stockholder action. In conducting the
investigation required by this Section 2, the Secretary or the Inspectors (as
the case may be) may, at the expense of the corporation, retain special legal
counsel and any other necessary or appropriate professional advisors, and such
other personnel as they may deem necessary or appropriate to assist them, and
shall be fully protected in relying in good faith upon the opinion of such
counsel or advisors.
ARTICLE VII
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation may be
declared as permitted by law by the Board or the Executive Committee at any
regular or special meeting. Before payment of any dividend or making any
distribution of profits, there may be set aside out of the surplus or net
profits of the corporation such sum or sums as the Board or the Executive
Committee, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for such other purposes as the Board or
Executive Committee shall think conducive to the interests of the corporation,
and any reserve so established may be abolished and restored to the surplus
account by like action of the Board or the Executive Committee.
SEAL
Section 2. The seal of the corporation shall bear the corporate name of the
corporation, the year of its incorporation and the words "Corporate Seal,
Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be given by statute
or under the provisions of the Restated Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
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Neither the business to be transacted at, nor the purpose of, any annual or
special meeting of the stockholders or the Board, as the case may be, need be
specified in any waiver of notice of such meeting.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January first
and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Restated Certificate of
Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by
such officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the corporation. Subject to any
restrictions imposed by the Board, the Chairman of the Board, the President or
any Vice President of the corporation may delegate contractual powers to
others under his jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by the Board, the
Chairman of the Board, the President or any Vice President may from time to
time appoint an attorney or attorneys or agent or agents of the corporation,
in the name and on behalf of the corporation, to cast the votes which the
corporation may be entitled to cast as the holder of stock or other securities
in any other corporation or other entity, any of whose stock or other
securities may be held by the corporation, at meetings of the holders of the
stock or other securities of such other corporation or other entity, or to
consent in writing, in the name of the corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person
or persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make, alter,
amend or repeal any and all of these By-Laws, but any By-Laws so made, altered
or repealed by the Board may be amended, altered or repealed by the
stockholders.
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Vice President, General Counsel and Secretary of Newport News Shipbuilding Inc.,
a Delaware corporation, and the keeper of its corporate records and minutes. The
undersigned further hereby certifies that the above and foregoing is a true and
correct copy of the By-Laws of said corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation, this
11th day of December, 1996.
/s/ Stephen B. Clarkson
------------------------------------
Stephen B. Clarkson
Vice President, General Counsel
and Secretary
11
<PAGE>
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INDENTURE
DATED AS OF NOVEMBER 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC., AS ISSUER,
NEWPORT NEWS SHIPBUILDING AND
DRY DOCK COMPANY, AS GUARANTOR,
AND
THE BANK OF NEW YORK, AS TRUSTEE
--------------------
$200,000,000
8 5/8% SENIOR NOTES DUE 2006
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- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
INDENTURE
TRUST INDENTURE ACT SECTION SECTION
- --------------------------- -----------------
<S> <C>
(S) 310(a)(1).................................................. 7.10
(a)(2)....................................................... 7.10
(a)(3)....................................................... N.A.
(a)(4)....................................................... N.A.
(a)(5)....................................................... N.A.
(b).......................................................... 7.08; 7.11; 11.02
(c).......................................................... N.A.
(S) 311(a)..................................................... 7.11
(b).......................................................... 7.11
(c).......................................................... N.A.
(S) 312(a)..................................................... 2.05
(b).......................................................... 11.03
(c).......................................................... 11.03
(S) 313(a)..................................................... 7.06
(b)(1)....................................................... N.A.
(b)(2)....................................................... 7.06
(c).......................................................... 7.06; 11.02
(d).......................................................... 7.06
(S) 314(a)..................................................... 4.11; 4.12; 11.02
(b).......................................................... N.A.
(c)(1)....................................................... 11.04
(c)(2)....................................................... 11.04
(c)(3)....................................................... N.A.
(d).......................................................... N.A.
(e).......................................................... 11.05
(f).......................................................... N.A.
(S) 315(a)..................................................... 7.01(b)
(b).......................................................... 7.05; 11.02
(c).......................................................... 7.01(a)
(d).......................................................... 7.01(c)
(e).......................................................... 6.11
(S) 316(a)(last sentence)...................................... 2.09
(a)(1)(A).................................................... 6.05
(a)(1)(B).................................................... 6.04
(a)(2)....................................................... N.A.
(b).......................................................... 6.07
(c).......................................................... 9.04
(S) 317(a)(1).................................................. 6.08
(a)(2)....................................................... 6.09
(b).......................................................... 2.05
(S)318(a)...................................................... 11.01
</TABLE>
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N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE
Definitions and Incorporation by Reference
<C> <S> <C>
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions....................................... 21
Section 1.03. Incorporation by Reference of Trust Indenture Act....... 22
Section 1.04. Rules of Construction................................... 22
ARTICLE TWO
The Securities
Section 2.01. Execution and Authentication............................ 23
Section 2.02. Form, Denomination and Date of Securities; Payment of
Interest.............................................. 23
Section 2.03. Restrictive Legends..................................... 25
Section 2.04. Registrar and Paying Agent.............................. 27
Section 2.05. Paying Agent To Hold Money in Trust..................... 28
Section 2.06. Securityholder Lists.................................... 29
Section 2.07. Registration, Transfer and Exchange..................... 29
Section 2.08. Book Entry Provisions for Global Securities............. 31
Section 2.09. Special Transfer Provisions............................. 33
Section 2.10. Mutilated, Defaced, Destroyed, Lost and Stolen
Securities............................................ 36
Section 2.11. Outstanding Securities.................................. 37
Section 2.12. Treasury Securities..................................... 38
Section 2.13. Temporary Securities.................................... 38
Section 2.14. Cancellation of Securities, Destruction Thereof......... 39
Section 2.15. CUSIP and CINS Number................................... 39
Section 2.16. Deposit of Moneys....................................... 39
ARTICLE THREE
Redemption
Section 3.01. Notices to Trustee...................................... 40
Section 3.02. Selection of Securities To Be Redeemed.................. 40
Section 3.03. Notice of Redemption.................................... 41
Section 3.04. Effect of Notice of Redemption.......................... 42
Section 3.05. Deposit of Redemption Price............................. 42
Section 3.06. Securities Redeemed in Part............................. 42
ARTICLE FOUR
Covenants
Section 4.01. Payment of Securities................................... 42
Section 4.02. Maintenance of Office or Agency......................... 43
</TABLE>
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Section 4.03. Limitation on Transactions with Affiliates and Related
Persons............................................... 43
Section 4.04. Limitation on Indebtedness.............................. 44
Section 4.05. Limitation on Certain Asset Dispositions................ 46
Section 4.06. Limitation on Restricted Payments....................... 49
Section 4.07. Corporate Existence..................................... 52
Section 4.08. Payment of Taxes and Other Claims....................... 52
Section 4.09. Notice of Defaults...................................... 52
Section 4.10. Maintenance of Properties............................... 53
Section 4.11. Compliance Certificate.................................. 53
Section 4.12. Provision of Financial Information...................... 54
Section 4.13. Waiver of Stay, Extension or Usury Laws................. 54
Section 4.14. Change of Control....................................... 55
Section 4.15. Limitations Concerning Distributions and Transfers by
Subsidiaries.......................................... 56
Section 4.16. Limitation on Issuance and Sale of Capital Stock of
Subsidiaries.......................................... 57
Section 4.17. Limitation on Liens..................................... 58
Section 4.18. Deposit of Funds with Trustee Pending Consummation of
the Shipbuilding Distribution......................... 59
ARTICLE FIVE
Mergers; Successor Corporation
Section 5.01. Restriction on Mergers, Consolidations and Certain Sales
of Assets............................................. 60
Section 5.02. Successor Corporation Substituted....................... 62
ARTICLE SIX
Default and Remedies
Section 6.01. Events of Default....................................... 62
Section 6.02. Acceleration............................................ 64
Section 6.03. Other Remedies.......................................... 65
Section 6.04. Waiver of Past Default.................................. 65
Section 6.05. Control by Majority..................................... 66
Section 6.06. Limitation on Suits..................................... 66
Section 6.07. Rights of Holders To Receive Payment.................... 67
Section 6.08. Collection Suit by Trustee.............................. 67
Section 6.09. Trustee May File Proofs of Claim........................ 67
Section 6.10. Priorities.............................................. 68
Section 6.11. Undertaking for Costs................................... 68
ARTICLE SEVEN
Trustee
Section 7.01. Duties of Trustee....................................... 68
Section 7.02. Rights of Trustee....................................... 69
</TABLE>
ii
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<TABLE>
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<C> <S> <C>
Section 7.03. Individual Rights of Trustee.............................. 70
Section 7.04. Trustee's Disclaimer...................................... 71
Section 7.05. Notice of Defaults........................................ 71
Section 7.06. Reports by Trustee to Holders............................. 71
Section 7.07. Compensation and Indemnity................................ 71
Section 7.08. Replacement of Trustee.................................... 73
Section 7.09. Successor Trustee by Merger, etc.......................... 74
Section 7.10. Eligibility; Disqualification............................. 74
Section 7.11. Preferential Collection of Claims Against Company......... 74
ARTICLE EIGHT
Discharge of Indenture
Section 8.01. Termination of Company's Obligations...................... 75
Section 8.02. Application of Trust Money................................ 76
Section 8.03. Repayment to Company...................................... 76
Section 8.04. Reinstatement............................................. 77
ARTICLE NINE
Amendments, Supplements and Waivers
Section 9.01. Without Consent of Holders................................ 77
Section 9.02. With Consent of Holders................................... 78
Section 9.03. Compliance with Trust Indenture Act....................... 79
Section 9.04. Revocation and Effect of Consents......................... 80
Section 9.05. Notation on or Exchange of Securities..................... 80
Section 9.06. Trustee To Sign Amendments, etc........................... 81
ARTICLE TEN
Guarantee
Section 10.01. Unconditional Guarantee................................... 81
Section 10.02. Severability.............................................. 82
Section 10.03. Release of a Guarantor.................................... 82
Section 10.04. Limitation of Guarantor's Liability....................... 83
Section 10.05. Contribution.............................................. 83
Section 10.06. Execution of Guarantee.................................... 83
Section 10.07. Additional Guarantors..................................... 84
Section 10.08. Subordination of Subrogation and Other Rights............. 84
ARTICLE ELEVEN
Miscellaneous
Section 11.01. Trust Indenture Act Controls.............................. 85
Section 11.02. Notices................................................... 85
Section 11.03. Communications by Holders with Other Holders.............. 86
</TABLE>
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<C> <S> <C>
Section 11.04. Certificate and Opinion as to Conditions Precedent........ 87
Section 11.05. Statements Required in Certificate or Opinion............. 87
Section 11.06. Rules by Trustee, Paying Agent, Registrar................. 87
Section 11.07. Governing Law............................................. 87
Section 11.08. No Recourse Against Others................................ 88
Section 11.09. Successors................................................ 88
Section 11.10. Counterpart Originals..................................... 88
Section 11.11. Severability.............................................. 88
Section 11.12. No Adverse Interpretation of Other Agreements............. 88
Section 11.13. Legal Holidays............................................ 88
SIGNATURES................................................................ 89
EXHIBIT A--Form of Security............................................... A-1
EXHIBIT B--Form of Certificate to be Delivered in Connection with
Transfers to Non-QIB Accredited Investors.................... B-1
EXHIBIT C--Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S........................... C-1
EXHIBIT D--Form of Officers' Certificate to be Delivered in Connection
with Release of the Collateral............................... D-1
</TABLE>
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NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.
iv
<PAGE>
Indenture dated as of November 26, 1996, among Newport News Shipbuilding
Inc., a Delaware corporation (the "Company"), Newport News Shipbuilding and
Dry Dock Company, a Virginia corporation, and The Bank of New York, as trust-
ee.
Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Company's 8 5/8% Se-
nior Notes due 2006:
ARTICLE ONE
Definitions and Incorporation by Reference
Section 1.01. Definitions.
"Additional Interest" has the meaning provided in Section 4(a) of the Regis-
tration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or indi-
rectly 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 direc-
tion 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.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Disposition" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transac-
tion) of (i) shares of Capital Stock of a Subsidiary of the Company (other
than directors' qualifying shares) or (ii) property or assets of the Company
or any Subsidiary of the Company; 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 the Company to the Com-
pany or to any Wholly Owned Subsidiary of the Company or by the Company to any
Wholly Owned Subsidiary of the Company, (b) any sale, transfer or other dispo-
sition 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 disposi-
<PAGE>
tion that does not involve aggregate consideration in excess of $1,000,000 in-
dividually, (d) the grant in the ordinary course of business of any non-exclu-
sive license of patents, trademarks, registrations therefor and other similar
intellectual property, (e) any Lien (or foreclosure thereon) securing Indebt-
edness to the extent that such Lien is granted in compliance with Section
4.17, (f) any Restricted Payment permitted by Section 4.06 or (g) any disposi-
tion of assets or property in the ordinary course of business to the extent
such assets or property are obsolete, worn out or no longer useful in the
Company's or any of its Subsidiaries' business.
"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 liquida-
tion 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.
"Board of Directors" means the Board of Directors of the Company or any Guar-
antor, as the case may be, or any authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a duly adopted resolu-
tion of the Board of Directors of such Person.
"Business Day" means a day (other than a Saturday or Sunday) on which the De-
positary and banks in New York are open for business.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements convey-
ing the right to use) real or personal property of such Person which are re-
quired to be classified and accounted for as a capital lease or liability on
the face of a balance sheet 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, participa-
tions or other equivalents (however designated) of corporate stock of such
Person (including any Preferred Stock outstanding on the Issue Date).
2
<PAGE>
"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), matur-
ing within 30 days of the date of purchase, or Investments in mutual funds or
money market funds which are only permitted to invest in the foregoing and
which do not restrict the withdrawal of the proceeds of such Investment.
"Collateral" means (i) the Collateral Account, (ii) the Net Offering Proceeds
and all other cash or Cash Equivalents deposited in the Collateral Account
from time to time pursuant to Section 4.18 hereof, (iii) all rights and privi-
leges of the Company with respect to the Collateral Account and such cash and
Cash Equivalents, (iv) all dividends, interest and other payments and distri-
butions made on or with respect to such Cash Equivalents or the Collateral Ac-
count and (v) all proceeds of any of the foregoing.
"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.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor shall have become such pursuant to the appli-
cable provisions of this Indenture, and thereafter "Company" shall mean such
successor.
"Company Request" or "Company Order" means a written request or order signed
in the name of the Company by its Chairman of the Board, its Vice Chairman of
the Board, its President, a Vice President or its Treasurer, and by an Assis-
tant Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means for
any period the Consolidated Net Income of such Person for such period in-
creased (to the extent Consolidated Net Income for such period has been re-
duced thereby) by the sum of (without duplication) (i) Consolidated Interest
Expense of such Person for such period, plus (ii) Consolidated Income Tax Ex-
pense 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.
3
<PAGE>
"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 Per-
son 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 out-
standing as a result of the Incurrence of the Indebtedness proposed to be In-
curred, plus (D) the annual interest expense with respect to any other Indebt-
edness Incurred by such Person or its Subsidiaries since the end of such pe-
riod to the extent not included in clause (ii)(A), minus (E) Consolidated In-
terest 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, howev-
er, that in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness bearing a floating inter-
est 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, consol-
idation 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 con-
solidated provision for income taxes of such Person for such period calculated
on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" for any Person means for any period the con-
solidated interest expense included in a consolidated income statement (with-
out deduction of interest or finance charge income) of such Person for such
period calculated on a consolidated basis in accordance with GAAP, plus dis-
4
<PAGE>
count 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 consoli-
dated 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 restric-
tions which prevent or limit the payment of dividends or the making of distri-
butions 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 distri-
butions 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 dis-
bursements 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 the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors then on the Board of Directors of the Company, either by
a specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individ-
ual is named as nominee for director.
5
<PAGE>
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 or such other address as the Trustee may
give notice to the Company.
"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.
"Depositary" means The Depository Trust Company, its nominees, and their re-
spective successors.
"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 convert-
ible or for which it is exchangeable), or upon the happening of any event, ma-
tures 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 Securities.
"Distribution Agreement" means the Distribution Agreement dated as of Novem-
ber 1, 1996 among Tenneco, New Tenneco and the Company, as such Agreement has
heretofore been or hereafter may be amended, modified or supplemented.
"Equity Public Offerings" means underwritten public offerings of Capital
Stock of the Company (other than Disqualified Stock) made after the date of
the Shipbuilding Distribution that have been registered under the Securities
Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" shall mean the Exchange by the Company of Exchange Securi-
ties for Securities pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the Reg-
istration Rights Agreement.
6
<PAGE>
"Exchange Securities" means any securities of the Company to be offered to
Securityholders in exchange for Securities pursuant to the Exchange Offer or
otherwise pursuant to a Registration of Securities containing terms identical
to the Securities and guaranteed by the Guarantors with terms identical to the
Guarantees for which they are exchanged (except that (i) interest thereon
shall accrue from the last date on which interest was paid on the Securities
or, if no such interest has been paid, from the date of issuance of the Secu-
rities and (ii) the Exchange Securities will contain the alternative paragraph
under paragraph 8 appearing on the reverse of the Securities in the form of
Exhibit A hereto and will not contain terms with respect to transfer restric-
tions).
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Foreign Subsidiary" means any Subsidiary of the Company 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 consoli-
dated 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 out-
side 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 pro-
nouncements 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, with-
out limitation, any obligation of such Person (i) to purchase or pay (or ad-
vance 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 ob-
ligor so as to enable the primary obligor to pay such Indebtedness (and "guar-
anteed," "guaranteeing" and
7
<PAGE>
"guarantor" shall have meanings correlative to the foregoing); provided, how-
ever, 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 Securities by each Guarantor under
this Indenture.
"Guarantors" means (i) Newport News Shipbuilding and Dry Dock Company, a Vir-
ginia corporation; and (ii) each Material Subsidiary, whether formed or ac-
quired before or after the Issue Date; provided, however, that any Subsidiary
acquired after the Issue Date which is prohibited from entering into a Guaran-
tee 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 Guaran-
tor so long as any such restriction is in existence and to the extent of any
such restriction.
"Holder", "holder of Securities", "Securityholders" or other similar terms
mean the registered holder of any Security.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or other-
wise), assume, guarantee or otherwise become liable in respect of such Indebt-
edness 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 mean-
ings correlative to the foregoing). Indebtedness of any Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the Com-
pany (or is merged into or consolidates with the Company or any of its Subsid-
iaries), whether or not such Indebtedness was incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary of the Company (or be-
ing merged into or consolidated with the Company or any of its Subsidiaries),
shall be deemed Incurred at the time any such Person becomes a Subsidiary of
the Company or merges into or consolidates with the Company or any of its Sub-
sidiaries.
"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 bor-
rowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connec-
tion with the acquisition of property, assets or businesses, (iii) every reim-
bursement obligation of
8
<PAGE>
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 (includ-
ing, without limitation, any Currency Agreement and any Interest Rate Agree-
ment) 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 lia-
ble for, directly or indirectly, as obligor, guarantor or otherwise. Indebted-
ness shall include (without duplication) the liquidation preference and any
mandatory redemption payment obligations in respect of any Disqualified Stock
of the Company, and any Preferred Stock of a Subsidiary of the Company. In-
debtedness shall never be calculated taking into account any cash and cash
equivalents held by such Person.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Initial Purchasers" means J.P. Morgan Securities Inc., CS First Boston Cor-
poration, Morgan Stanley & Co. Incorporated, BA Securities, Inc. and
NationsBanc Capital Markets, Inc.
"Insolvency or Liquidation Proceeding" means, with respect to any Person, any
liquidation, dissolution or winding-up of such Person, or any bankruptcy, re-
organization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" shall mean an institution that is an "ac-
credited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on June 1
and December 1 of each year, commencing June 1, 1997.
"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 this Inden-
ture, the
9
<PAGE>
amount of such obligations shall be the amount determined in respect thereof
as of the end of the 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 pay-
ment 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.
"Interest Record Date" for the interest payable on any Interest Payment Date
(except a date for payment of defaulted interest) means the May 15 or November
15 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date.
"Investment" by any Person means any direct or indirect loan, advance, guar-
antee 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 ac-
quisition 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 Securities, November 26,
1996.
"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 mar-
ketability), 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 ef-
fect as any of the foregoing).
"Manager" means J.P. Morgan Securities Inc., as a manager for itself and the
several other placement agents named in the Placement Agreement.
"Material Subsidiary" means any Subsidiary of the Company (other than a For-
eign Subsidiary and other than Tenneco Tanker Holding Corporation) having con-
solidated assets exceeding $10,000,000.
"Maturity Date" means the Stated Maturity of the Notes.
10
<PAGE>
"Moody's" means Moody's Investors Service, Inc. and its successors.
"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 exclud-
ing 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 securi-
ties) received in connection with such Asset Disposition, net of (i) all le-
gal, 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 in-
volving an asset useful in the performance of a contract with a U.S. govern-
mental 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 accor-
dance 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 liabili-
ties associated with the assets which are the subject of the Asset Disposi-
tion, including, without limitation, trade payables and other accrued liabili-
ties, (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, includ-
ing, without limitation, liabilities under any indemnification obligations and
severance and other employee termination costs associated with such Asset Dis-
position, until such time as such amounts are no longer reserved or such re-
serve is no longer necessary (at which time any remaining amounts will become
Net Available Proceeds to be allocated in accordance with the provisions of
Section 4.05(a)(iii)) 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.
"New Tenneco" means New Tenneco Inc., a Delaware corporation, and its subsid-
iaries and assigns.
11
<PAGE>
"Non-U.S. Person" means a person who is not a U.S. Person, as defined in Reg-
ulation S.
"Obligations" means any principal, premiums, interest, penalties, fees and
other liabilities payable under the documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first-class mail, postage prepaid, to each Holder at his address appearing
in the Security Register on the date of the Offer offering to purchase up to
the principal amount of Securities specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to this Indenture). Un-
less otherwise required by applicable law, the Offer shall specify an expira-
tion date (the "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 a
settlement date (the "Purchase Date") for purchase of Securities within five
Business Days after the Expiration Date. The Company shall notify the Trustee
at least 15 Business Days (or such shorter period as is acceptable to the
Trustee) prior to the mailing of the Offer of the Company's obligation to make
an Offer to Purchase, and the Offer shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Compa-
ny. 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 Securities pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Securities offered to
be purchased by the Company 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 this Indenture requiring the Offer to Purchase) (the "Pur-
chase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Securities accepted for payment (as specified pursuant
to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities regis-
tered in the name of such Holder and that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount;
12
<PAGE>
(6) the place or places where Securities are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but not pur-
chased by the Company pursuant to the Offer to Purchase will continue to ac-
crue;
(8) that on the Purchase Date the Purchase Price will become due and pay-
able upon each Security 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 Security
pursuant to the Offer to Purchase will be required to surrender such Secu-
rity at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Security being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written instru-
ment of transfer in form satisfactory to the Company 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 Secu-
rities tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the fifth Business Day next preceding the Ex-
piration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security the
Holder tendered, the certificate number of the Security the Holder tendered
and a statement that such Holder is withdrawing all or a portion of his ten-
der;
(11) that (a) if Securities 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, the Company shall purchase all such Securities and
(b) if Securities in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Securities 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 Securities in denominations of $1,000 or in-
tegral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and de-
liver to the Holder of such Security without service charge, a new Security
or Securities, 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 Security or Securities so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer, or the Secretary of the
Company.
13
<PAGE>
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Company com-
plying with Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion from legal counsel who is rea-
sonably acceptable to the Trustee. The counsel may be an employee of or coun-
sel to the Company or the Trustee.
"Original Issue Date" of any Security (or portion thereof) means the earlier
of (i) the date of such Security or (ii) the date of any Security (or portion
thereof) for which such Security was issued (directly or indirectly) on regis-
tration of transfer, exchange or substitution.
"Paying Agent" has the meaning provided in Section 2.04, except that, for the
purposes of Article Eight, the Paying Agent shall not be the Company or a Sub-
sidiary of the Company or an Affiliate of any of them. The term "Paying Agent"
includes any additional Paying Agent.
"Permitted Investments" means (i) Investments in marketable, direct obliga-
tions issued or guaranteed by the United States of America, or any governmen-
tal entity or agency or political subdivision thereof (provided, that the good
faith and credit of the United States of America is pledged in support there-
of), 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 or "A-1" or better by Standard & Poor's 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 totalling more than
$500,000,000, maturing within one year of the date of purchase; (iv) Invest-
ments representing Capital Stock or obligations issued to the Company 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 the Company 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 the Company; (vii) trade receivables
and prepaid expenses, in each case arising in the ordinary course of business;
14
<PAGE>
provided, however, that such receivables and prepaid expenses would be re-
corded 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 inter-
est swap or hedging obligation with an unaffiliated Person otherwise permitted
by this Indenture (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 Section 4.05; (xi) In-
vestments for which the sole consideration provided is Capital Stock of the
Company (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 the Company and its Subsidiaries
does not at any time exceed $50 million (for this purpose, "unrecovered In-
vestment" means the amount of cash and the book value of other assets invest-
ed, reduced by the amount of cash and the book value of other assets distrib-
uted to the investor by the investee).
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, unincorporated organi-
zation or government or any agency or political subdivision thereof.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments, gov-
ernmental charges, or claims that are being contested in good faith by appro-
priate 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 land-
lords and carriers, warehousemen, mechanics, suppliers, materialmen, repair-
men, 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 re-
quired 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, perfor-
15
<PAGE>
mance and return-of-money bonds, and other obligations of a similar nature in-
curred 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 irregu-
larities that do not materially interfere with the ordinary course of business
of the Company and its Subsidiaries, taken as a whole, (vi) Liens on property
of the Company or any Subsidiary of the Company in favor of the United States
of America, any state thereof, or any instrumentality of either to secure pay-
ments pursuant to any contract or statute, (vii) leases or subleases granted
to others that do not materially interfere with the ordinary course of busi-
ness of the Company and its Subsidiaries, taken as a whole, (viii) Liens en-
cumbering property or assets under construction arising from obligations of
the Company or any Subsidiary of the Company to make progress or partial pay-
ments 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 Trustee or the Senior Subordinated Note
Trustee as provided for in this Indenture or the Senior Subordinated Note In-
denture, as the case may be, on money or property held or collected by the
Trustee or the Senior Subordinated Note Trustee in its capacity as trustee,
(xii) Liens in favor of the Company or any of its Subsidiaries, (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Subsidiary of the Company 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 cus-
toms duties in connection with the importation of goods, (xvi) Liens encumber-
ing 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 In-
terest Rate Agreements and Currency Agreements and forward contracts, options,
futures contracts, futures option, or similar agreements or arrangements de-
signed to protect the Company 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 the Company or any of its Subsidiaries in the ordinary course of busi-
ness in accordance with the past practices of the Company or any of its Sub-
sidiaries prior to the Issue Date, and (xviii) Liens on or sales of receiv-
ables.
16
<PAGE>
"Placement Agreement" means the Purchase Agreement dated November 21, 1996
between the Company, Newport News Shipbuilding and Dry Dock Company and the
Initial Purchasers.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capi-
tal 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 as-
sets 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.
"principal" of a debt security means the principal of the security plus, when
appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend initially set forth on the Secu-
rities in the form set forth in Section 2.03(a).
"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 Pur-
chase" above.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be redeemed,
means the price fixed for such redemption pursuant to this Indenture as set
forth in the form of Security annexed hereto as Exhibit A.
"Registration" means a registered Exchange Offer for the Securities by the
Company or other registration of the Securities under the Securities Act pur-
suant to and in accordance with the terms of the Registration Rights Agree-
ment.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Senior Notes Registration Rights
Agreement dated as of November 26, 1996 between the Company, the Guarantors
and the Initial Purchasers.
"Registration Statement" means the registration statement(s) as defined and
described in the Registration Rights Agreement.
17
<PAGE>
"Regulation S" means Regulation S under the Securities Act.
"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 in-
terest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Restricted Payments" has the meaning provided in Section 4.06.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means the 8 5/8% Senior Notes due 2006, as amended or supple-
mented from time to time pursuant to the terms of this Indenture, that are is-
sued under this Indenture. For all purposes of this Indenture, the term "Secu-
rities" shall include any Exchange Securities to be issued and exchanged for
any Securities pursuant to the Registration Rights Agreement and this Inden-
ture and, for purposes of this Indenture, all Securities and Exchange Securi-
ties shall vote together as one series of Securities under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
"Security Register" has the meaning provided in Section 2.04.
"Senior Credit Facility" means the Credit Agreement, dated as of November 4,
1996, among the Company as borrower thereunder, any Material Subsidiaries of
the Company as guarantors thereunder and Morgan Guaranty Trust Company of New
York, as agent on behalf of itself and the other lenders named therein, in-
cluding 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 re-
lated notes, guarantee agreements, security documents and other instruments
and agreements executed in connection therewith.
"Senior Subordinated Note Indenture" means the Senior Subordinated Note In-
denture dated as of November 26, 1996 between the Company, the Guarantors and
The Bank of New York, as trustee pursuant to which the 9 1/4% Senior Subordi-
nated Notes due 1996 of the Company were issued, as the same may be amended,
modified and supplemented from time to time.
18
<PAGE>
"Senior Subordinated Note Trustee" means The Bank of New York until a succes-
sor replaces it in accordance with the provisions of the Senior Subordinated
Note Indenture and thereafter means such successor.
"Senior Subordinated Notes" means the 9 1/4% Senior Subordinated Notes due
2006, as amended or supplemented from time to time pursuant to the terms of
the Senior Subordinated Note Indenture.
"Shelf Registration Statement" means the Shelf Registration Statement as de-
fined in the Registration Rights Agreement.
"Shipbuilding Distribution" has the meaning provided in the definition of
"Transaction."
"Standard & Poor's" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means (i) with respect to any debt security, the date spec-
ified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security,
the date specified in such debt security as the fixed date on which such in-
stallment is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the out-
standing Voting Stock of which is owned, directly or indirectly, by such Per-
son or by one or more other Subsidiaries of such Person or by 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.
"Tenneco" means, prior to the Transaction, Tenneco Inc., a Delaware corpora-
tion, to be renamed El Paso Tennessee Pipeline Co. following the Transaction.
"Transaction" means the series of transactions pursuant to which (i) Tenneco
and its subsidiaries, pursuant to the Distribution Agreement, restructure, di-
vide and separate their various businesses and assets so that all of the as-
sets, liabilities and operations of (A) their automotive parts, packaging and
administrative service businesses ("Industrial Business") are owned and oper-
ated by the New Tenneco, (B) their shipbuilding business ("Shipbuilding Busi-
ness") are owned and operated by the Company and (C) the remaining existing
and discontinued
19
<PAGE>
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 will be owned by Tenneco; (ii) Tenneco would sub-
sequently distribute pro rata to holders of Tenneco common stock all of the
outstanding common stock of New Tenneco and the Company (the "Industrial Dis-
tribution" and the "Shipbuilding Distribution" respectively, and collectively
the "Distributions"); and (iii) thereafter a subsidiary of El Paso Natural Gas
Company ("El Paso") would be merged with and into Tenneco pursuant to the
Agreement and Plan of Merger dated as of June 19, 1996 (as such may be amend-
ed, supplemented or modified from time to time) among El Paso, El Paso Merger
Company and Tenneco.
"Transaction Agreements" means each of the Distribution Agreement; the Agree-
ment 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 the Company; the Debt and Cash Allocation Agreement
among Tenneco, New Tenneco and the Company; the Insurance Agreement among
Tenneco, New Tenneco and the Company; the Tax Sharing Agreement among Tenneco,
New Tenneco and the Company; the NNS Processing Service Agreement between
Tenneco Business Services Inc. and the Company; the NNS Supplier Participation
Agreement between New Tenneco and the Company; and the Trademark Transition
License Agreement among Tenneco, New Tenneco and the Company; as each such
Agreement has heretofore been and may hereafter be amended, modified or sup-
plemented.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date of this Indenture, except as
provided in Section 10.03.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"Trust Officer" means any officer within the corporate trust department (or
any successor group of the Trustee) including any vice president, assistant
vice president, assistant secretary or any other officer or assistant officer
of the Trustee customarily performing functions similar to those performed by
the persons who at that time shall be such officers, and also means, with re-
spect to a particular corporate trust matter, any other officer to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
20
<PAGE>
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the Securi-
ties Act.
"Voting Stock" of any Person means the Capital Stock of such Person which or-
dinarily 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.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"Agent Member"............................................. 2.08(a)
"Asset Sale Offer Trigger Date"............................ 4.05(a)
"Bankruptcy Law"........................................... 6.01
"Change of Control"........................................ 4.14(c)
"Collateral Account"....................................... 4.18(c)
"Collateral Funds"......................................... 4.18(c)
"Custodian"................................................ 6.01
"Event of Default"......................................... 6.01
"Funding Guarantor"........................................ 10.05
"Global Securities"........................................ 2.02
"Net Offering Proceeds".................................... 4.18(a)
"Offshore Global Securities"............................... 2.02
"Offshore Physical Securities"............................. 2.02
"Offshore Securities Exchange Date"........................ 2.02
"Permanent Offshore Global Security"....................... 2.02
"Physical Securities"...................................... 2.02
"Required Filing Date"..................................... 4.12
"Restricted Payment"....................................... 4.06
"Special Redemption"....................................... 3.01
"Special Redemption Date".................................. 4.18(c)
"Temporary Offshore Global Security"....................... 2.02
"U.S. Global Security"..................................... 2.02
"U.S. Person".............................................. 2.02
"U.S. Physical Securities"................................. 2.02
"United States Government Obligations"..................... 8.01
"Unutilized Net Available Proceeds"........................ 4.05(a)
</TABLE>
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Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other obligor
on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA, de-
fined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with generally accepted accounting principles in effect from
time to time, and any other reference in this Indenture to "generally ac-
cepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural in-
clude the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this In-
denture as a whole and not to any particular Article, Section or other sub-
division.
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ARTICLE TWO
The Securities
Section 2.01. Execution and Authentication.
Two Officers shall execute the Securities on behalf of the Company by manual
or facsimile signature.
If an Officer whose manual or facsimile signature is on a Security no longer
holds that office at the time the Trustee authenticates the Security or at any
time thereafter, the Security nevertheless shall be valid.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. Such signa-
ture shall be conclusive evidence that the Security has been authenticated un-
der this Indenture.
The Trustee shall authenticate Securities for original issue in an aggregate
principal amount not to exceed $200,000,000 upon receipt of a Company Order.
The Company Order shall specify the amount of Securities to be authenticated
and the date on which the original issue of the Securities is to be authenti-
cated. The aggregate principal amount of Securities outstanding at any time
may not exceed $200,000,000 except as provided in Section 2.10.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. Such authenticating agent shall have the same
rights as the Trustee in any dealings hereunder with the Company or with any
of the Company's Affiliates.
Section 2.02. Form, Denomination and Date of Securities; Payments of Interest.
The Securities and the Trustee's certificates of authentication shall be sub-
stantially in the form of Exhibit A hereto; provided that Exchange Securities
(i) shall contain the alternative paragraph under paragraph 8 appearing on the
reverse of the Securities in the form of Exhibit A hereto and (ii) shall not
contain terms with respect to transfer restrictions. The Securities shall be
issuable in denominations
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provided for in the form of Security attached hereto as Exhibit A. The Securi-
ties shall be numbered, lettered, or otherwise distinguished in such manner or
in accordance with such plans as the Officers of the Company executing the
same may determine with the approval of the Trustee.
Any of the Securities may be issued with appropriate insertions, omissions,
substitutions and variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the provisions of this
Indenture, as may be required to comply with any law or with any rules or reg-
ulations pursuant thereto, including those required by Section 2.03, or with
the rules of any securities market in which the Securities are admitted to
trading, or to conform to general usage.
Each Security shall be dated the date of its authentication, shall bear in-
terest from the applicable date and shall be payable on the dates specified on
the face of the form of Security attached hereto as Exhibit A.
Securities offered and sold in reliance on Rule 144A shall be issued ini-
tially in the form of a single permanent global Security in registered form,
substantially in the form of Exhibit A hereto (the "U.S. Global Security"),
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as herein provided. The aggregate
principal amount of the U.S. Global Security may from time to time be in-
creased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on Regula-
tion S shall be issued initially in the form of a single temporary global Se-
curity in registered form substantially in the form of Exhibit A hereto (the
"Temporary Offshore Global Security") deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as provided herein. At any time on and after January 6, 1997 (the
"Offshore Securities Exchange Date"), a single permanent global Security in
registered form substantially in the form hereinabove recited without the Pri-
vate Placement Legend (the "Permanent Offshore Global Security"; and together
with the Temporary Offshore Global Security, the "Offshore Global Securities")
duly executed by the Company and authenticated by the Trustee as provided
herein shall be deposited with the Trustee, as custodian for the Depositary,
and the Registrar shall reflect on its books and records the date and a de-
crease in the principal
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<PAGE>
amount of the Temporary Offshore Global Security in an amount equal to the
principal amount of the beneficial interest in the Temporary Offshore Global
Security transferred.
Securities offered and sold in reliance on Regulation D under the Securities
Act shall be issued in the form of permanent certificated Securities in regis-
tered form in substantially the form of Exhibit A hereto (the "U.S. Physical
Securities"). Securities issued pursuant to Section 2.07 in exchange for in-
terests in the Offshore Global Security following the Offshore Securities Ex-
change Date shall be in the form of permanent certificated Securities in reg-
istered form substantially in the form of Exhibit A hereto (the "Offshore
Physical Securities").
The Offshore Physical Securities and U.S. Physical Securities are sometimes
collectively herein referred to as the "Physical Securities". The U.S. Global
Security and the Offshore Global Security are sometimes referred to herein as
the "Global Securities".
The Person in whose name any Security is registered at the close of business
on any Interest Record Date with respect to any Interest Payment Date shall be
entitled to receive the interest, if any, and Additional Interest, if any,
payable on such Interest Payment Date notwithstanding any transfer or exchange
of such Security subsequent to the Interest Record Date and prior to such In-
terest Payment Date, except if and to the extent the Company shall default in
the payment of the interest or Additional Interest due on such Interest Pay-
ment Date, in which case such defaulted interest, plus (to the extent lawful)
any interest payable on the defaulted interest and Additional Interest, shall
be paid to the Persons in whose names outstanding Securities are registered at
the close of business on a subsequent special record date (which shall be not
less than five business days prior to the date of such payment) established by
notice given by mail by or on behalf of the Company to the holders of Securi-
ties not less than 15 days preceding such subsequent record date.
Section 2.03. Restrictive Legends.
(a) Unless and until a Security is exchanged for an Exchange Security in con-
nection with an effective Registration pursuant to the Registration Rights
Agreement, the U.S. Global Security, Temporary Offshore Global Security and
each U.S. Physical Security shall bear the following legend on the face there-
of:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"),
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<PAGE>
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SE-
CURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF
THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALI-
FIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CON-
TAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SECURITIES OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGIS-
TRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNEC-
TION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGI-
NAL ISSUANCE OF THE SECURITY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUB-
MIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTI-
TUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FUR-
NISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM,
26
<PAGE>
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SE-
CURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
(b) Each Global Security, whether or not an Exchange Security, shall also
bear the following legend on the face thereof:
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.
Section 2.04. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located in the
Borough of Manhattan, The City of New York, State of New York) where Securi-
ties may be presented for registration of transfer or for exchange (the "Reg-
istrar"), an office or agency (which shall be located in the Borough of Man-
hattan, The City of New York, State of New York) where Securities may be pre-
sented for payment (the "Paying Agent"), and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this In-
denture may be served. The Registrar shall keep a register or registers con-
taining the names and addresses of all Holders (the "Security Register(s)")
27
<PAGE>
and of the transfer and exchange of Securities. Any notice to be given under
this Indenture or under the Securities by the Trustee or the Company to Hold-
ers shall be mailed by first class mail to each Holder at his address as it
appears at the time of such mailing in the Security Register. The Company may
have one or more co-Registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. Except as otherwise
provided herein, the Company or any Subsidiary thereof may act as Paying
Agent. The Company may also from time to time designate one or more other of-
fices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which shall incorporate the provisions of the
TIA. The Agreement shall implement the provisions of this Indenture that re-
late to such agent. The Company shall notify the Trustee of the name and ad-
dress of any such agent. If the Company fails to maintain a Registrar or Pay-
ing Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with Sec-
tion 7.07.
The Company initially appoints the Corporate Trust Office of the Trustee as
Registrar, Paying Agent and agent for service of notices and demands in con-
nection with the Securities and this Indenture.
Section 2.05. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that such Paying Agent will hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, or interest or Additional Interest, if any, on the Securities
(whether such money has been paid to it by the Company or any other obligor on
the Securities), and the Company and the Paying Agent shall immediately notify
the Trustee of any default by the Company (or any other obligor on the Securi-
ties) in making any such payment. Unless the Company or any Subsidiary of the
Company is the Paying Agent, money held in trust by the Paying Agent need not
be segregated except as required by law and in no event shall the Paying Agent
be liable for any interest on any money received by it hereunder. The Company
at any time may require the Paying Agent to pay all money held by it to the
Trustee and account for any funds disbursed and the Trustee may at any time
during the continuance of any Event of Default specified in Section 6.01(1) or
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<PAGE>
(2), upon written request to the Paying Agent, require such Paying Agent to
pay forthwith all money so held by it to the Trustee and to account for any
funds disbursed. Upon making such payment, the Paying Agent shall have no fur-
ther liability for the money delivered to the Trustee. If the Company or any
Subsidiary of the Company acts as Paying Agent, it shall, on or before each
due date of the principal of or interest or Additional Interest, if any, on
the Securities, segregate and hold in trust for the benefit of the Persons en-
titled thereto a sum sufficient to pay the principal, interest or Additional
Interest, if any, so becoming due until such sums shall be paid to such Per-
sons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Section 2.06. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it from the Registrar of the names and ad-
dresses of Holders of Securities. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee at least five Business Days before each
Interest Payment Date, and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Holders of Securities, if any.
Section 2.07. Registration, Transfer and Exchange.
The Securities are issuable only in registered form. The Company will keep at
the Registrar and each co-Registrar, a Security Register in which, subject to
such reasonable regulations as it may prescribe, it will register, and will
register the transfer of, Securities as in this Article provided. Such Secu-
rity Register shall be in written form in the English language or in any other
form capable of being converted into such form within a reasonable time. At
all reasonable times such Security Register or Security Registers shall be
open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security to the
Registrar or a co-Registrar, the Company shall execute and the Trustee shall
authenticate and make available for delivery in the name of the transferee or
transferees a new Security or Securities in authorized denominations for a
like aggregate principal amount.
A Holder may transfer a Security only by written application to the Registrar
stating the name of the proposed transferee and otherwise complying with the
terms of this Indenture. No such transfer shall be effected until, and such
trans- feree shall succeed to the rights of a Holder only upon, final accept-
ance and
29
<PAGE>
registration of the transfer by the Registrar in the Security Register. Prior
to the registration of any transfer by a Holder as provided herein, the Compa-
ny, the Trustee, and any Agent of the Company shall treat the person in whose
name the Security is registered as the owner thereof for all purposes whether
or not the Security shall be overdue, and neither the Company, the Trustee,
nor any such Agent shall be affected by notice to the contrary. Furthermore,
any Holder of a Global Security shall, by acceptance of such Global Security,
agree that transfers of beneficial interests in such Global Security may be
effected only through a book entry system maintained by the Holder of such
Global Security (or its agent) and that ownership of a beneficial interest in
the Security shall be required to be reflected in a book entry. When Securi-
ties are presented to the Registrar or a co-Registrar with a request to regis-
ter the transfer or to exchange them for an equal principal amount of Securi-
ties of other authorized denominations (including an exchange of Securities
for Exchange Securities), the Registrar shall register the transfer or make
the exchange as requested if the requirements for such transactions set forth
herein are met; provided that no exchanges of Securities for Exchange Securi-
ties shall occur until a Registration Statement shall have been declared ef-
fective by the Commission and that any Securities that are exchanged for Ex-
change Securities shall be cancelled by the Trustee. To permit registrations
of transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's request.
The Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.13, 3.06 or 9.05). No service charge to any Holder shall be made for any
such transaction.
The Company shall not be required to exchange or register a transfer of (a)
any Securities for a period of 15 days next preceding the first mailing of no-
tice of redemption of Securities to be redeemed, or (b) any Securities select-
ed, called or being called for redemption except, in the case of any Security
where public notice has been given that such Security is to be redeemed in
part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
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<PAGE>
Section 2.08. Book Entry Provisions for Global Securities.
(a) The U.S. Global Security and Offshore Global Security initially shall (i)
be registered in the name of the Depositary for such Global Securities or the
nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 2.03.
Members of, or participants in, the Depositary ("Agent Members" ) shall have
no rights under this indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the Com-
pany or the Trustee, from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the De-
positary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global Secu-
rity may be transferred in accordance with the rules and procedures of the De-
positary and the provisions of Section 2.09. In addition, U.S. Physical Secu-
rities and Offshore Physical Securities shall be transferred to all beneficial
owners in exchange for their beneficial interests in the U.S. Global Security
or the Offshore Global Security, respectively, if (i) the Depositary notifies
the Company that is unwilling or unable to continue as Depositary for the U.S.
Global Security or the Offshore Global Security, as the case may be, and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default of which the Trustee has actual notice has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue such Physical Securities.
(c) Any beneficial interest in one of the Global Securities that is trans-
ferred to a person who takes delivery in the form of an interest in the other
Global Security will, upon transfer, cease to be an interest in such Global
Security and become an interest in the other Global Security and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Security
for as long as it remains such an interest.
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<PAGE>
(d) In connection with any transfer of a portion of the beneficial interests
in the U.S. Global Security to beneficial owners pursuant to paragraph (b) of
this Section and Section 2.09 (a)(ii), the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the U.S.
Global Security in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Security to be transferred, and the Company shall
execute, and the Trustee shall authenticate and make available for delivery,
one or more U.S. Physical Securities of like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global Security or
Offshore Global Security to beneficial owners pursuant to paragraph (b) of
this Section, the U.S. Global Security or Offshore Global Security, as the
case may be, shall be deemed to be surrendered to the Trustee for cancella-
tion, and the Company shall execute, and the Trustee shall authenticate and
make available for delivery, to each beneficial owner identified by the Depos-
itary in exchange for its beneficial interest in the U.S. Global Security or
Offshore Global Security, as the case may be, an equal aggregate principal
amount of U.S. Physical Securities or Offshore Physical Securities, as the
case may be, of authorized denominations.
(f) Any U.S. Physical Security delivered in exchange for an interest in the
U.S. Global Security pursuant to paragraph (b) or (d) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.09, bear the legend
regarding transfer restrictions applicable to the U.S. Physical Security set
forth in Section 2.03.
(g) Any Offshore Physical Security delivered in exchange for an interest in
the Offshore Global Security pursuant to paragraph (b) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.09, bear the legend
regarding transfer restrictions applicable to the Offshore Physical Security
set forth in Section 2.03.
(h) The registered holder of a Global Security may grant proxies and other-
wise authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
32
<PAGE>
Section 2.09. Special Transfer Provisions.
Unless and until a Security is exchanged for an Exchange Security in connec-
tion with an effective Registration pursuant to the Registration Rights Agree-
ment, the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The following
provisions shall apply with respect to the registration of any proposed
transfer of a Security to any Institutional Accredited Investor which is not
a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Security, whether or
not such Security bears the Private Placement Legend, if (x) the requested
transfer is at least three years after the Original Issue Date of the Se-
curities or (y) the proposed transferee has delivered to the Registrar (A)
a certificate substantially in the form of Exhibit B hereto and (B) if the
principal amount of the Securities being transferred is less than $250,000
at the time of such transfer, an opinion of counsel acceptable to the Com-
pany that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a beneficial
interest in the U.S. Global Security, upon receipt by the Registrar of (x)
the documents, if any, required by paragraph (i) and (y) instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a de-
crease in the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred and the Company shall execute, and the
Trustee shall authenticate and make available for delivery, one or more
U.S. Physical Certificates of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect to
the registration of any proposed transfer of a U.S. Physical Security or an
interest in the U.S. Global Security to a QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of (x) U.S. Physical Secu-
rities, the Registrar shall register the transfer if such transfer is be-
ing made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such informa-
tion regarding the Company as it has requested pursuant to Rule 144A or
has determined not to request
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<PAGE>
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from regis-
tration provided by Rule 144A or (y) an interest in the U.S. Global Secu-
rity, the transfer of such interest may be effected only through the book
entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Security to
be transferred consists of U.S. Physical Securities, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an in-
crease in the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the U.S. Physical Securities to be trans-
ferred and the Trustee shall cancel the U.S. Physical Security so trans-
ferred.
(c) Transfers of Interests in the Temporary Offshore Global Security. The
following provisions shall apply with respect to registration of any pro-
posed transfer of interests in the Temporary Offshore Global Security:
(i) The Registrar shall register the transfer of any Security (x) if the
proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of Ex-
hibit C hereto or (y) if the proposed transferee is a QIB and the proposed
transferor has checked the box provided for on the form of Security stat-
ing, or has otherwise advised the Company and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A
to a transferee who has signed the certification provided for on the form
of Security stating, or has otherwise advised the Company and the Regis-
trar in writing, that it is purchasing the Security for its own account or
an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Com-
pany as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is rely-
ing upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by the
Registrar of the documents referred to in clause (i)(y) above and instruc-
tions given in accordance with the Depositary's and the Registrar's proce-
dures, the Registrar shall reflect on its books and records the date and
an increase in the principal amount of the U.S. Global Security, in an
amount equal to the principal amount of the Temporary Offshore Global Se-
curity to be transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Security in a like amount.
(d) Transfers of Interests in the Permanent Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
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apply with respect to any transfer of interests in the Permanent Offshore
Global Security or Offshore Physical Securities to U.S. Persons: The Regis-
trar shall register the transfer of any such Security without requiring any
additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Security to a Non-U.S. Person:
(i) Prior to January 6, 1997, the Registrar shall register any proposed
transfer of a Security to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit C hereto from the proposed transfer-
or.
(ii) On and after January 6, 1997, the Registrar shall register any pro-
posed transfer to any Non-U.S. Person if the Security to be transferred is
a U.S. Physical Security or an interest in the U.S. Global Security, upon
receipt of a certificate substantially in the form of Exhibit C from the
proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a benefi-
cial interest in the U.S. Global Security, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (ii) and (y) instruc-
tions in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a de-
crease in the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred and (b) if the proposed transferee is an
Agent Member, upon receipt by the Registrar of instructions given in ac-
cordance with the Depositary's and the Registrar's procedures, the Regis-
trar shall reflect on its books and records the date and an increase in
the principal amount of the Offshore Global Security in an amount equal to
the principal amount of the U.S. Physical Securities or the U.S. Global
Security, as the case may be, to be transferred, and the trustee shall
cancel the Physical Security, if any, so transferred or decrease the
amount of the U.S. Global Security, as the case may be.
(f) Private Placement Legend. Upon the transfer, exchange or replacement of
Securities not bearing the Private Placement Legend, the Registrar shall de-
liver Securities that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Securities bearing the Private Place-
ment Legend, the Registrar shall deliver only Securities that bear the Pri-
vate Placement Legend unless either (i) the circumstances contemplated by
the fifth paragraph of Section 2.02 or paragraph (a)(i)(x) or (e)(ii) of
this Section 2.09 exist or (ii) there is delivered to the Registrar an Opin-
ion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securi-
ties Act.
(g) General. By its acceptance of any Security bearing the Private Place-
ment Legend, each Holder of such a Security acknowledges the restrictions on
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transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as pro-
vided in this Indenture. The Registrar shall not register a transfer of any
Security unless such transfer complies with the restrictions on transfer of
such Security set forth in this Indenture. In connection with any transfer
of Securities, each Holder agrees by its acceptance of the Securities to
furnish the Registrar or the Company such certifications, legal opinions or
other information as either of them may reasonably require to confirm that
such transfer is being made pursuant to an exemption from, or a transaction
not subject to, the registration requirements of the Securities Act; pro-
vided that the Registrar shall not be required to determine (but may rely on
a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.08 or this Section 2.09. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Section 2.10. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
In case any temporary or definitive Security shall become mutilated, defaced
or be apparently destroyed, lost or stolen, the Company in its discretion may
execute, and upon the written request of any Officer of the Company, the
Trustee shall authenticate and make available for delivery, a new Security,
bearing a number not contemporaneously outstanding, in exchange and substitu-
tion for the mutilated or defaced Security, or in lieu of and substitution for
the Security so apparently destroyed, lost or stolen. In every case the appli-
cant for a substitute Security shall furnish to the Company and to the Trustee
and any agent of the Company or the Trustee such security or indemnity as may
be required by them to indemnify and defend and to save each of them harmless
and, in every case of destruction, loss or theft, evidence to their satisfac-
tion of the apparent destruction, loss or theft of such Security and of the
ownership thereof.
Upon the issuance of any substitute Security, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case any Security which
has matured or is about to mature, or has been called for redemption in full,
shall become mutilated or defaced or be apparently destroyed, lost or stolen,
the Company may, instead of issuing a substitute Security, pay or authorize
the payment
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of the same (without surrender thereof except in the case of a mutilated or
defaced Security), if the applicant for such payment shall furnish to the Com-
pany and to the Trustee and any agent of the Company or the Trustee such secu-
rity or indemnity as any of them may require to save each of them harmless
from all risks, however remote, and, in every case of apparent destruction,
loss or theft, the applicant shall also furnish to the Company and the Trustee
and any agent of the Company or the Trustee evidence to their satisfaction of
the apparent destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or sto-
len shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Security shall be at
any time enforceable by anyone and shall be entitled to all the benefits of
(but shall be subject to all the limitations of rights set forth in) this In-
denture equally and proportionately with any and all other Securities duly au-
thenticated and delivered hereunder. All Securities shall be held and owned
upon the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of muti-
lated, defaced, or apparently destroyed, lost or stolen Securities and shall
preclude any and all other rights or remedies notwithstanding any law or stat-
ute existing or hereafter enacted to the contrary with respect to the replace-
ment or payment of negotiable instruments or other securities without their
surrender.
Section 2.11. Outstanding Securities.
The Securities outstanding at any time are all Securities that have been au-
thenticated by the Trustee except for (a) those cancelled by it, (b) those de-
livered to it for cancellation, (c) to the extent set forth in Sections 8.01
and 8.02, on or after the date on which the conditions set forth in Section
8.01 or 8.02 have been satisfied, those Securities theretofore authenticated
by the Trustee hereunder and (d) those described in this Section 2.11 as not
outstanding. Subject to Section 2.12, a Security does not cease to be out-
standing because the Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.10, it ceases to be outstand-
ing unless the Trustee receives proof satisfactory to it that the replaced Se-
curity is held by a bona fide purchaser in whose hands such Security is a le-
gal, valid and binding obligation of the Company.
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If the principal amount of any Security is considered to be paid under
Section 4.01, it ceases to be outstanding and interest thereon shall cease to
accrue.
If the Paying Agent holds, in its capacity as such, on the Stated Maturity of
a Security, on any Redemption Date or any Purchase Date, money sufficient to
pay all accrued interest and Additional Interest and principal with respect to
such Securities payable on that date and is not prohibited from paying such
money to the Holders thereof pursuant to the terms of this Indenture, then on
and after that date such Securities cease to be outstanding and interest on
them ceases to accrue.
Section 2.12. Treasury Securities.
In determining whether the Holders of the required principal amount of Secu-
rities have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Securities owned by the Compa-
ny, any Guarantor or any of their respective Affiliates shall be disregarded
as though they were not outstanding, except that for the purposes of determin-
ing whether the Trustee shall be protected in relying on any such direction,
waiver or consent or any amendment, modification or other change to this In-
denture, only Securities that the Trustee actually knows are so owned shall be
sodisregarded.
The Trustee may require an Officers' Certificate listing securities owned by
the Company, any Guarantor or any of their respective Affiliates.
Section 2.13. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute and
the Trustee shall authenticate and deliver temporary Securities (printed,
lithographed, typewritten or otherwise reproduced, in each case in form satis-
factory to the Trustee). Temporary Securities shall be issuable as registered
Securities without coupons, of any authorized denomination, and substantially
in the form of the definitive Securities but with such omissions, insertions
and variations as may be appropriate for temporary Securities, all as may be
determined by the Company with the concurrence of the Trustee. Temporary Secu-
rities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Company and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner, and
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with like effect, as the definitive Securities. Without unreasonable delay the
Company shall execute and shall furnish definitive Securities and thereupon
temporary Securities may be surrendered in exchange therefor without charge to
the Registrar or the Paying Agent, and the Trustee shall authenticate and de-
liver in exchange for such temporary Securities a like aggregate principal
amount of definitive Securities of authorized denominations. Until so ex-
changed the temporary Securities shall be entitled to the same benefits under
this Indenture as definitive Securities.
Section 2.14. Cancellation of Securities, Destruction Thereof.
All Securities surrendered for payment, redemption, registration of transfer
or exchange, if surrendered to the Company or any Agent of the Company or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be cancelled by it; and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. The Trustee may, but shall not be required to, destroy cancelled
Securities held by it and deliver a certificate of destruction to the Company.
If the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are delivered to the Trustee for
cancellation.
Section 2.15. CUSIP and CINS Number.
The Company in issuing the Securities may use a "CUSIP" or "CINS" number, and
if so, such CUSIP or CINS number shall be included in notices of redemption,
repurchase or exchange as a convenience to Holders, provided, however, that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP or CINS number printed in the notice or on the Secu-
rities, and that reliance may be placed only on the other identification num-
bers printed on the Securities. The Company will promptly notify the Trustee
of any change in the CUSIP or CINS number.
Section 2.16. Deposit of Moneys.
Prior to 12:00 noon, New York City time, on each Interest Payment Date, at
the Stated Maturity of the Securities, on each Redemption Date, on each Pur-
chase Date and on the Business Day immediately following any acceleration of
the Securities pursuant to Section 6.02, the Company shall deposit with the
Paying Agent in immediately available funds money (in United States dollars)
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sufficient to make cash payments, if any, due on such Interest Payment Date,
Stated Maturity, Redemption Date, Purchase Date or Business Day, as the case
may be, in a timely manner which permits the Trustee to remit payment to the
Holders on such Interest Payment Date, Stated Maturity, Redemption Date, Pur-
chase Date or Business Day, as the case may be.
ARTICLE THREE
Redemption
Section 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5(a) or 5(b)
of the Securities at the applicable redemption price set forth thereon, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed. The Company shall give such notice at
least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
The Company shall give notice of a redemption pursuant to paragraph 5(c) of
the Securities (a "Special Redemption") to the Trustee at least three Business
Days before the Redemption Date with respect to the Special Redemption (unless
a shorter notice period shall be agreed to by the Trustee in writing), to-
gether with an Officers' Certificate stating that such redemption will comply
with the conditions contained herein.
Section 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to paragraph 5
thereof, the Trustee shall select the Securities to be redeemed pro rata or by
lot or in such other manner as the Trustee shall deem appropriate and fair and
in such a manner as to comply with any applicable requirements of any securi-
ties exchange on which such Securities are listed; provided, however, that se-
lection of Securities to be redeemed pursuant to paragraph 5(b) of the Securi-
ties shall be made by the Trustee only on a pro rata basis (based on the out-
standing principal amounts thereof) among the Securities and the Senior Subor-
dinated Notes. The Trustee shall make the selection from the Securities then
outstanding, subject to redemption and not previously called for redemption.
The Trustee may select for redemption portions (equal to $1,000 or any inte-
gral multiple thereof) of the principal of Securities that have denominations
larger than $1,000. Provisions of
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this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date (other
than with respect to a Special Redemption), the Company shall mail a notice of
redemption by first-class mail to each Holder whose Securities are to be re-
deemed; provided, however, that notice of a redemption pursuant to paragraph
5(b) of the Securities shall be mailed to each Holder whose Securities are to
be redeemed no later than 60 days following the consummation of the relevant
Equity Public Offering. In the event of a Special Redemption other than on the
Special Redemption Date, at least three Business Days before the Redemption
Date, the Company shall mail a notice of redemption by first-class mail to
each Holder of Securities.
Each notice of redemption shall identify the Securities to be redeemed and
shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) that, if any Security contains a CUSIP, CINS or other identification
number as provided in Section 2.15, no representation is being made as to
the correctness of the CUSIP, CINS, ISIN or other identification number ei-
ther as printed on the Securities or as contained in the notice of redemp-
tion and that reliance may be placed only on the other identification num-
bers printed on the Securities;
(4) the name and address of the Paying Agent to which the Securities are to
be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that, unless the Company defaults in making the redemption payment, in-
terest and Additional Interest on Securities called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the redemption price upon surrender to the
Paying Agent; and
(7) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the Redemption Date,
upon surrender of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of redemption on
behalf of the Company, in the Company's name and at the Company's expense.
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Section 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for redemption be-
come due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price, plus accrued interest and Additional Interest, if any, thereon to the
Redemption Date, but interest installments whose maturity is on or prior to
such Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date.
Section 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company shall de-
posit with the Paying Agent (or if the Company is its own Paying Agent, shall,
on or before the Redemption Date, segregate and hold in trust) money suffi-
cient to pay the redemption price of and accrued interest and Additional In-
terest, if any, on all Securities to be redeemed on that date other than Secu-
rities or portions thereof called for redemption on that date which have been
delivered by the Company to the Trustee for cancellation.
Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall au-
thenticate for the Holder a new Security equal in principal amount to the un-
redeemed portion of the Security surrendered.
ARTICLE FOUR
Covenants
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest and Additional Interest,
if any, on the Securities in the manner provided in the Securities and the
Registration Rights Agreement. An installment of principal, interest or Addi-
tional Interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary or an Affiliate of the Com-
pany) holds on that date money designated for and sufficient to pay the in-
stallment in full and is not prohibited from paying such money to the Holders
of the Securities pursuant to the terms of this Indenture.
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The Company shall pay interest on overdue principal at the same rate per an-
num borne by the Securities. The Company shall pay interest on overdue in-
stallments of interest and Additional Interest at the same rate per annum
borne by the Securities, to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of New York,
an office or agency where Securities may be surrendered for registration of
transfer or exchange or for presentation for payment and where notices and de-
mands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such presenta-
tions, surrenders, notices and demands may be made or served at the address of
the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.
Section 4.03. Limitation on Transactions with Affiliates and Related Persons.
The Company will not, and will not permit any of its Subsidiaries to, enter
into directly or indirectly any transaction with an Affiliate or Related Per-
son of the Company (other than the Company or a Subsidiary of the Company),
including, without limitation, the purchase, sale, lease or exchange of prop-
erty, the rendering of any service, or the making of any guarantee, loan, ad-
vance or Investment, either directly or indirectly, involving aggregate con-
sideration in excess of $1,000,000 unless (i) a majority of the disinterested
directors of the Board of Directors of the Company 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 the Company or
such Subsidiary, as the case may be; and (ii) such transaction is, in the
opinion of a majority of the
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disinterested directors of the Board of Directors of the Company evidenced by
a resolution of such Board of Directors filed with the Trustee, on terms no
less favorable to the Company 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 Section 4.03 shall not apply to (i) the Transaction or
the execution, delivery and performance of any Transaction Agreement, (ii) any
employment or indemnification agreement or similar arrangements entered into
by the Company or any of its Subsidiaries in the ordinary course of business,
(iii) transactions permitted by the provisions of Section 4.06, and (iv) the
payment of reasonable fees to directors of the Company or its Subsidiaries.
Section 4.04. Limitation on Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to, Incur,
directly or indirectly, any Indebtedness, except: (i) Indebtedness of the Com-
pany 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 the Company for the four full
fiscal quarters for which quarterly or annual financial statements are avail-
able 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) Indebted-
ness of the Company, and guarantees of such Indebtedness by any Guarantor, In-
curred under the Senior Credit Facility in an aggregate principal amount out-
standing at any one time not to exceed $415 million less any amount of Indebt-
edness permanently repaid as provided under Section 4.05 or pursuant to the
terms of such Senior Credit Facility or otherwise; (iii) Indebtedness owed by
the Company to any Wholly Owned Subsidiary of the Company or Indebtedness owed
by a Subsidiary of the Company to the Company or a Wholly Owned Subsidiary of
the Company; provided, however, that upon either (I) the transfer or other
disposition by such Wholly Owned Subsidiary or the Company of any Indebtedness
so permitted under this clause (iii) to a Person other than the Company or an-
other Wholly Owned Subsidiary of the Company 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 the Company or
another such Wholly Owned Subsidiary of the Company, the provisions of this
clause (iii)
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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 the
Company or its Subsidiaries under any Interest Rate Agreement or Currency
Agreement to the extent entered into to hedge any other Indebtedness permitted
under this Indenture; (v) Indebtedness Incurred to renew, extend, refinance or
refund (collectively for purposes of this clause (v) to "refund" ) any Indebt-
edness outstanding on the Issue Date and Indebtedness Incurred under the prior
clause (i) above or the Securities or the Senior Subordinated Notes; provided,
however, that (I) such Indebtedness does not exceed the principal amount (or
accrued 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 de-
termined by the Company as necessary to accomplish such refunding by means of
a tender offer, exchange offer, or privately negotiated repurchase, plus the
expenses of the Company or such Subsidiary incurred in connection therewith
and (II)(A) in the case of any refunding of Indebtedness that is pari passu
with the Securities or Guarantees thereof, such refunding Indebtedness is made
pari passu with or subordinate in right of payment to the Securities or Guar-
antees thereof, and, in the case of any refunding of Indebtedness that is sub-
ordinate in right of payment to the Securities or Guarantees thereof, such re-
funding Indebtedness is subordinate in right of payment to the Securities or
Guarantees thereof, on terms no less favorable to the Holders than those con-
tained in the Indebtedness being refunded, (B) in either case, the refunding
Indebtedness by its terms, or by the terms of any agreement or instrument pur-
suant 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 re-
quired offer to purchase to be made by the Company or a Subsidiary of the Com-
pany) of such Indebtedness at the option of the holder thereof prior to the
final stated maturity of the Indebtedness being refunded, other than a redemp-
tion or other retirement at the option of the holder of such Indebtedness (in-
cluding pursuant to a required offer to purchase made by the Company or a Sub-
sidiary of the Company) which is conditioned upon a change of control of the
Company pursuant to provisions substantially similar to those contained in
Section 4.14 and (C) any Indebtedness Incurred to refund any other Indebted-
ness is Incurred by the obligor on the Indebtedness being refunded or by the
Company; (vi) Indebtedness of the Company or its Subsidiaries, not otherwise
permitted to be Incurred pursuant to clauses (i) through (v) above, which, to-
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gether 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 the Company under the Securi-
ties and the Senior Subordinated Notes and Indebtedness of the Guarantors un-
der the Guarantees and the guarantees of the Senior Subordinated Notes.
For purposes of determining compliance with this Section 4.04, (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, the
Company, 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 liabil-
ity in respect thereof determined in conformity with GAAP.
Section 4.05. Limitation on Certain Asset Dispositions.
(a) The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, make one or more Asset Dispositions for aggregate con-
sideration of, or in respect of assets having an aggregate fair market value
of, $25 million or more in any 12-month period, unless: (i) the Company or
such 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 dis-
posed of as determined by the Board of Directors of the Company in good faith
and evidenced by a resolution of such Board of Directors filed with the Trust-
ee; (ii) not less than 75% of the consideration for the disposition consists
of cash or readily marketable cash equivalents or the assumption of Indebted-
ness (other than non-recourse Indebtedness or any Indebtedness subordinated to
the Securities or Guarantees thereof) of the Company or such Subsidiary or
other obligations relating to such assets (and release of the Company or such
Subsidiary from all liability on the Indebtedness or other obligations as-
sumed); 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 the Com-
pany (including the Capital Stock of another Person (other than the Company or
any Person that is a Subsidiary of the Company immediately prior to such in-
vestment); provided, however, that immediately after giving effect to any such
investment (and not prior thereto) such Person shall be a Subsidiary of the
Company), are applied, on or prior to the 360th day after such Asset Disposi-
tion, unless and to the extent that the Company shall determine to
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make an Offer to Purchase, either to (A) the permanent reduction and prepay-
ment of any Indebtedness of the Company (other than Indebtedness which is ex-
pressly subordinate to the Securities) 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 the Company (other than
Indebtedness which is expressly subordinate to the Guarantee of such Subsidi-
ary of the Securities) 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 the Company 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 the Company has determined not to so apply shall be referred to as
the "Unutilized Net Available Proceeds." Within fifteen days after the Asset
Sale Offer Trigger Date, the Company shall make an Offer to Purchase outstand-
ing Securities at a purchase price in cash equal to 100% of their principal
amount plus any accrued and unpaid interest and Additional Interest to the
Purchase Date. Notwithstanding the foregoing, the Company may defer making any
Offer to Purchase outstanding Securities 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 ex-
cess of $25 million, shall be applied as required pursuant to this paragraph).
If any Indebtedness of the Company or any of its Subsidiaries ranking pari
passu with the Securities or Guarantees thereof requires that prepayment of,
or an offer to prepay, such Indebtedness be made with any Net Available Pro-
ceeds, the Company may apply such Net Available Proceeds pro rata (based on
the aggregate principal amount of the Securities then outstanding and the ag-
gregate principal amount (or accreted value, if less) of all such other In-
debtedness then outstanding) to the making of an Offer to Purchase the Securi-
ties in accordance with the foregoing provisions and the prepayment or the of-
fer to prepay such pari passu Indebtedness. The Company shall make a further
Offer to Purchase Securities in an aggregate principal amount equal to any
such Net Available Proceeds not utilized to actually prepay such other Indebt-
edness at a purchase price in cash equal to 100% of the principal amount of
the Securities plus any accrued and unpaid interest and Additional Interest to
the Purchase Date if the amount not so utilized equals or exceeds $25 million.
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Any remaining Net Available Proceeds following the completion of the required
Offer to Purchase may be used by the Company for any other purpose (subject to
the other provisions of this Indenture) and the amount of Net Available Pro-
ceeds then required to be otherwise applied in accordance with this Section
4.05 shall be reset to zero, subject to any subsequent Asset Disposition.
In the event that the Company makes an Offer to Purchase the Securities, the
Company shall comply with any applicable securities laws and regulations, in-
cluding any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of this Indenture relat-
ing to such Offer to Purchase occurring as a result of such compliance shall
not be deemed an Event of Default or a Default.
(b) Each Holder shall be entitled to tender all or any portion of the Securi-
ties owned by such Holder with respect to an Offer to Purchase pursuant to
this Section 4.05, subject to the requirement that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount
and subject to any proration of the Offer among tendering Holders if the ag-
gregate amount of Securities tendered exceeds the Net Available Proceeds.
(c) Not later than the date of the Offer with respect to an Offer to Purchase
pursuant to this Section 4.05, the Company shall deliver to the Trustee an Of-
ficers' Certificate as to the Purchase Amount.
On or prior to the Purchase Date specified in the Offer to Purchase, the Com-
pany shall (i) accept for payment (on a pro rata basis, if necessary) Securi-
ties or portions thereof validly tendered pursuant to such Offer, (ii) deposit
with the Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 2.05) money sufficient to
pay the Purchase Price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee for cancellation all Se-
curities so accepted together with an Officers' Certificate stating the Secu-
rities or portions thereof accepted for payment by the Company. The Paying
Agent (or the Company, if so acting) shall promptly mail or deliver to Holders
of Securities so accepted, payment in an amount equal to the Purchase Price
for such Securities, and the Trustee shall promptly authenticate and mail or
deliver to each Holder of Securities a new Security or Securities equal in
principal amount to any unpurchased portion of the Security surrendered as re-
quested by the Holder. Any Security not accepted for payment shall be promptly
mailed or delivered by the Company to
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the Holder thereof. The Company shall publicly announce the results of the Of-
fer on or as soon as practicable after the Purchase Date.
(d) Notwithstanding the foregoing, this Section 4.05 shall not apply to the
Transaction or any Asset Disposition consummated in compliance with the provi-
sions of Section 5.01.
(e) Any Purchase Date (as defined in the Senior Subordinated Note Indenture)
set for the Senior Subordinated Notes shall be a date subsequent to the Pur-
chase Date established by the Company for repurchase of the Securities pursu-
ant to this Section 4.05.
Section 4.06. Limitation on Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, (i) declare or pay any dividend, or make any distribu-
tion 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 the Company, divi-
dends or distributions payable to the Company or a Subsidiary of the Company
(z) the dividends and distributions paid or made in connection with the Trans-
action on or prior to the date of the Shipbuilding Distribution, (ii) pur-
chase, redeem, or otherwise acquire or retire for value shares of Capital
Stock of the Company or any of its Subsidiaries, any options, warrants or
rights to purchase or acquire shares of Capital Stock of the Company or any of
its Subsidiaries or any securities convertible or exchangeable into shares of
Capital Stock of the Company or any of its Subsidiaries, excluding any such
shares of Capital Stock, options, warrants, rights or securities which are
owned by the Company or a Subsidiary of the Company, (iii) make any Investment
in (other than a Permitted Investment), or payment on a guarantee of any obli-
gation of, any Person, other than the Company or a Wholly Owned Subsidiary of
the Company, 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 Se-
curities (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 De-
fault, shall have oc-
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curred and be continuing, or (2) upon giving effect to such Restricted Pay-
ment, the Company could not Incur at least $1.00 of additional Indebtedness
pursuant to clause (i) of Section 4.04, or (3) upon giving effect to such Re-
stricted Payment, the aggregate of all Restricted Payments made on or after
the Issue Date exceeds the sum of: (a) 50% of cumulative Consolidated Net In-
come of the Company (or, in the case cumulative Consolidated Net Income of the
Company 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 fis-
cal 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 Transaction), in-
cluding the fair market value of property other than cash (determined in good
faith by the Board of Directors of the Company as evidenced by a resolution of
such Board of Directors filed with the Trustee), from the issuance of Capital
Stock of the Company (other than Disqualified Stock) and warrants, rights or
options on Capital Stock of the Company (other than Disqualified Stock) (other
than in respect of any such issuance to a Subsidiary of the Company) and the
principal amount of Indebtedness of the Company or any of its Subsidiaries
that has been converted into or exchanged for Capital Stock of the Company
which Indebtedness was Incurred after the Issue Date; plus (c) in the case of
the disposition or repayment of any Investment constituting a Restricted Pay-
ment 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 the Company delivers to
the Trustee a resolution of its Board of Directors to the effect that, for
purposes of this Section 4.06, such Investment constitutes a Restricted Pay-
ment 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 the Company or any Subsidiary of the Company paid within
60 days after the declaration thereof if, on the date when the dividend was
declared, the Company or such Subsidiary, as the case may be, could have paid
such dividend in accordance with the provisions of this Indenture, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to clause (v) of Section 4.04, (iii) the exchange or con-
version of any Indebtedness of the Company or any Subsidiary of the Company
for or into Capital Stock of the Company (other than Disqualified Stock of the
Company), (iv) any payments, loans or other advances made pursuant to any em-
ployee benefit plans (including plans for the benefit of directors) or employ-
ment agree-
50
<PAGE>
ments or other compensation arrangements, in each case as approved by the
Board of Directors of the Company in its good faith judgment, (v) the redemp-
tion of the Company's rights issued pursuant to the Rights Agreement between
the Company 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 Is-
sue 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 concur-
rent sale of Capital Stock of the Company (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 preced-
ing 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 the
Company 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 million,
(viii) the redemption, repurchase, retirement or other acquisition of any Cap-
ital Stock of the Company in exchange for or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of Capital Stock of the Company (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 para-
graph, (ix) the redemption, repurchase, retirement or other acquisition of any
Securities in exchange for or out of the net cash proceeds of the substan-
tially concurrent sale (other than to a Subsidiary of the Company) of Capital
Stock of the Company (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 or (x) the
purchase of Senior Subordinated Notes pursuant to an Offer to Purchase re-
quired by Section 4.05 or Section 4.14; provided that no such purchase shall
be permitted until all Securities validly tendered pursuant to the applicable
Offer to Purchase in respect of the Securities shall have been purchased by
the Company, (xi) so long as no Default or Event of Default has occurred and
is continuing, the payment of cash dividends on the Company's Common Stock not
to exceed $5.5 million in any fiscal year of the Company. Each Restricted Pay-
ment described in clauses (i), (iv), (v), (vii), (x) 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 par-
agraph.
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<PAGE>
Section 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each of its
Subsidiaries in accordance with the respective organizational documents of
each such Subsidiary and the rights (charter and statutory) and material fran-
chises of the Company and its Subsidiaries; provided, however, that the Com-
pany shall not be required to preserve any such right or franchise, or the
corporate existence of any Subsidiary, if the Board of Directors of the Com-
pany shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not, and will not be, adverse in any mate-
rial respect to the Holders; provided, further, however, that a determination
of the Board of Directors of the Company shall not be required in the event of
a merger of one or more Wholly Owned Subsidiaries of the Company with or into
another Wholly Owned Subsidiary of the Company or another Person, if the sur-
viving Person is a Wholly Owned Subsidiary of the Company organized under the
laws of the United States or a State thereof or of the District of Columbia.
Section 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all material taxes, assessments and gov-
ernmental charges levied or imposed upon the Company or any Subsidiary of the
Company or upon the income, profits or property of the Company or any Subsidi-
ary of the Company and (2) all lawful claims for labor, materials and supplies
which, in each case, if unpaid, might by law become a material liability, or
Lien upon the property, of the Company or any Subsidiary of the Company; pro-
vided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by appro-
priate proceedings and for which appropriate provision has been made.
Section 4.09. Notice of Defaults.
(1) In the event that any Indebtedness of the Company or any of its Subsidi-
aries is declared due and payable before its maturity because of the occur-
rence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly
52
<PAGE>
give written notice to the Trustee of such declaration, the status of such de-
fault or event and what action the Company is taking or proposes to take with
respect thereto.
(2) Upon becoming aware of any Default or Event of Default, the Company shall
promptly deliver an Officers' Certificate to the Trustee specifying the De-
fault or Event of Default.
Section 4.10. Maintenance of Properties.
The Company shall cause all material properties owned by or leased to it or
any of its Subsidiaries and used or useful in the conduct of its business or
the business of any of its Subsidiaries to be maintained and kept in normal
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such proper-
ties, or disposing of any of them, if such discontinuance or disposal is, in
the judgment of the Board of Directors or of the board of directors of the
Subsidiary concerned, or of an officer (or other agent employed by the Company
or of any of its Subsidiaries) of the Company or such Subsidiary having mana-
gerial responsibility for any such property, desirable in the conduct of the
business of the Company or any of its Subsidiaries, and if such discontinuance
or disposal is not adverse in any material respect to the Holders.
Section 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 55 days after the end of each
of the first three fiscal quarters of the Company and within 100 days after
the close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the super-
vision of the signing officers with a view to determining whether a Default or
Event of Default has occurred and whether or not the signers know of any De-
fault or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do know of such a Default or Event of Default,
the certificate shall describe all such Defaults or Events of Default, their
status and the action the Company is taking
53
<PAGE>
or proposes to take with respect thereto. The first certificate to be deliv-
ered by the Company pursuant to this Section 4.11 shall be for the fiscal year
ending December 31, 1996.
Section 4.12. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d) of the Ex-
change Act, or any successor provision thereto, the Company shall file with
the SEC the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to such Section
13(a) or 15(d) or any successor provision thereto if the Company were so re-
quired, such documents to be filed with the SEC on or prior to the respective
dates (the "Required Filing Dates" ) by which the Company would have been re-
quired so to file such documents if the Company were so required. The Company
shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit
by mail to all Holders of Securities, as their names and addresses appear in
the Security Register, without cost to such Holders, and (ii) file with the
Trustee, copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC 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, the filing
of such documents by the Company with the SEC is not permitted under the Ex-
change Act, promptly upon written request supply copies of such documents to
any Holder. The Company will also comply with (S) 314(a) of the TIA.
Section 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law or any usury law or other law, which would prohibit or forgive the Company
or such Guarantor from paying all or any portion of the principal of and/or
interest and/or Additional Interest, if any, on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company and each Guarantor hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
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<PAGE>
Section 4.14. Change of Control.
(a) The Company shall, within 30 days following the date of the consummation
of a transaction resulting in a Change of Control, commence an Offer to Pur-
chase all outstanding Securities at a purchase price in cash equal to 101% of
their aggregate principal amount plus any accrued and unpaid interest and Ad-
ditional Interest thereon to the Purchase Date. Each Holder shall be entitled
to tender all or any portion of the Securities owned by such Holder pursuant
to the Offer to Purchase, subject to the requirement that any portion of a Se-
curity tendered must be tendered in an integral multiple of $1,000 principal
amount.
(b) On or prior to the Purchase Date specified in the Offer to Purchase, the
Company shall (i) accept for payment all Securities or portions thereof val-
idly tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust
as provided in Section 2.05) money sufficient to pay the Purchase Price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof ac-
cepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of Se-
curities a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the re-
sults of the Offer on or as soon as practicable after the Purchase Date.
(c) A "Change of Control" will be deemed to have occurred in the event that
(whether or not otherwise permitted by this Indenture) after the Issue Date
(a) any Person or any Persons acting together that would constitute a group
(other than, until the date all of the outstanding Common Stock of the Company
is distributed by Tenneco to its common stockholders, Tenneco) (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
successor provision thereto) at least 35% of the voting power of the outstand-
ing Voting Stock of the Company; (b) any sale, lease or other transfer (in one
transaction or
55
<PAGE>
a series of related transactions) is made by the Company or any of its Subsid-
iaries of all or substantially all of the consolidated assets of the Company
to any Person (other than a Wholly Owned Subsidiary of the Company which is a
Guarantor); (c) Continuing Directors cease to constitute at least a majority
of the Board of Directors of the Company; or (d) the stockholders of the Com-
pany approve any plan or proposal for the liquidation or dissolution of the
Company.
(d) In the event that the Company makes an Offer to Purchase the Securities
pursuant to this Section 4.14, the Company shall comply with any applicable
securities laws and regulations, including any applicable requirements of Sec-
tion 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the
provisions of this Indenture relating to such Offer to Purchase occurring as a
result of such compliance shall not be deemed a Default or an Event of De-
fault.
(e) Any Purchase Date (as defined in the Senior Subordinated Note Indenture)
set for the Senior Subordinated Notes shall be a date subsequent to the Pur-
chase Date established by the Company for repurchase of the Securities pursu-
ant to this Section 4.14.
(f) A third party may also make and consummate an Offer to Purchase the Secu-
rities in the manner and at the times and otherwise in compliance with this
Section 4.14.
Section 4.15. Limitations Concerning Distributions and Transfers by Subsidiar-
ies.
The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, create or otherwise cause or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary of the
Company to (i) pay, directly or indirectly, dividends or make any other dis-
tributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Subsidiary of the Company, (ii) make
loans or advances to the Company or any Subsidiary of the Company or guarantee
any Indebtedness of the Company or any of its Subsidiaries or (iii) transfer
any of its property or assets to the Company or any Subsidiary of the Company,
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 Se-
nior Credit Facility and this Indenture and agreements entered into in connec-
tion 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 the Company and out-
standing on such date and not Incurred in anticipation or
56
<PAGE>
contemplation of becoming a Subsidiary of the Company and provided such encum-
brance or restriction shall not apply to any assets of the Company or its Sub-
sidiaries 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 Sub-
sidiary or assets, (d) an agreement effecting a renewal, exchange, refunding,
amendment or extension of Indebtedness Incurred pursuant to an agreement re-
ferred to in clause (a) or (b) above or (e) below, provided, however, that the
provisions contained in such renewal, exchange, refunding, amendment or exten-
sion agreement relating to such encumbrance or restriction are no more re-
strictive in any material respect than the provisions contained in the agree-
ment that is the subject thereof in the reasonable judgment of the Board of
Directors of the Company as evidenced by a resolution of such Board of Direc-
tors filed with the Trustee, (e) this Indenture and the Senior Subordinated
Note Indenture, (f) applicable law, (g) customary provisions restricting sub-
letting or assignment of any lease governing any leasehold interest of any
Subsidiary of the Company, (h) purchase money obligations for property ac-
quired in the ordinary course of business that impose restrictions of the type
referred to in clause (iii) of this Section 4.15 or (i) restrictions of the
type referred to in clause (iii) of this Section 4.15 contained in security
agreements securing Indebtedness of a Subsidiary of the Company to the extent
that such Liens were otherwise incurred in accordance with this Indenture and
the Senior Subordinated Note Indenture and restrict the transfer of property
subject to such agreements.
Section 4.16. Limitation on Issuance and Sale of Capital Stock of
Subsidiaries.
The Company (a) will not, and will not permit any Subsidiary of the Company
to, transfer, convey, sell or otherwise dispose of any shares of Capital Stock
of such Subsidiary or any other Subsidiary (other than to the Company or a
Wholly Owned Subsidiary of the Company), except that the Company and any Sub-
sidiary of the Company may, in any single transaction, sell all, but not less
than all, of the issued and outstanding Capital Stock of any Subsidiary of the
Company to any Person, subject to complying with the provisions of Section
4.05 and except for the Incurrence of Liens permitted under Section 4.17 and
(b) will not permit any Subsidiary of the Company to issue shares of its Capi-
tal 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 the Company or a Wholly Owned
Subsidiary of the Company.
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<PAGE>
Section 4.17. Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries to, Incur
any Lien on or with respect to any property or assets of the Company or any
Subsidiary of the Company 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 Securities and all other amounts due under this Indenture (and, if the
Company shall so determine, any other Indebtedness of the Company or such Sub-
sidiary, including Indebtedness which is pari passu with or subordinate in
right of payment to the Securities or the Guarantee thereof by such Subsidi-
ary; provided, however, that Liens securing the Securities and any Indebted-
ness pari passu with the Securities or such Guarantee are senior to such Liens
securing such subordinated Indebtedness) equally and ratably with such Indebt-
edness or, in the event such Indebtedness is subordinate in right of payment
to the Securities 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 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 Section 4.04; (ii) Liens securing the Securities and any
Guarantees thereof; (iii) Liens with respect to assets of a Subsidiary of the
Company granted by such Subsidiary to the Company or a Wholly Owned Subsidiary
of the Company to secure Indebtedness of such Subsidiary owing to the Company
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; provid-
ed, however, that (a) the aggregate principal amount of any Indebtedness se-
cured 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 the Company or a Subsidiary of the Company within 180
days of the acquisition, construction or improvement of such property and (d)
the Incurrence of Indebtedness is permitted by Section 4.04; (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 acquisi-
tion); (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 the Company or any Subsidiary of the Company (and not created in antici-
pation or contemplation thereof); (vii) Liens existing on the Issue
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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 re-
newal, refinancing or refunding pursuant to the terms of the Indebtedness re-
newed, refinanced or refunded or the amount of any premium reasonably deter-
mined by the Company 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 the Company or such Subsidiary incurred in
connection with such renewal, refinancing or refunding; and (x) Permitted
Liens.
Section 4.18. Deposit of Funds with Trustee Pending Consummation of the Ship-
building Distribution.
(a) On the Issue Date, the Company shall deposit with the Trustee as
hereinafter provided the net proceeds of the offering of the Securities before
deducting offering expenses ($195,500,000) (the "Net Offering Proceeds").
(b) In order to partially secure the payment and performance of the Company's
obligation to redeem the Securities upon a Special Redemption, the Company
hereby grants to the Trustee, for the benefit of the Holders, a continuing se-
curity interest in and to the Collateral, whether now owned or existing or
hereafter acquired or arising. The Trustee shall have no obligation to file
any financing statement or otherwise take any action to maintain or perfect
any such security interest.
(c) At all times until the earlier to occur of (i) March 31, 1997 (the "Spe-
cial Redemption Date"), if the Shipbuilding Distribution shall not have been
consummated on or prior to the Special Redemption Date, (ii) receipt by the
Trustee of an Officers' Certificate stating that a material condition to the
Shipbuilding Distribution will not be satisfied on or prior to the Special Re-
demption Date and (iii) receipt by the Trustee of an Officers' Certificate in
the form of Exhibit D hereto stating that each of the material conditions to
the Shipbuilding Distribution have been satisfied, there shall be maintained
with the Trustee an account (the "Collateral Account") designated "Newport
News Shipbuilding Inc. Account
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Pledged to The Bank of New York, as Trustee," which account shall be under the
sole dominion and control of the Trustee. On the Issue Date, the Company shall
cause the Net Offering Proceeds to be deposited in the Collateral Account.
Amounts on deposit in the Collateral Account shall be invested and reinvested
in Cash Equivalents as directed by the Company in writing. In the event the
Company shall fail to provide such directions to the Trustee, the Trustee
shall invest amounts on deposit in the Collateral Account in Cash Equivalents.
Any income received with respect to the balance from time to time standing to
the credit of the Collateral Account, including any interest or capital gains
on Cash Equivalents, shall remain, or be deposited, in the Collateral Account.
The Trustee shall not be liable or accountable for any losses resulting with-
out negligence on the part of the Trustee from the sale or depreciation in the
market value of any investment of amounts on deposit in the Collateral Ac-
count. Subject to Article Seven hereof, the Trustee solely in its individual
capacity hereby waives any rights it may have in such individual capacity to
the Collateral Account and all funds and investments therein including, with-
out limitation, any such rights arising through any counterclaim, defense, re-
coupment, charge, lien or right of set-off.
(d) Upon the occurrence of the event specified in subclause (c) (iii) above,
the security interest in the Collateral shall terminate as of the date of re-
ceipt by the Trustee of the Officers' Certificate described in subclause (c)
(iii) above and all funds in the Collateral Account (the "Collateral Funds")
shall be released to the Company to an account designated by the Company by
wire transfer of immediately available funds. Upon the occurrence of either of
the events specified in subsections (c) (i) and (c) (ii) above, the Trustee
shall apply the Collateral Funds to fund the Special Redemption. Section
314(d) of the TIA shall not apply to the release of Collateral pursuant to
this provision if such release occurs prior to the filing of the Registration
Statement under the Securities Act pursuant to the Registration Rights Agree-
ment, after which time this sentence shall be deemed deleted from this Inden-
ture.
ARTICLE FIVE
Mergers; Successor Corporation
Section 5.01. Restriction on Mergers, Consolidations and Certain Sales of
Assets.
Neither the Company nor any Subsidiary of the Company will consolidate or
merge with or into any Person, and the Company will not, and will not permit
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any of its Subsidiaries to, sell, assign, lease, convey or otherwise dispose
of all or substantially all of the Company's consolidated assets (as an en-
tirety 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 con-
solidation or merger (if other than the Company 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 Co-
lumbia; provided, however, that any Subsidiary (other than a 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 ex-
isting; (ii) the Surviving Entity assumes by supplemental indenture all of the
obligations, if any, of the Company or such Subsidiary, as the case may be, on
the Securities or such Guarantor's Guarantee, as the case may be, and under
this Indenture; (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 the Company or the Surviving Entity (in the case of any transac-
tion involving the Company or all or substantially all of the Company's con-
solidated assets), as the case may be, would be at least equal to the Consoli-
dated Net Worth of the Company immediately prior to such transaction; (iv) im-
mediately after giving effect to such transaction and the use of any net pro-
ceeds therefrom on a pro forma basis, the Company or the Surviving Entity (in
the case of any transaction involving the Company or all or substantially all
of the Company's consolidated assets), as the case may be, could Incur at
least $1.00 of Indebtedness pursuant to clause (i) of Section 4.04; (v) imme-
diately before and after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of the Company or such Subsidiary, as
the case may be, as a result of such transaction as having been incurred by
the Company or such Subsidiary, as the case may be, at the time of the trans-
action, no Event of Default or event that with the passing of time or the giv-
ing of notice, or both, would constitute an Event of Default shall have oc-
curred and be continuing; and (vi) if, as a result of any such transaction,
property or assets of the Company or a Subsidiary of the Company would become
subject to a Lien not excepted from the provisions of Section 4.17, the Compa-
ny, any such Subsidiary or the Surviving Entity, as the case may be, shall
have secured the Securities as required by said Section 4.17. The provisions
of this Section 5.01 shall not apply to any merger of a Subsidiary of the Com-
pany with or into the Company or a Wholly Owned Subsidiary of the Company or
any transaction pursuant
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to which a Guarantor's Guarantee is to be released in accordance with the
terms of the Guarantee and this Indenture in connection with any transaction
complying with the provisions of Section 4.05.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation of the Company or any Subsidiary of the Company with,
or merger of the Company or any such Subsidiary into, any other Person or any
sale, assignment, lease, conveyance or other disposition of all or substan-
tially all of the Company's consolidated assets (as an entirety or substan-
tially as an entirety in one transaction or a series of related transactions,
including by way of liquidation or dissolution) in accordance with Section
5.01, upon the execution of a supplemental indenture by the Surviving Person
in form and substance satisfactory to the Trustee (in reliance upon an Opinion
of Counsel) (as evidenced by the Trustee's execution thereof), the Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of and shall assume all obligations of, the Company or such Subsidi-
ary, as the case may be, under this Indenture and the Securities or the Guar-
antees, as the case may be, with the same effect as if such Surviving Person
had been named as the Company or such Subsidiary, as the case may be, herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the Securi-
ties or the Guarantees, as the case may be.
ARTICLE SIX
Default and Remedies
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company fails to pay any interest or Additional Interest on any Se-
curity when the same becomes due and payable and the Default continues for a
period of 30 days;
(2) the Company fails to pay the principal of any Security when the same
becomes due and payable at maturity, upon redemption, upon repurchase pursu-
ant to an Offer to Purchase or otherwise;
(3) the Company fails to perform or comply with any of the provisions of
Section 5.01;
(4) the Company fails to perform any other covenant, warranty or agreement
under this Indenture or in the Securities, and the Default continues for the
period and after the notice specified in the last paragraph of this Section
6.01;
(5) a default or defaults under the terms of one or more instruments evi-
dencing or securing Indebtedness of the Company or any Subsidiary of the
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Company having an outstanding principal amount of $25 million or more indi-
vidually or in the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or the Company or any of its Subsidiaries fails
to pay principal when due at the stated maturity of any such Indebtedness;
(6) there shall have been any final judgment or judgments (not subject to
appeal) against the Company or any Material Subsidiary of the Company 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;
(7) the Company or any of its Material Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in an invol-
untary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all or sub-
stantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary of the
Company in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any Material Subsidiary of the
Company or for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material Subsidiary of
the Company,
and in each case the order or decree remains unstayed and in effect for 60
days; provided, however, that if the entry of such order or decree is ap-
pealed and dismissed on appeal then the Event of Default hereunder by reason
of the entry of such order or decree shall be deemed to have been cured;
(9) the Guarantee of any Guarantor ceases to be in full force and effect
(other than in accordance with the terms of such Guarantee and this Inden-
ture) 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 such Guarantee and this Indenture); or
(10) the Company fails to either (x) consummate the Shipbuilding Distribu-
tion on or prior to the Special Redemption Date or (y) effect a Special Re-
demption pursuant to Section 4.18 of this Indenture on or prior to the Spe-
cial Redemption Date.
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The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official un-
der any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the Trustee noti-
fies the Company, or the Holders of at least 25% in principal amount of the
outstanding Securities notify the Company and the Trustee, of the Default in
writing and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default." Such notice shall be given
by the Trustee if so requested by the Holders of at least 25% in principal
amount of the Securities then outstanding. When a Default is cured, it ceases.
Section 6.02. Acceleration.
If an Event of Default with respect to the Securities (other than an Event of
Default specified in clause (7) or (8) of Section 6.01 with respect to the
Company) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Securities by notice in writ-
ing to the Company (and to the Trustee if given by the Holders) may declare
the unpaid principal of and accrued interest and Additional Interest, if any,
to the date of acceleration on all the outstanding Securities to be due and
payable immediately and, upon any such declaration, such principal amount and
accrued interest and Additional Interest, if any, shall become immediately due
and payable.
If an Event of Default specified in clause (7) or (8) of Section 6.01 with
respect to the Company occurs all unpaid principal of and accrued interest and
Additional Interest, if any, on the outstanding Securities shall ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder thereof.
After a declaration of acceleration, but before a judgment or decree of the
money due in respect of the Securities has been obtained, the Holders of not
less than a majority in aggregate principal amount of the Securities then out-
standing by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest and Additional Interest, if any, on the Securities
which has become due solely by virtue of such acceleration) have been cured or
waived and if the rescission would not conflict with any judgment or decree.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest or Additional Interest, if any, on the Securities or
to enforce the performance of any provision of the Securities or this Inden-
ture.
The Trustee may maintain a proceeding even if it does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or omis-
sion by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or con-
stitute a waiver of or acquiescence in the Event of Default. No remedy is ex-
clusive of any other remedy. All available remedies are cumulative to the ex-
tent permitted by law.
Section 6.04. Waiver of Past Default.
Subject to Sections 2.12, 6.07 and 9.02, prior to the declaration of acceler-
ation of the Securities, the Holders of not less than a majority in aggregate
principal amount of the outstanding Securities by written notice to the
Trustee may waive an existing Default or Event of Default and its conse-
quences, except a Default in the payment of principal of or interest or Addi-
tional Interest on any Security as specified in clauses (1) and (2) of Section
6.01 or a Default in respect of any term or provision of this Indenture that
may not be amended or modified without the consent of each Holder affected as
provided in Section 9.02. The Company shall deliver to the Trustee an Offi-
cers' Certificate stating that the requisite percentage of Holders have con-
sented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to
their former positions and rights hereunder and under the Securities, respec-
tively. This paragraph of this Section 6.04 shall be in lieu of (S)
316(a)(1)(B) of the TIA and such (S) 316(a)(1)(B) of the TIA is hereby ex-
pressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be deemed to have
been cured and not to have occurred, and any Event of Default arising there-
from shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
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Section 6.05. Control by Majority.
Subject to Section 2.12, the Holders of a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of another Securityholder, or that may in-
volve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee which is not inconsis-
tent with such direction. In the event the Trustee takes any action or follows
any direction pursuant to this Indenture, the Trustee shall be entitled to in-
demnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of (S) 316(a)(1)(A) of the TIA, and such (S)
316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and
the Securities, as permitted by the TIA.
Section 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of the out-
standing Securities make a written request to the Trustee to pursue a reme-
dy;
(3) such Holder or Holders offer and, if requested, provide to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or ex-
pense;
(4) the Trustee does not comply with the request within 60 days after re-
ceipt of the request and the offer and, if requested, the provision of in-
demnity; and
(5) during such 60-day period the Holders of a majority in principal amount
of the outstanding Securities (excluding Affiliates of the Company) do not
give the Trustee a direction which, in the opinion of the Trustee, is incon-
sistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of an-
other Securityholder or to obtain a preference or priority over such other
Securityholder.
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Section 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest and Additional Inter-
est, if any, on the Security, on or after the respective due dates expressed
in the Security, or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest, Additional Interest, or prin-
cipal specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express
trust against the Company or any other obligor on the Securities for the whole
amount of principal, accrued interest and Additional Interest, if any, remain-
ing unpaid, together with interest overdue on principal and to the extent that
payment of such interest is lawful, interest on overdue installments of inter-
est and Additional Interest, if any, in each case at the rate per annum borne
by the Securities and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation, ex-
penses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee (in-
cluding any claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and the Securityholders al-
lowed in any judicial proceedings relative to the Company (or any other obli-
gor upon the Securities), its creditors or its property and shall be entitled
and empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian
in any such judicial proceedings is hereby authorized by each Securityholder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any
other amounts due the Trustee under Section 7.07. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Securityholder any plan of reorganization, arrange-
ment, adjustment or composi--
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tion affecting the Securities or the rights of any Holder thereof, or to au-
thorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article Six,
it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for princi-
pal, interest and Additional Interest, if any, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Se-
curities for principal, interest and Additional Interest, if any, respec-
tively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party liti-
gant in the suit of an undertaking to pay the costs of the suit, and the court
in its discretion may assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in the suit, having due regard to the merits
and good faith of the claims or defenses made by the party litigant. This Sec-
tion 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or
group of Holders of more than 10% in aggregate principal amount of the out-
standing Securities, or to any suit instituted by any Holder for the enforce-
ment or the payment of the principal, interest or Additional Interest on any
Securities on or after the respective due dates expressed in the Security.
ARTICLE SEVEN
Trustee
Section 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill in their exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of such du-
ties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions conforming to the require-
ments of this Indenture; however, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee shall not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, ex-
cept that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer, unless it is proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the perfor-
mance of any of its duties hereunder or to take or omit to take any action un-
der this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive an indemnity satisfactory to it in
its sole discretion against such risk, liability, loss, fee or expense which
might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the Trustee
is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required
by law.
Section 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may require an Of-
ficers' Certificate and an Opinion of Counsel, which shall conform to the
provisions of Section 11.05. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through attorneys and agents of its selection and
shall not be responsible for the misconduct or negligence of any agent or
attorney (other than an agent who is an employee of the Trustee) appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized or within
its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of such
counsel as to matters of law shall be full and complete authorization and
protection from liability in respect of any action taken, omitted or suf-
fered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be suf-
ficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolu-
tion.
(g) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any
of the Securityholders pursuant to this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable security or in-
demnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, deben-
ture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investiga-
tion into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be enti-
tled to examine the books, records and premises of the Company, personally
or by agent or attorney.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or its Affili-
ates with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights. However, the Trustee is subject to Sections 7.10
and 7.11.
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Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the Trustee
knows of such Defaults or Events of Default, the Trustee shall mail to each
Securityholder notice of the Default or Event of Default within 30 days after
the occurrence thereof. Except in the case of a Default or an Event of Default
in payment of principal of or interest or Additional Interest on any Security
or a Default or Event of Default in complying with Section 5.01, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interest of
Securityholders. This Section 7.05 shall be in lieu of the proviso to (S)
315(b) of the TIA and such proviso to (S) 315(b) of the TIA is hereby ex-
pressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Section 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each June 15 beginning
with the June 15 following the date of this Indenture, the Trustee shall mail
to each Securityholder a report dated as of such June 15 that complies with
TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange, if any, on which the Se-
curities are listed.
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or of any delisting thereof.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for its
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services. The Trustee's compensation shall not be limited by any law on com-
pensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
(including fees, disbursements and expenses of its agents and counsel) in-
curred or made by it in addition to the compensation for its services except
any such disbursements, expenses and advances as may be attributable to the
Trustee's negligence or bad faith. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel and any taxes or other expenses incurred by a trust cre-
ated pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless against any
and all loss, damage, claims, liability or expense, including taxes (other
than franchise taxes imposed on the Trustee and taxes based upon, measured by
or determined by the income of the Trustee), arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder, in-
cluding the costs and expenses of defending itself against any claim or lia-
bility in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent that such loss, damage, claim, liabil-
ity or expense is due to its own negligence or bad faith. The Trustee shall
notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed
by the Trustee will be limited to the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need
not reimburse any expense or indemnify against any loss or liability incurred
by the Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations in this Section 7.07, the Trustee
shall have a Lien prior to the Securities against all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or prop-
erty held in trust to pay principal of or interest or Additional Interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of De-
fault specified in Section 6.01(7) or (8) occurs, the expenses (including the
reasonable
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fees and expenses of its agents and counsel) and the compensation for the
services shall be preferred over the status of the Holders in a proceeding un-
der any Bankruptcy Law and are intended to constitute expenses of administra-
tion under any Bankruptcy Law. The Company's obligations under this Section
7.07 and any claim arising hereunder shall survive the resignation or removal
of any Trustee, the discharge of the Company's obligations pursuant to Article
Eight and any rejection or termination under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in writing.
The Holders of a majority in principal amount of the outstanding Securities
may remove the Trustee by so notifying the Trustee and the Company in writing
and may appoint a successor Trustee with the Company's consent. The Company
may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any Bankruptcy
Law;
(3) a custodian or other public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Company shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a ma-
jority in principal amount of the Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. As promptly as practicable after
that, the retiring Trustee shall transfer, after payment of all sums then ow-
ing to the Trustee pursuant to Section 7.07, all property held by it as
Trustee to the successor Trustee, subject to the Lien provided in Section
7.07, the resignation or removal of the retiring Trustee shall become effec-
tive, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Hold-
ers of at least 10% in principal amount of the outstanding Securities may pe-
tition any court of competent jurisdiction for the appointment of a successor
Trustee.
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If the Trustee fails to comply with Section 7.10, any Securityholder may pe-
tition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 shall continue for the benefit of the
retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation
or banking corporation, the resulting, surviving or transferee corporation or
banking corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to act as
Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall ac-
quire any "conflicting interest" within the meaning of TIA (S) 310(b), the
Trustee and the Company shall comply with the provisions of TIA (S) 310(b);
provided, however, that there shall be excluded from the operation of TIA (S)
310(b)(1) any indenture or indentures under which other securities or certifi-
cates of interest or participation in other securities of the Company are out-
standing if the requirements for such exclusion set forth in TIA (S) 310(b)(1)
are met. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Trustee shall resign immediately in
the manner and with the effect hereinbefore specified in this Article Seven.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor rela-
tionship listed in TIA (S) 311(b). A Trustee who has resigned or been removed
shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE EIGHT
Discharge of Indenture
Section 8.01. Termination of Company's Obligations.
The Company may terminate its and the Guarantors' substantive obligations in
respect of the Securities by delivering all outstanding Securities to the
Trustee for cancellation and paying all sums payable by it on account of prin-
cipal of and interest and Additional Interest on all Securities or otherwise.
In addition to the foregoing, the Company 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 Section 6.01(7) or
(8), any time on or prior to the 95th calendar day after the date of such de-
posit (it being understood that this condition shall not be deemed satisfied
until after such 95th day)), terminate its and the Guarantors' substantive ob-
ligations in respect of the Securities (except for its obligations to pay the
principal of and interest and Additional Interest, if any, on the Securities
and the Guarantors' guarantee thereof) by (i) depositing with the Trustee, un-
der the terms of an irrevocable trust agreement, money or direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged ("United States Government
Obligations" ) sufficient (without reinvestment) to pay all remaining indebt-
edness on the Securities, (ii) delivering to the Trustee either an Opinion of
Counsel or a ruling directed to the Trustee from the Internal Revenue Service
to the effect that the Holders of the Securities 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 Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust cre-
ated by the Company's 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 Company Act"), and (iv) delivering to the
Trustee an Officers' Certificate and an Opinion of Counsel each stating com-
pliance with all conditions precedent provided for herein. In addition, the
Company 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 Section 6.01(7) or (8), 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)), terminate
all of its and the Guarantors' substantive obligations in respect of the Secu-
rities (including its obligations to pay the prin-
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cipal of and interest and Additional Interest, if any, on the Securities and
the Guarantors' guarantee thereof) by (i) depositing with the Trustee, under
the terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining indebted-
ness on the Securities, (ii) delivering to the Trustee either a ruling di-
rected to the Trustee from the Internal Revenue Service to the effect that the
Holders of the Securities 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 Trustee or
a change in the applicable Federal tax law since the date of this Indenture to
such effect, (iii) delivering to the Trustee an Opinion of Counsel to the ef-
fect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the
Company's deposit of funds pursuant to this provision becoming or being deemed
to be an "investment company" under the Investment Company Act of 1940 and
(iv) delivering to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating compliance with all conditions precedent provided for
herein.
Notwithstanding the foregoing paragraph, the Company's obligations in Sec-
tions 2.04, 2.06, 2.07, 2.08, 2.09, 2.10 and 4.01 (but not with respect to
termination of substantive obligations pursuant to the third sentence of the
foregoing paragraph), 4.02, 7.07, 7.08, 8.03 and 8.04 shall survive until the
Securities are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07, 8.03 and 8.04 shall survive.
After such delivery or irrevocable deposit and delivery of an Officers' Cer-
tificate and Opinion of Counsel, the Trustee upon request shall acknowledge in
writing the discharge of the Company's and the Guarantors' obligations under
the Securities and this Indenture except for those surviving obligations spec-
ified above.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government Obligations
deposited with it pursuant to Section 8.01, and shall apply the deposited
money and the money from United States Government Obligations in accordance
with this Indenture solely to the payment of principal of and interest on the
Securities.
Section 8.03. Repayment to Company.
Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to the Com-
pany upon written request any excess money held by it at any time. The Trustee
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shall pay to the Company upon written request any money held by it for the
payment of principal or interest or Additional Interest that remains unclaimed
for two years; provided, however, that the Trustee before being required to
make any payment may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and
that, after a date specified therein which shall be at least 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining shall be repaid to the Company. After payment to the Company,
Securityholders entitled to money must look to the Company for payment as gen-
eral creditors unless an applicable abandoned property law designates another
person and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
Section 8.04. Reinstatement.
If the Trustee is unable to apply any money or United States Government Obli-
gations in accordance with Section 8.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority en-
joining, restraining or otherwise prohibiting such application, the Company's
and the Guarantors' obligations under this Indenture and the Securities shall
be revived and reinstated as though no deposit had occurred pursuant to Sec-
tion 8.01 until such time as the Trustee is permitted to apply all such money
or United States Government Obligations in accordance with Section 8.01; pro-
vided, however, that if the Company has made any payment of interest or Addi-
tional Interest on or principal of any Securities because of the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Hold-
ers of such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE NINE
Amendments, Supplements and Waivers
Section 9.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of their re-
spective Boards of Directors, and the Trustee may amend or supplement this In-
denture or the Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency; provided, however, that
such amendment or supplement does not adversely affect the rights of any
Holder;
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(ii) to effect the assumption by a successor Person of all obligations of
the Company under the Securities and this Indenture in connection with any
transaction complying with Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition to or in place
of certificated Securities;
(iv) to comply with any requirements of the SEC in order to effect or main-
tain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional benefit or rights
to the Holders;
(vi) to make any other change that does not adversely affect the rights of
any Holder under this Indenture;
(vii) to evidence the succession of another Person to any Guarantor and the
assumption by any such successor of the covenants of such Guarantor herein
and in the Guarantee;
(viii) to add to the covenants of the Company or the Guarantors for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements of Section 4.17
or otherwise; or
(x) to reflect the release of a Guarantor from its obligations with respect
to its Guarantee in accordance with the provisions of Section 10.03 and to
add a Guarantor pursuant to the requirements of Section 10.07;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
Section 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when authorized by a
resolution of their respective Boards of Directors, and the Trustee may amend
or supplement this Indenture or the Securities with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securi-
ties. Subject to Section 6.07, the Holders of a majority in principal amount
of the outstanding Securities may waive compliance by the Company or any Guar-
antor with any provision of this Indenture or the Securities. However, without
the consent of each Securityholder affected, an amendment, supplement or waiv-
er, including a waiver pursuant to Section 6.04, may not:
(1) change the Stated Maturity of the principal of or any installment of
interest or Additional Interest on any Security or alter the optional re-
demption
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or repurchase provisions of any Security or this Indenture in a manner ad-
verse to the Holders of the Securities;
(2) reduce the principal amount (or the premium) of any Security;
(3) reduce the rate of or extend the time for payment of interest or Addi-
tional Interest on any Security;
(4) change the place or currency of payment of the principal of or interest
or Additional Interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add sections of
this Indenture or the Securities subject thereto) or 6.07 or this Section
9.02 (other than to add sections of this Indenture or the Securities which
may not be amended, supplemented or waived without the consent of each
Securityholder affected);
(6) reduce the percentage of the principal amount of outstanding Securities
necessary for amendment to or waiver of compliance with any provision of
this Indenture or the Securities or for waiver of any Default;
(7) waive a default in the payment of the principal of, interest or Addi-
tional Interest on, or redemption payment with respect to, any Security (ex-
cept a rescission of acceleration of the Securities by the Holders as pro-
vided in Section 6.02 and a waiver of the payment default that resulted from
such acceleration);
(8) modify the ranking or priority of the Securities or the Guarantees
thereof of any Guarantor;
(9) release any Guarantor from any of its obligations under its Guarantee
or this Indenture otherwise than in accordance with this Indenture; or
(10) modify the provisions relating to any Offer to Purchase required pur-
suant to Section 4.05 or 4.14 in a manner materially adverse to the Holders.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiv-
er, but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes effec-
tive, the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
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Section 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of that Se-
curity or portion of that Security that evidences the same debt as the con-
senting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Hold-
ers of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then, notwith-
standing the last sentence of the immediately preceding paragraph, those per-
sons who were Holders of Securities at such record date (or their duly desig-
nated proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after
such record date. No such consent shall be valid or effective for more than 90
days after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind ev-
ery Securityholder, unless it makes a change described in any of clauses (1)
through (10) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every subse-
quent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
Section 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the
changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall is-
sue and the Trustee shall authenticate a new Security that reflects the
changed terms. Failure to make the appropriate notation or issue a new Secu-
rity shall not affect the validity and effect of such amendment, supplement or
waiver.
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Section 9.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected in re-
lying upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture and that such amendment, supplement or waiver con-
stitutes the legal, valid and binding obligation of the Company and the Guar-
antors, enforceable in accordance with its terms (subject to customary excep-
tions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE TEN
Guarantee
Section 10.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally, guarantees to
each Holder of a Security authenticated by the Trustee and to the Trustee and
its successors and assigns that: the principal of and interest and Additional
Interest, if any, on the Securities will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration
or otherwise, and interest on the overdue principal and interest on any over-
due interest and Additional Interest on the Securities and all other obliga-
tions of the Company to the Holders or the Trustee hereunder or under the Se-
curities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; subject, however, to the limitations set forth
in Section 10.04. Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or enforce-
ability of the Securities or this Indenture, the absence of any action to en-
force the same, any waiver or consent by any Holder of the Securities with re-
spect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bank-
ruptcy of the Company, any right to require a proceeding first against the
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Company, protest, notice and all demands whatsoever and covenants that the
Guarantee will not be discharged except by complete performance of the obliga-
tions contained in the Securities, this Indenture, and this Guarantee. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company, any Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or any Guarantor, any amount paid
by the Company or any Guarantor to the Trustee or such Holder, this Guarantee,
to the extent theretofore discharged, shall be reinstated in full force and
effect. Each Guarantor further agrees that, as between each Guarantor, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article
Six for the purpose of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obliga-
tions as provided in Article Six, such obligations (whether or not due and
payable) shall forth become due and payable by each Guarantor for the purpose
of this Guarantee.
Section 10.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or unen-
forceable, the validity, legality and enforceability of the remaining provi-
sions shall not in any way be affected or impaired thereby.
Section 10.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this Inden-
ture, 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 other-
wise) by the Company or any of its Subsidiaries in a transaction constituting
an Asset Disposition and if (x) the Net Available Proceeds from such Asset
Disposition are used in accordance with Section 4.05 or (y) the Company deliv-
ers to the Trustee an Officers' Certificate covenanting that the Net Available
Proceeds from such Asset Disposition shall be used in accordance with Section
4.05 and within the time limits specified by such Section 4.05, 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 deemed released from all obligations under this
Article Ten without any further action required on the part of the Trustee or
any Holder. The Trustee shall, at the sole cost and expense of the Company and
upon receipt at the reasonable request of the Trustee of an
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Opinion of Counsel that the provisions of this Section 10.03 have been com-
plied with, deliver an appropriate instrument evidencing such release upon re-
ceipt of a request by the Company accompanied by an Officers' Certificate cer-
tifying as to the compliance with this Section. Any Guarantor not so released
remains liable for the full amount of principal of and interest and Additional
Interest, if any, on the Securities and the other obligations of the Company
hereunder as provided in this Article Ten.
Section 10.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the Trustee,
hereby confirms that it is the intention of all such parties that the guaran-
tee by such Guarantor pursuant to its Guarantee not constitute a fraudulent
transfer or conveyance for purposes of title 11 of the United States Code, as
amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trans-
fer Act or any similar U.S. Federal or state or other applicable law. To ef-
fectuate the foregoing intention, the Holders and such Guarantor hereby irrev-
ocably agree that the obligations of such Guarantor under the Guarantee shall
be limited to the maximum amount as will, 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 Section 10.05, result in the obligations of such Guarantor under
the Guarantee not constituting such fraudulent transfer or conveyance.
Section 10.05. Contribution.
In order to provide for just and equitable contribution among the Guarantors,
the Guarantors agree, inter se, that in the event any payment or distribution
is made by any Guarantor (a "Funding Guarantor") under the Guarantee, such
Funding Guarantor shall be entitled to a contribution from all other Guaran-
tors in a pro rata amount, based on the net assets of each Guarantor (includ-
ing the Funding Guarantor), determined in accordance with GAAP, subject to
Section 10.04, for all payments, damages and expenses incurred by that Funding
Guarantor in discharging the Company's obligations with respect to the Securi-
ties or any other Guarantor's obligations with respect to the Guarantee.
Section 10.06. Execution of Guarantee.
To further evidence their Guarantee to the Holders, the Guarantors hereby
agree to execute the Guarantee in substantially the form set forth in Exhibit
A
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hereto to be endorsed on each Security ordered to be authenticated and deliv-
ered by the Trustee. Each Guarantor hereby agrees that its Guarantee set forth
in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Guarantee. Each such
Guarantee shall be signed on behalf of each Guarantor by its Chairman of the
Board, its President or one of its Vice Presidents prior to the authentication
of the Security on which it is endorsed, and the delivery of such Security by
the Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Guarantor. Such signature upon
the Guarantee may be manual or facsimile signature of such officer and may be
imprinted or otherwise reproduced on the Guarantee, and in case such officer
who shall have signed the Guarantee shall cease to be such officer before the
Security on which such Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security never-
theless may be authenticated and delivered or disposed of as though the Person
who signed the Guarantee had not ceased to be such officer of the Guarantor.
Section 10.07. Additional Guarantors.
The Company shall cause each Material Subsidiary, whether formed or acquired
after the Issue Date, to execute and deliver to the Trustee, promptly upon any
such formation or acquisition, (a) a supplemental indenture in form and sub-
stance satisfactory to the Trustee which subjects such Material Subsidiary to
the provisions of this Indenture as a Guarantor and (b) an Opinion of Counsel
to the effect that such supplemental indenture has been duly authorized and
executed by such Material Subsidiary and constitutes the legal, valid, binding
and enforceable obligation of such Material Subsidiary (subject to such cus-
tomary exceptions concerning fraudulent conveyance laws, creditors' rights and
equitable principles as may be acceptable to the Trustee in its reasonable
discretion); 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
comply with the foregoing provisions of this Section so long as any such re-
striction is in existence and to the extent of any such restriction.
Section 10.08. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that arises
from the payment, performance or enforcement of such Guarantor's obligations
84
<PAGE>
under its Guarantee or this Indenture, including, without limitation, any
right of subrogation, shall be subject and subordinate to, and no payment with
respect to any such claim of such Guarantor shall be made before, the payment
in full in cash of all outstanding Securities in accordance with the provi-
sions provided therefor in this Indenture.
ARTICLE ELEVEN
Miscellaneous
Section 11.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are required to
be a part of this Indenture, and shall, to the extent applicable, be governed
by such provisions. If any provision of this Indenture modifies any TIA provi-
sion that may be so modified, such TIA provision shall be deemed to apply to
this Indenture as so modified. If any provision of this Indenture excludes any
TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any Person
(including the provisions automatically deemed included unless expressly ex-
cluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
Section 11.02. Notices.
Any notice or communication shall be sufficiently given if in writing and de-
livered in person, by facsimile and confirmed by overnight courier, or mailed
by first-class mail addressed as follows:
if to the Company or the Guarantors:
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607
Attention: Chief Financial Officer
Facsimile: 804-273-0232
Telephone: 757-380-2000
85
<PAGE>
with a copy to:
Jenner & Block
1 IBM Plaza
Chicago, Il 60611
Attention: Craig R. Culbertson
Facsimile: 312-923-2637
Telephone: 312-222-9350
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21W
New York, N.Y. 10286
Attention: Corporate Trust Administration
Facsimile: 212-815-5915
Telephone: 212-815-6285
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a Hold-
er, including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA (S) 315(b), shall be mailed to him at his ad-
dress as set forth on the Security Register and shall be sufficiently given to
him if so mailed within the time prescribed. To the extent required by the
TIA, any notice or communication shall also be mailed to any Person described
in TIA (S) 313(c).
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
Except for a notice to the Trustee, which is deemed given only when received,
if a notice or communication is mailed in the manner provided above, it is
duly given, whether or not the addressee receives it.
Section 11.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the Secu-
rities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA (S) 312(c).
86
<PAGE>
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or re-
frain from taking any action under this Indenture, the Company shall furnish
to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions prece-
dent, if any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the Trustee
stating that, in the opinion of such counsel, all such conditions precedent
have been complied with.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has read
such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or in-
vestigation upon which the statements or opinions contained in such certifi-
cate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such exam-
ination or investigation as is necessary to enable him to express an in-
formed opinion as to whether or not such covenant or condition has been com-
plied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
Section 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
Section 11.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the Securities
and the Guarantee without regard to principles of conflicts of law.
87
<PAGE>
Section 11.08. 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 or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their crea-
tion. Each Securityholder by accepting a Security waives and releases all such
liability.
Section 11.09. Successors.
All agreements of the Company in this Indenture and the Securities shall bind
its successor. All agreements of each Guarantor in this Indenture and such
Guarantor's Guarantee shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
Section 11.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same agreement.
Section 11.11. Severability.
In case any provision in this Indenture, in the Securities or in the Guaran-
tee shall be invalid, illegal or unenforceable, the validity, legality and en-
forceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
Section 11.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 11.13. Legal Holidays.
If a payment date is not a Business Day at a place of payment, payment may be
made at that place on the next succeeding Business Day, and no interest shall
accrue for the intervening period.
[Signature Pages Follow]
88
<PAGE>
SIGNATURES
In Witness Whereof, the parties hereto have caused this Indenture to be duly
executed as of the date first written above.
Newport News Shipbuilding Inc.
/s/ Stephen B. Clarkson
By _________________________________________
Name: Stephen B. Clarkson
Title: Vice President & General Counsel
Newport News Shipbuilding and Dry Dock
Company
/s/ Stephen B. Clarkson
By _________________________________________
Name: Stephen B. Clarkson
Title: Vice President, General Counsel
The Bank of New York, as Trustee
/s/ Byron Merino
By _________________________________________
Name: Byron Merino
Title:
89
<PAGE>
EXHIBIT A
(Form of Face of Security)
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
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
A-2
<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 (the
"Indenture"), among the Company, Newport News Shipbuilding and Dry Dock Compa-
ny, as the Guarantor (herein collectively called the "Guarantors", which term
includes any successor Person or additional Guarantor under the Indenture) and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture 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 In-
denture 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 In-
denture, 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.
A-3
<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
A-4
<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.
[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 Issue Date, (ii) the Exchange Offer Registration Statement
is not declared effective on or prior to the 150th day following the Issue
Date, or (iii) the Exchange Offer is not consummated or (unless the Exchange
Offer is consummated) a registration statement with respect to resale of this
Security is not declared effective on or prior to the later of the 180th day
following the Issue Date and the 120th day following the date of the event the
occurrence of which obligated the Company and the Guarantor to file such reg-
istration statement (each such event referred to in clauses (i) through (iii),
a "Registration Default"), then the Company
A-5
<PAGE>
will pay Additional Interest (in addition to the interest otherwise due on the
Notes) ("Additional Interest") to the Holder of this Security 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 Additional Inter-
est 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 Ad-
ditional Interest of 1.00% per annum. Such Additional Interest will cease ac-
cruing on this Security when the Registration Default has been cured.]/1/
[There shall also be payable in respect of this Security all Additional In-
terest 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.]/2/
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 pro-
vided in the Indenture, Securities may be exchanged for a like aggregate prin-
cipal amount of Securities of other authorized denominations. Upon due pre-
sentment 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 enti-
tled to such funds must look to the Company for payment unless an abandoned
property law designates another person.
- ---------
/1To/be included in Securities not Exchange Securities.
/2To/be included in Exchange Securities.
A-6
<PAGE>
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.
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.
A-7
<PAGE>
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.
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.
A-8
<PAGE>
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.
A-9
<PAGE>
[Form of Notation on Security Relating to Guarantee]
SENIOR GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Security upon
which this notation is endorsed) hereby unconditionally guarantees 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 Guarantor 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.
Newport News Shipbuilding and Dry Dock
Company
By: ________________________________________
Name:
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.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES,
PERMANENT OFFSHORE GLOBAL SECURITIES AND
OFFSHORE PHYSICAL SECURITIES]
In connection with any transfer of this Security occurring prior to the date
which is the earlier of (i) the date of an effective Registration or (ii)
three years after the later of the original issuance of this Security or the
last date on which this Security was held by the Company or an Affiliate of
the Company, the undersigned confirms that without utilizing any general so-
licitation or general advertising that:
[CHECK ONE]
[_](a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended, pro-
vided by Rule 144A thereunder.
OR
[_](b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the condi-
tions of transfer set forth in this Security and the Indenture.
<PAGE>
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Security in the name of any Person
other than the Holder hereof unless and until the conditions to any such
transfer or registration set forth herein and in Section 2.09 of the Indenture
shall have been satisfied.
Date: _________________ ___________________________________________________
NOTICE: The signature to this assignment must cor-
respond with the name as written upon the face of
the within-mentioned instrument in every particu-
lar, without alteration or any change whatsoever.
Signature Guarantee: __________________________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole in-
vestment discretion and that it and any such account is a "qualified institu-
tional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has de-
termined not to request such information and that it is aware that the trans-
feror is relying upon the undersigned's foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
Date: _________________ ___________________________________________________
NOTICE: To be executed by an executive officer
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 B
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
,
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Administration
Re: Newport News Shipbuilding Inc. (the "Company") 8 5/8% Senior Notes due
2006 (the "Securities")
Dear Sirs:
In connection with our proposed purchase of $ aggregate principal amount
of the Securities, we confirm that:
A. We understand that any subsequent transfer of the Securities is subject to
certain restrictions and conditions set forth in the Indenture dated as of No-
vember 26, 1996, relating to the Securities (the "Indenture") and the under-
signed agrees to be bound by, and not to resell, pledge or otherwise transfer
the Securities except in compliance with, such restrictions and conditions and
the Securities Act of 1993, as amended (the "Securities Act").
B. We understand that the offer and sale of the Securities have not been reg-
istered under the Securities Act, and that the Securities may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities within three years after the
original issuance of the Securities, we will do so only (A) to the Company or
any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an in-
stitutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes to you a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the Securities (the
form of which letter can be obtained from the Company or you) and, if such
transfer is in respect of an aggregate principal amount of Securities of less
than $250,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (D)
<PAGE>
outside the United States in accordance with Rule 904 of Regulation S under
the Securities Act, (E) pursuant to the exemption from registration provided
by Rule 144 under the Securities Act, or (F) pursuant to an effective regis-
tration statement under the Securities Act, and we further agree to provide to
any person purchasing any of the Securities from us a notice advising such
purchaser that resales of the Securities are restricted as stated herein.
C. We understand that, on any proposed resale of any Securities, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Securities purchased by us will bear a legend to the fore-
going effect.
D. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capa-
ble of evaluating the merits and risks of our investment in the Securities,
and we and any accounts for which we are acting are each able to bear the eco-
nomic risk of our or its investment.
E. We are acquiring the Securities purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official injury with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By: ________________________________________
Authorized Signature
- --------------------------------
Signature Guarantee
B-2
<PAGE>
EXHIBIT C
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
,
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Administration
Re: Newport News Shipbuilding Inc. (the "Company") 8 5/8% Senior Notes due
2006 (the "Securities")
Dear Sirs:
In connection with our proposed sale of U.S.$ aggregate principal amount
of the Securities, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the Securities Act of 1933, as amended,
and, accordingly, we represent that:
A. The offer of the Securities was not made to a person in the United States;
B. At the time the buy order was originated, the transferee was outside the
United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
C. No directed selling efforts have been made by us in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
D. The transaction is not part of a plan or scheme to evade the registration
requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby. Terms used in this certificate have the meanings
set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ________________________________________
Authorized Signature
- --------------------------------
Signature Guarantee
<PAGE>
EXHIBIT D
FORM OF OFFICERS' CERTIFICATE
The undersigned, the [title] and [title] of Newport News Shipbuilding Inc.,
a Delaware corporation, DO HEREBY CERTIFY to The Bank of New York as Trustee
under the Senior Note Indenture (the "Indenture") dated as of November 26,
1996 among Newport News Shipbuilding Inc., Newport News Shipbuilding and Dry
Dock Company and The Bank of New York as follows:
(A) We have read Section 4.18(d) of the Indenture and such other provi-
sions of the Indenture as we have deemed relevant, and have examined and
investigated such other matters as we have deemed necessary, to enable us
to express an informed opinion as to whether the conditions precedent in
the Indenture relating to the release of the funds in the Collateral Ac-
count to the Company have been satisfied.
(B) Based upon the foregoing, to the best of our knowledge:
(i) all material conditions to the Debt Realignment, the Distribu-
tions (other than the consummation of the Debt Realignment) and the
consummation of the transactions contemplated by the Merger Agreement
(other than the consummation of the Debt Realignment and the Distribu-
tions) have been satisfied in accordance with the Merger Agreement and
related documents, and
(ii) the Transaction is being (or will be) closed substantially in
accordance with the Transaction Agreements.
"Debt Realignment" means the restructuring (through debt tender and exchange
offers, defeasances, prepayments, refinancings and the like), immediately
prior to the Distributions of the outstanding indebtedness for money borrowed
of Tenneco and its subsidiaries.
Terms used herein and not defined have the meanings assigned to them in the
Indenture.
--------------------------------------------
Name:
Title:
--------------------------------------------
Name:
Title:
Dated:
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDENTURE
DATED AS OF NOVEMBER 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC., AS ISSUER,
NEWPORT NEWS SHIPBUILDING AND
DRY DOCK COMPANY, AS GUARANTOR,
AND
THE BANK OF NEW YORK, AS TRUSTEE
--------------------
$200,000,000
9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
INDENTURE
TRUST INDENTURE ACT SECTION SECTION
- --------------------------- -----------------
<S> <C>
(S) 310(a)(1)............................................... 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... N.A.
(b)....................................................... 7.08; 7.10; 13.02
(c)....................................................... N.A.
(S) 311(a).................................................. 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
(S) 312(a).................................................. 2.05
(b)....................................................... 13.03
(c)....................................................... 13.03
(S) 313(a).................................................. 7.06
(b)(1).................................................... N.A.
(b)(2).................................................... 7.06
(c)....................................................... 7.06; 13.02
(d)....................................................... 7.06
(S) 314(a).................................................. 4.11; 4.12; 13.02
(b)....................................................... N.A.
(c)(1).................................................... 13.04
(c)(2).................................................... 13.04
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 13.05
(f)....................................................... N.A.
(S) 315(a).................................................. 7.01(b)
(b)....................................................... 7.05; 13.02
(c)....................................................... 7.01(a)
(d)....................................................... 7.01(c)
(e)....................................................... 6.11
(S) 316(a)(last sentence)................................... 2.09
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... N.A.
(b)....................................................... 6.07
(c)....................................................... 10.04
(S) 317(a)(1)............................................... 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.05
(S) 318(a).................................................. 13.01
</TABLE>
- ---------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE ONE
Definitions and Incorporation by Reference
<C> <S> <C>
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions....................................... 24
Section 1.03. Incorporation by Reference of Trust Indenture Act....... 24
Section 1.04. Rules of Construction................................... 25
ARTICLE TWO
The Securities
Section 2.01. Execution and Authentication............................ 25
Section 2.02. Form, Denomination and Date of Securities; Payment of
Interest.............................................. 26
Section 2.03. Restrictive Legends..................................... 28
Section 2.04. Registrar and Paying Agent.............................. 30
Section 2.05. Paying Agent To Hold Money in Trust..................... 31
Section 2.06. Securityholder Lists.................................... 31
Section 2.07. Registration, Transfer and Exchange..................... 32
Section 2.08. Book Entry Provisions for Global Securities............. 33
Section 2.09. Special Transfer Provisions............................. 35
Section 2.10. Mutilated, Defaced, Destroyed, Lost and Stolen
Securities............................................ 39
Section 2.11. Outstanding Securities.................................. 40
Section 2.12. Treasury Securities..................................... 40
Section 2.13. Temporary Securities.................................... 41
Section 2.14. Cancellation of Securities, Destruction Thereof......... 41
Section 2.15. CUSIP and CINS Number................................... 42
Section 2.16. Deposit of Moneys....................................... 42
ARTICLE THREE
Redemption
Section 3.01. Notices to Trustee...................................... 42
Section 3.02. Selection of Securities To Be Redeemed.................. 43
Section 3.03. Notice of Redemption.................................... 43
Section 3.04. Effect of Notice of Redemption.......................... 44
Section 3.05. Deposit of Redemption Price............................. 44
Section 3.06. Securities Redeemed in Part............................. 45
ARTICLE FOUR
Covenants
Section 4.01. Payment of Securities................................... 45
Section 4.02. Maintenance of Office or Agency......................... 45
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 4.03. Limitation on Transactions with Affiliates and Related
Persons............................................... 46
Section 4.04. Limitation on Indebtedness.............................. 46
Section 4.05. Limitation on Certain Asset Dispositions................ 48
Section 4.06. Limitation on Restricted Payments....................... 51
Section 4.07. Corporate Existence..................................... 54
Section 4.08. Payment of Taxes and Other Claims....................... 54
Section 4.09. Notice of Defaults...................................... 55
Section 4.10. Maintenance of Properties............................... 55
Section 4.11. Compliance Certificate.................................. 56
Section 4.12. Provision of Financial Information...................... 56
Section 4.13. Waiver of Stay, Extension or Usury Laws................. 56
Section 4.14. Change of Control....................................... 57
Section 4.15. Limitation on Senior Subordinated Indebtedness.......... 58
Section 4.16. Limitations Concerning Distributions and Transfers by
Subsidiaries.......................................... 59
Section 4.17. Limitation on Issuance and Sale of Capital Stock of
Subsidiaries.......................................... 60
Section 4.18. Limitation on Liens..................................... 60
Section 4.19. Deposit of Funds with Trustee Pending Consummation of
the Shipbuilding Distribution......................... 61
ARTICLE FIVE
Mergers; Successor Corporation
Section 5.01. Restriction on Mergers, Consolidations and Certain Sales
of Assets............................................. 63
Section 5.02. Successor Corporation Substituted....................... 64
ARTICLE SIX
Default and Remedies
Section 6.01. Events of Default....................................... 65
Section 6.02. Acceleration............................................ 66
Section 6.03. Other Remedies.......................................... 67
Section 6.04. Waiver of Past Default.................................. 68
Section 6.05. Control by Majority..................................... 68
Section 6.06. Limitation on Suits..................................... 69
Section 6.07. Rights of Holders To Receive Payment.................... 69
Section 6.08. Collection Suit by Trustee.............................. 70
Section 6.09. Trustee May File Proofs of Claim........................ 70
Section 6.10. Priorities.............................................. 70
Section 6.11. Undertaking for Costs................................... 71
</TABLE>
ii
<PAGE>
ARTICLE SEVEN
Trustee
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 7.01. Duties of Trustee....................................... 71
Section 7.02. Rights of Trustee....................................... 72
Section 7.03. Individual Rights of Trustee............................ 73
Section 7.04. Trustee's Disclaimer.................................... 74
Section 7.05. Notice of Defaults...................................... 74
Section 7.06. Reports by Trustee to Holders........................... 74
Section 7.07. Compensation and Indemnity.............................. 74
Section 7.08. Replacement of Trustee.................................. 76
Section 7.09. Successor Trustee by Merger, etc. ...................... 77
Section 7.10. Eligibility; Disqualification........................... 77
Section 7.11. Preferential Collection of Claims Against Company....... 77
ARTICLE EIGHT
Subordination of Securities
Section 8.01. Securities Subordinated to Senior Indebtedness.......... 78
Section 8.02. No Payment on Securities in Certain Circumstances....... 78
Section 8.03. Payment Over of Proceeds upon Dissolution, etc. ........ 80
Section 8.04. Subrogation............................................. 81
Section 8.05. Obligations of Company Unconditional.................... 82
Section 8.06. Notice to Trustee....................................... 82
Section 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................. 83
Section 8.08. Trustee's Relation to Senior Indebtedness............... 84
Section 8.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness...... 84
Section 8.10. Securityholders Authorize Trustee To Effectuate
Subordination of Securities........................... 85
Section 8.11. This Article Not To Prevent Events of Default........... 85
Section 8.12. Trustee's Compensation Not Prejudiced................... 85
Section 8.13. No Waiver of Subordination Provisions................... 85
Section 8.14. Subordination Provisions Not Applicable to Money Held in
Trust for Securityholders; Payments May Be Paid Prior
to Dissolution........................................ 86
Section 8.15. Acceleration of Securities.............................. 86
ARTICLE NINE
Discharge of Indenture
Section 9.01. Termination of Company's Obligations.................... 86
Section 9.02. Application of Trust Money.............................. 88
Section 9.03. Repayment to Company.................................... 88
Section 9.04. Reinstatement........................................... 89
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE TEN
Amendments, Supplements and Waivers
<C> <S> <C>
Section 10.01. Without Consent of Holders................................ 89
Section 10.02. With Consent of Holders................................... 90
Section 10.03. Compliance with Trust Indenture Act....................... 92
Section 10.04. Revocation and Effect of Consents......................... 92
Section 10.05. Notation on or Exchange of Securities..................... 92
Section 10.06. Trustee To Sign Amendments, etc. ......................... 93
ARTICLE ELEVEN
Guarantee
Section 11.01. Unconditional Guarantee................................... 93
Section 11.02. Severability.............................................. 94
Section 11.03. Release of a Guarantor.................................... 94
Section 11.04. Limitation of Guarantor's Liability....................... 95
Section 11.05. Contribution.............................................. 95
Section 11.06. Execution of Guarantee.................................... 96
Section 11.07. Additional Guarantors..................................... 96
Section 11.08. Subordination of Subrogation and Other Rights............. 97
ARTICLE TWELVE
Subordination of Guarantee
Section 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness............................................ 97
Section 12.02. No Payment on Guarantees in Certain Circumstances......... 97
Section 12.03. Payment Over of Proceeds upon Dissolution, etc............ 99
Section 12.04. Subrogation............................................... 100
Section 12.05. Obligations of Guarantors Unconditional................... 101
Section 12.06. Notice to Trustee......................................... 102
Section 12.07. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................... 103
Section 12.08. Trustee's Relation to Guarantor Senior Indebtedness....... 103
Section 12.09. Subordination Rights Not Impaired by Acts or Omissions of
the Guarantors or Holders of Guarantor Senior
Indebtedness............................................ 104
Section 12.10. Securityholders Authorize Trustee To Effectuate
Subordination of Guarantee.............................. 104
Section 12.11. This Article Not To Prevent Events of Default............. 105
Section 12.12. Trustee's Compensation Not Prejudiced..................... 105
Section 12.13. No Waiver of Guarantee Subordination Provisions........... 105
Section 12.14. Payments May Be Paid Prior to Dissolution................. 105
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE THIRTEEN
Miscellaneous
<C> <S> <C>
Section 13.01. Trust Indenture Act Controls.............................. 106
Section 13.02. Notices................................................... 106
Section 13.03. Communications by Holders with Other Holders.............. 107
Section 13.04. Certificate and Opinion as to Conditions Precedent........ 107
Section 13.05. Statements Required in Certificate or Opinion............. 108
Section 13.06. Rules by Trustee, Paying Agent, Registrar................. 108
Section 13.07. Governing Law............................................. 108
Section 13.08. No Recourse Against Others................................ 108
Section 13.09. Successors................................................ 108
Section 13.10. Counterpart Originals..................................... 109
Section 13.11. Severability.............................................. 109
Section 13.12. No Adverse Interpretation of Other Agreements............. 109
Section 13.13. Legal Holidays............................................ 109
SIGNATURES................................................................ 110
EXHIBIT A--Form of Security............................................... A-1
EXHIBIT B--Form of Certificate to be Delivered in Connection with
Transfers to Non-QIB Accredited Investors.................... B-1
EXHIBIT C--Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S........................... C-1
EXHIBIT D--Form of Officers' Certificate to be Delivered in Connection
with Release of the Collateral Account....................... D-1
</TABLE>
- ---------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE>
INDENTURE dated as of November 26, 1996, among Newport News Shipbuilding
Inc., a Delaware corporation (the "Company"), Newport News Shipbuilding and
Dry Dock Company, a Virginia corporation, and The Bank Of New York, as trust-
ee.
Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Company's 9 1/4% Se-
nior Subordinated Notes due 2006:
ARTICLE ONE
Definitions and Incorporation By Reference
Section 1.01. Definitions.
"Additional Interest" has the meaning provided in Section 4(a) of the Regis-
tration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or indi-
rectly 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 direc-
tion 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.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Disposition" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transac-
tion) of (i) shares of Capital Stock of a Subsidiary of the Company (other
than directors' qualifying shares) or (ii) property or assets of the Company
or any Subsidiary of the Company; 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 the Company to the Com-
pany or to any Wholly Owned Subsidiary of the Company or by the Company to any
Wholly Owned Subsidiary of the Company, (b) any sale, transfer or other dispo-
sition of defaulted receivables for collection or any sale, transfer or other
disposition of property or assets
<PAGE>
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) se-
curing Indebtedness to the extent that such Lien is granted in compliance with
Section 4.18, (f) any Restricted Payment permitted by Section 4.06 or (g) any
disposition of assets or property in the ordinary course of business to the
extent such assets or property are obsolete, worn out or no longer useful in
the Company's or any of its Subsidiaries' business.
"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 liquida-
tion 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.
"Board of Directors" means the Board of Directors of the Company or any Guar-
antor, as the case may be, or any authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a duly adopted resolu-
tion of the Board of Directors of such Person.
"Business Day" means a day (other than a Saturday or Sunday) on which the De-
positary and banks in New York are open for business.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements convey-
ing the right to use) real or personal property of such Person which are re-
quired to be classified and accounted for as a capital lease or liability on
the face of a balance sheet 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, participa-
tions or other equivalents (however designated) of corporate stock of such
Person (including any Preferred Stock outstanding on the Issue Date).
2
<PAGE>
"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), matur-
ing within 30 days of the date of purchase, or Investments in mutual funds or
money market funds which are only permitted to invest in the foregoing and
which do not restrict the withdrawal of the proceeds of such Investment.
"Collateral" means (i) the Collateral Account, (ii) the Net Offering Proceeds
and all other cash or Cash Equivalents deposited in the Collateral Account
from time to time pursuant to Section 4.19 hereof, (iii) all rights and privi-
leges of the Company with respect to the Collateral Account and such cash and
Cash Equivalents, (iv) all dividends, interest and other payments and distri-
butions made on or with respect to such Cash Equivalents or the Collateral Ac-
count and (v) all proceeds of any of the foregoing.
"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.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor shall have become such pursuant to the appli-
cable provisions of this Indenture, and thereafter "Company" shall mean such
successor.
"Company Request" or "Company Order" means a written request or order signed
in the name of the Company by its Chairman of the Board, its Vice Chairman of
the Board, its President, a Vice President or its Treasurer, and by an Assis-
tant Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means for
any period the Consolidated Net Income of such Person for such period in-
creased (to the extent Consolidated Net Income for such period has been re-
duced thereby) by the sum of (without duplication) (i) Consolidated Interest
Expense of such Person for such period, plus (ii) Consolidated Income Tax Ex-
pense 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
3
<PAGE>
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 out-
standing as a result of the Incurrence of the Indebtedness proposed to be In-
curred, plus (D) the annual interest expense with respect to any other Indebt-
edness Incurred by such Person or its Subsidiaries since the end of such pe-
riod to the extent not included in clause (ii)(A), minus (E) Consolidated In-
terest 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, howev-
er, that in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness bearing a floating inter-
est 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, consol-
idation 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 con-
solidated provision for income taxes of such Person for such period calculated
on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" for any Person means for any period the con-
solidated interest expense included in a consolidated income statement (with-
out deduction of interest or finance charge income) of such Person for such
period calculated on a consolidated basis in accordance with GAAP, plus dis-
count on receivables sold or other discount related to any receivables
securitization transaction.
4
<PAGE>
"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 consoli-
dated 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 restric-
tions which prevent or limit the payment of dividends or the making of distri-
butions 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 distri-
butions 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 dis-
bursements 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 the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors then on the Board of Directors of the Company, either by
a specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individ-
ual is named as nominee for director.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 or such other address as the Trustee may
give notice to the Company.
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"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.
"Depositary" means The Depository Trust Company, its nominees, and their re-
spective successors.
"Designated Guarantor Senior Indebtedness" means, with respect to any Guaran-
tor, (i) so long as any Indebtedness under the Senior Credit Facility is out-
standing or any lender has any commitment thereunder, any Indebtedness of such
Guarantor outstanding under or in respect of the Senior Credit Facility, (ii)
so long as the Senior Notes are outstanding any Indebtedness of such Guarantor
outstanding under or in respect of the Senior Notes and any Guarantor Senior
Indebtedness incurred under or in respect of the Senior Note Indenture, and
(iii) any other Guarantor Senior Indebtedness of such Guarantor which had at
the time of initial issuance an aggregate outstanding principal amount in ex-
cess of $10 million which has been designated as Designated Guarantor Senior
Indebtedness by the Board of Directors of such Guarantor at the time of ini-
tial issuance in a resolution delivered to the Trustee.
"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 Senior Notes and any Senior Indebtedness in-
curred under the Senior Note Indenture and (iii) so long as outstanding, any
other Senior Indebtedness which has at the time of initial issuance an aggre-
gate outstanding principal amount in excess of $10 million which has been des-
ignated as Designated Senior Indebtedness by the Board of Directors of the
Company at the time of initial issuance 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 convert-
ible or for which it is exchangeable), or upon the happening of any event, ma-
tures 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 Securities.
6
<PAGE>
"Distribution Agreement" means the Distribution Agreement dated as of Novem-
ber 1, 1996 among Tenneco, New Tenneco and the Company, as such Agreement has
heretofore been or hereafter may be amended, modified or supplemented.
"Equity Public Offerings" means underwritten public offerings of Capital
Stock of the Company (other than Disqualified Stock) made after the date of
the Shipbuilding Distribution that have been registered under the Securities
Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" shall mean the Exchange by the Company of Exchange Securi-
ties for Securities pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the Reg-
istration Rights Agreement.
"Exchange Securities" means any securities of the Company to be offered to
Securityholders in exchange for Securities pursuant to the Exchange Offer or
otherwise pursuant to a Registration of Securities containing terms identical
to the Securities and guaranteed by the Guarantors with terms identical to the
Guarantees for which they are exchanged (except that (i) interest thereon
shall accrue from the last date on which interest was paid on the Securities
or, if no such interest has been paid, from the date of issuance of the Secu-
rities and (ii) the Exchange Securities will contain the alternative paragraph
under paragraph 8 appearing on the reverse of the Securities in the form of
Exhibit A hereto and will not contain terms with respect to transfer restric-
tions).
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Foreign Subsidiary" means any Subsidiary of the Company 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 consoli-
dated 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 out-
side the United States of America.
7
<PAGE>
"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 pro-
nouncements 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, with-
out limitation, any obligation of such Person (i) to purchase or pay (or ad-
vance 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 ob-
ligor so as to enable the primary obligor to pay such Indebtedness (and "guar-
anteed," "guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); provided, however, that the guarantee by any Person shall not in-
clude endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Guarantee" means the guarantee of the Securities by each Guarantor under
this 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 In-
debtedness 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 Senior Notes, including the guarantee of principal, premium,
if any, and interest and Additional Interest, if any, on the Senior Notes and
all other amounts guaranteed on or in connection with the Senior Notes, (iii)
all other Indebtedness of such Guarantor for borrowed money, including princi-
pal, 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
8
<PAGE>
guaranteed expressly provides that such Indebtedness for borrowed money is not
senior or superior in right of payment to the Guarantee of the Securities of
such Guarantor, and all renewals, extensions, modifications, amendments or
refinancings thereof and (iv) all interest on any Indebtedness referred to in
clauses (i), (ii) and (iii) during the pendency of any bankruptcy or insol-
vency proceeding, whether or not allowed or allowable thereunder. Notwith-
standing 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 Indebted-
ness of such Guarantor, provided, however, that no Indebtedness of such Guar-
antor shall be deemed to be subordinated or junior in right of payment or oth-
erwise 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 Securities, (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 Law,
is without recourse to such Guarantor.
"Guarantors" means (i) Newport News Shipbuilding and Dry Dock Company, a Vir-
ginia corporation; and (ii) each Material Subsidiary, whether formed or ac-
quired before or after the Issue Date; provided, however, that any Subsidiary
acquired after the Issue Date which is prohibited from entering into a Guaran-
tee 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 Guaran-
tor so long as any such restriction is in existence and to the extent of any
such restriction.
"Holder", "holder of Securities", "Securityholders" or other similar terms
mean the registered holder of any Security.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or other-
wise), assume, guarantee or otherwise become liable in respect of such Indebt-
edness 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 mean-
ings correlative to the foregoing). Indebtedness of any Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the Com-
pany (or is merged into or consolidates with the Company or any of its Subsid-
iaries),
9
<PAGE>
whether or not such Indebtedness was incurred in connection with, or in con-
templation of, such Person becoming a Subsidiary of the Company (or being
merged into or consolidated with the Company or any of its Subsidiaries),
shall be deemed Incurred at the time any such Person becomes a Subsidiary of
the Company or merges into or consolidates with the Company or any of its Sub-
sidiaries.
"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 bor-
rowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connec-
tion with the acquisition of property, assets or businesses, (iii) every reim-
bursement obligation of such Person with respect to letters of credit, bank-
ers' acceptances or similar facilities issued for the account of such Person,
(iv) every obligation of such Person issued or assumed as the deferred pur-
chase 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 agree-
ments of such Person (including, without limitation, any Currency Agreement
and any Interest Rate Agreement) and (vii) every obligation of the type re-
ferred 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 guaran-
teed 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 re-
spect of any Disqualified Stock of the Company, and any Preferred Stock of a
Subsidiary of the Company. Indebtedness shall never be calculated taking into
account any cash and cash equivalents held by such Person.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Initial Purchasers" means J.P. Morgan Securities Inc., CS First Boston Cor-
poration, Morgan Stanley & Co. Incorporated, BA Securities, Inc. and
NationsBanc Capital Markets, Inc.
"Insolvency or Liquidation Proceeding" means, with respect to any Person, any
liquidation, dissolution or winding-up of such Person, or any bankruptcy,
10
<PAGE>
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" shall mean an institution that is an "ac-
credited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on June 1
and December 1 of each year, commencing June 1, 1997.
"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 this Inden-
ture, the amount of such obligations shall be the amount determined in respect
thereof as of the end of the 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 re-
lating to such obligation provides for the netting of amounts payable by and
to such person thereunder or if any such agreement provides for the simultane-
ous 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.
"Interest Record Date" for the interest payable on any Interest Payment Date
(except a date for payment of defaulted interest) means the May 15 or November
15 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date.
"Investment" by any Person means any direct or indirect loan, advance, guar-
antee 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 ac-
quisition 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 Securities, November 26,
1996.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, security interest, lien, charge,
ease-
11
<PAGE>
ment (other than any easement not materially impairing usefulness or market-
ability), 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 ef-
fect as any of the foregoing).
"Material Subsidiary" means any Subsidiary of the Company (other than a For-
eign Subsidiary and other than Tenneco Tanker Holding Corporation) having con-
solidated assets exceeding $10,000,000.
"Maturity Date" means the Stated Maturity of the Notes.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"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 exclud-
ing 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 securi-
ties) received in connection with such Asset Disposition, net of (i) all le-
gal, 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 in-
volving an asset useful in the performance of a contract with a U.S. govern-
mental 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 accor-
dance 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 liabili-
ties associated with the assets which are the subject of the Asset Disposi-
tion, including, without limitation, trade payables and other accrued liabili-
ties, (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
12
<PAGE>
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 Avail-
able Proceeds to be allocated in accordance with the provisions of Section
4.05(a)(iii)) 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.
"New Tenneco" means New Tenneco Inc., a Delaware corporation, and its subsid-
iaries and assigns.
"Non-U.S. Person" means a person who is not a U.S. Person, as defined in Reg-
ulation S.
"Obligations" means any principal, premiums, interest, penalties, fees and
other liabilities payable under the documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first-class mail, postage prepaid, to each Holder at his address appearing
in the Security Register on the date of the Offer offering to purchase up to
the principal amount of Securities specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to this Indenture). Un-
less otherwise required by applicable law, the Offer shall specify an expira-
tion date (the "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 not
earlier than five Business Days after the expiration date established under
the Senior Note Indenture for any offer to purchase for the Senior Notes aris-
ing out of the event relating to such Offer to Purchase and a settlement date
(the "Purchase Date") for purchase of Securities within five Business Days af-
ter the Expiration Date and not earlier than five Business Days after the pur-
chase date established under the Senior Note Indenture for any offer to pur-
chase for the 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 Senior Notes arising out of the same event relating to such Offer to Pur-
chase is extended, the Offer to Purchase shall be extended by that number of
days necessary so that the Purchase Date would not be earlier
13
<PAGE>
than five Business Days after the new purchase date relating to the Senior
Notes after such extension with respect to the Senior Notes. The Company shall
notify the Trustee at least 15 Business Days (or such shorter period as is ac-
ceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required
by applicable law to be included therein. The Offer shall contain all instruc-
tions and materials necessary to enable such Holders to tender Securities pur-
suant to the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Securities offered to
be purchased by the Company 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 this Indenture requiring the Offer to Purchase) (the "Pur-
chase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Securities accepted for payment (as specified pursuant
to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities regis-
tered in the name of such Holder and that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Securities are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but not pur-
chased by the Company pursuant to the Offer to Purchase will continue to ac-
crue;
(8) that on the Purchase Date the Purchase Price will become due and pay-
able upon each Security 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 Security
pursuant to the Offer to Purchase will be required to surrender such Secu-
rity at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Security being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written instru-
ment of transfer in form satisfactory to the Company 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 Secu-
rities tendered if the Company (or its Paying Agent) receives, not later
than the
14
<PAGE>
close of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the Holder ten-
dered, the certificate number of the Security the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Securities 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, the Company shall purchase all such Securities and
(b) if Securities in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Securities 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 Securities in denominations of $1,000 or in-
tegral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and de-
liver to the Holder of such Security without service charge, a new Security
or Securities, 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 Security or Securities so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer, or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Company com-
plying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is rea-
sonably acceptable to the Trustee. The counsel may be an employee of or coun-
sel to the Company or the Trustee.
"Original Issue Date" of any Security (or portion thereof) means the earlier
of (i) the date of such Security or (ii) the date of any Security (or portion
thereof) for which such Security was issued (directly or indirectly) on regis-
tration of transfer, exchange or substitution.
"Paying Agent" has the meaning provided in Section 2.04, except that, for the
purposes of Article Nine, the Paying Agent shall not be the Company or a Sub-
sidiary of the Company or an Affiliate of any of them. The term "Paying Agent"
includes any additional Paying Agent.
15
<PAGE>
"Permitted Investments" means (i) Investments in marketable, direct obliga-
tions issued or guaranteed by the United States of America, or any governmen-
tal entity or agency or political subdivision thereof (provided, that the good
faith and credit of the United States of America is pledged in support there-
of), 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 or "A-1" or better by Standard & Poor's 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 totalling more than
$500,000,000, maturing within one year of the date of purchase; (iv) Invest-
ments representing Capital Stock or obligations issued to the Company 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 the Company 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 the Company; (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 re-
corded 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 inter-
est swap or hedging obligation with an unaffiliated Person otherwise permitted
by this Indenture (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 Section 4.05; (xi) In-
vestments for which the sole consideration provided is Capital Stock of the
Company (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 interest in joint ventures,
partnerships or other similar arrangements after the Issue Date; provided,
that the aggregate unrecovered Investments of the Company and its Subsidiaries
does not at any time exceed $50 million (for this purpose, "unrecovered In-
vestment" means the
16
<PAGE>
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).
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, unincorporated organi-
zation or government or any agency or political subdivision thereof.
"Permitted Junior Securities" means any securities of the Company 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 Se-
nior 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 Securities
are subordinated as provided in this Indenture, in any event pursuant to a
court order so providing and as to which (a) the rate of interest on such se-
curities shall not exceed the effective rate of interest on the Securities on
the date of this 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 Securities on the
date of this Indenture and (c) such securities shall not provide for amortiza-
tion (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, gov-
ernmental charges, or claims that are being contested in good faith by appro-
priate 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 land-
lords and carriers, warehousemen, mechanics, suppliers, materialmen, repair-
men, 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 re-
quired 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, perfor-
17
<PAGE>
mance and return-of-money bonds, and other obligations of a similar nature in-
curred 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 irregu-
larities that do not materially interfere with the ordinary course of business
of the Company and its Subsidiaries, taken as a whole, (vi) Liens on property
of the Company or any Subsidiary of the Company in favor of the United States
of America, any state thereof, or any instrumentality of either to secure pay-
ments pursuant to any contract or statute, (vii) leases or subleases granted
to others that do not materially interfere with the ordinary course of busi-
ness of the Company and its Subsidiaries, taken as a whole, (viii) Liens en-
cumbering property or assets under construction arising from obligations of
the Company or any Subsidiary of the Company to make progress or partial pay-
ments 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 Trustee as pro-
vided for in the Senior Note Indenture or this Indenture, as the case may be,
on money or property held or collected by the Senior Note Trustee or the
Trustee in its capacity as trustee, (xii) Liens in favor of the Company or any
of its Subsidiaries, (xiii) Liens arising from the rendering of a final judg-
ment or order against the Company or any Subsidiary of the Company that does
not give rise to an Event of Default, (xiv) Liens securing reimbursement obli-
gations 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 im-
portation 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 option,
or similar agreements or arrangements designed to protect the Company or any
of its Subsidiaries from fluctuations in the price of commodities, (xvii)
Liens arising out of conditional sale, title retention, consignment, or simi-
lar arrangements for the sale of goods entered into by the Company or any of
its Subsidiaries in the ordinary course of business in accordance with the
past practices of the Company or any of its Subsidiaries prior to the Issue
Date, and (xviii) Liens on or sales of receivables.
18
<PAGE>
"Placement Agreement" means the Purchase Agreement dated November 21, 1996
between the Company, Newport News Shipbuilding and Dry Dock Company and the
Initial Purchasers.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capi-
tal 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 as-
sets 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.
"principal" of a debt security means the principal of the security plus, when
appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend initially set forth on the Secu-
rities in the form set forth in Section 2.03(a).
"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 Pur-
chase" above.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be redeemed,
means the price fixed for such redemption pursuant to this Indenture as set
forth in the form of Security annexed hereto as Exhibit A.
"Registration" means a registered Exchange Offer for the Securities by the
Company or other registration of the Securities under the Securities Act pur-
suant to and in accordance with the terms of the Registration Rights Agree-
ment.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Senior Subordinated Notes Registra-
tion Rights Agreement dated as of November 26, 1996 between the Company, the
Guarantors and the Initial Purchasers.
"Registration Statement" means the registration statement(s) as defined and
described in the Registration Rights Agreement.
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<PAGE>
"Regulation S" means Regulation S under the Securities Act.
"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 in-
terest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Restricted Payments" has the meaning provided in Section 4.06.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means the 9 1/4% Senior Subordinated Notes due 2006, as amended
or supplemented from time to time pursuant to the terms of this Indenture,
that are issued under this Indenture. For all purposes of this Indenture, the
term "Securities" shall include any Exchange Securities to be issued and ex-
changed for any Securities pursuant to the Registration Rights Agreement and
this Indenture and, for purposes of this Indenture, all Securities and Ex-
change Securities shall vote together as one series of Securities under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
"Security Register" has the meaning provided in Section 2.04.
"Senior Credit Facility" means the Credit Agreement, dated as of November 4,
1996, among the Company as borrower thereunder, any Material Subsidiaries of
the Company as guarantors thereunder and Morgan Guaranty Trust Company of New
York, as agent on behalf of itself and the other lenders named therein, in-
cluding 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 re-
lated notes, guarantee agreements, security documents and other instruments
and agreements executed in connection therewith.
"Senior Indebtedness" means, at any date, (i) all Indebtedness of the Company
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 Se-
nior Notes,
20
<PAGE>
including principal, premium, if any, and interest and Additional Interest, if
any, on the Senior Notes and all other amounts due on and in connection with
the Senior Notes, (iii) all other Indebtedness of the Company for borrowed
money, including principal, premium, if any, and interest on such Indebted-
ness, unless the instrument under which such Indebtedness of the Company 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 Securities, 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 in-
clude (a) Indebtedness which is pursuant to its terms or any agreement relat-
ing thereto subordinated or junior in right of payment or otherwise to any
other Indebtedness of the Company, provided, however, that no Indebtedness of
the Company shall be deemed to be subordinate or junior in right of payment or
otherwise to any other Indebtedness of the Company solely by reason of such
other Indebtedness being secured and such Indebtedness not being secured, (b)
the Securities, (c) any Indebtedness of the Company to any Subsidiary of the
Company, and (d) any Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of the Bankruptcy Law, is without recourse
to the Company.
"Senior Note Indenture" means the Senior Note Indenture dated as November 26,
1996 between the Company, the Guarantors and The Bank of New York, as trustee
pursuant to which the 8 5/8% Senior Notes due 1996 of the Company were issued,
as the same may be amended, modified and supplemented from time to time.
"Senior Note Trustee" means The Bank of New York until a successor replaces
it in accordance with the provisions of the Senior Note Indenture and thereaf-
ter means such successor.
"Senior Notes" means the 8 5/8% Senior Notes due 2006, as amended or supple-
mented from time to time pursuant to the terms of the Senior Note Indenture.
"Shelf Registration Statement" means the Shelf Registration Statement as de-
fined in the Registration Rights Agreement.
"Shipbuilding Distribution" has the meaning provided in the definition of
"Transaction."
21
<PAGE>
"Standard & Poor's" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means (i) with respect to any debt security, the date spec-
ified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security,
the date specified in such debt security as the fixed date on which such in-
stallment is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the out-
standing Voting Stock of which is owned, directly or indirectly, by such Per-
son or by one or more other Subsidiaries of such Person or by 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.
"Tenneco" means, prior to the Transaction, Tenneco Inc., a Delaware corpora-
tion, to be renamed El Paso Tennessee Pipeline Company following the Transac-
tion.
"Transaction" means the series of transactions pursuant to which (i) Tenneco
and its subsidiaries, pursuant to the Distribution Agreement, restructure, di-
vide and separate their various businesses and assets so that all of the as-
sets, liabilities and operations of (A) their automotive parts, packaging and
administrative service businesses ("Industrial Business") are owned and oper-
ated by the New Tenneco, (B) their shipbuilding business ("Shipbuilding Busi-
ness") are owned and operated by the Company 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 will be owned by Tenneco; (ii)
Tenneco would subsequently distribute pro rata to holders of Tenneco common
stock all of the outstanding common stock of New Tenneco and the Company (the
"Industrial Distribution" and the "Shipbuilding Distribution" respectively,
and collectively the "Distributions"); and (iii) thereafter a subsidiary of El
Paso Natural Gas Company ("El Paso") would be merged with and into Tenneco
pursuant to the Agreement and Plan of Merger dated as of June 19, 1996 (as
such may be amended, supplemented or modified from time to time) among El Pa-
so, El Paso Merger Company and Tenneco.
22
<PAGE>
"Transaction Agreements" means each of the Distribution Agreement; the Agree-
ment 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 the Company; the Debt and Cash Allocation Agreement
among Tenneco, New Tenneco and the Company; the Insurance Agreement among
Tenneco, New Tenneco and the Company; the Tax Sharing Agreement among Tenneco,
New Tenneco and the Company; the NNS Processing Service Agreement between
Tenneco Business Services Inc. and the Company; the NNS Supplier Participation
Agreement between New Tenneco and the Company; and the Trademark Transition
License Agreement among Tenneco, New Tenneco and the Company; as each such
Agreement has heretofore been and may hereafter be amended, modified or sup-
plemented.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date of this Indenture, except as
provided in Section 10.03.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"Trust Officer" means any officer within the corporate trust department (or
any successor group of the Trustee) including any vice president, assistant
vice president, assistant secretary or any other officer or assistant officer
of the Trustee customarily performing functions similar to those performed by
the persons who at that time shall be such officers, and also means, with re-
spect to a particular corporate trust matter, any other officer to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the Securi-
ties Act.
"Voting Stock" of any Person means the Capital Stock of such Person which or-
dinarily 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.
23
<PAGE>
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"Agent Member"............................................. 2.08(a)
"Asset Sale Offer Trigger Date"............................ 4.05(a)
"Bankruptcy Law"........................................... 6.01
"Change of Control"........................................ 4.14(c)
"Collateral Account"....................................... 4.19(c)
"Collateral Funds"......................................... 4.19(c)
"Custodian"................................................ 6.01
"Event of Default"......................................... 6.01
"Funding Guarantor"........................................ 11.05
"Global Securities"........................................ 2.02
"Guarantor Blockage Period"................................ 12.02(a)
"Guarantor Payment Blockage Notice"........................ 12.02(a)
"Net Offering Proceeds".................................... 4.19(a)
"Offshore Global Securities"............................... 2.02
"Offshore Physical Securities"............................. 2.02
"Offshore Securities Exchange Date"........................ 2.02
"Payment Blockage Notice".................................. 8.02(a)
"Payment Blockage Period".................................. 8.02(a)
"Permanent Offshore Global Security"....................... 2.02
"Physical Securities"...................................... 2.02
"Required Filing Date"..................................... 4.12
"Restricted Payment"....................................... 4.06
"Special Redemption"....................................... 3.01
"Special Redemption Date".................................. 4.19(c)
"Temporary Offshore Global Security"....................... 2.02
"U.S. Global Security"..................................... 2.02
"U.S. Person".............................................. 2.02
"U.S. Physical Securities"................................. 2.02
"United States Government Obligations"..................... 9.01
"Unutilized Net Available Proceeds"........................ 4.05(a)
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
24
<PAGE>
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other obligor
on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA, de-
fined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with generally accepted accounting principles in effect from
time to time, and any other reference in this Indenture to "generally ac-
cepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural in-
clude the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this In-
denture as a whole and not to any particular Article, Section or other sub-
division.
ARTICLE TWO
The Securities
Section 2.01. Execution and Authentication.
Two Officers shall execute the Securities on behalf of the Company by manual
or facsimile signature.
If an Officer whose manual or facsimile signature is on a Security no longer
holds that office at the time the Trustee authenticates the Security or at any
time thereafter, the Security nevertheless shall be valid.
25
<PAGE>
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. Such signa-
ture shall be conclusive evidence that the Security has been authenticated un-
der this Indenture.
The Trustee shall authenticate Securities for original issue in an aggregate
principal amount not to exceed $200,000,000 upon receipt of a Company Order.
The Company Order shall specify the amount of Securities to be authenticated
and the date on which the original issue of the Securities is to be authenti-
cated. The aggregate principal amount of Securities outstanding at any time
may not exceed $200,000,000 except as provided in Section 2.10.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. Such authenticating agent shall have the same
rights as the Trustee in any dealings hereunder with the Company or with any
of the Company's Affiliates.
Section 2.02. Form, Denomination and Date of Securities; Payments of Interest.
The Securities and the Trustee's certificates of authentication shall be sub-
stantially in the form of Exhibit A hereto; provided that Exchange Securities
(i) shall contain the alternative paragraph under paragraph 8 appearing on the
reverse of the Securities in the form of Exhibit A hereto and (ii) shall not
contain terms with respect to transfer restrictions. The Securities shall be
issuable in denominations provided for in the form of Security attached hereto
as Exhibit A. The Securities shall be numbered, lettered, or otherwise distin-
guished in such manner or in accordance with such plans as the Officers of the
Company executing the same may determine with the approval of the Trustee.
Any of the Securities may be issued with appropriate insertions, omissions,
substitutions and variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the provisions of this
Indenture, as may be required to comply with any law or with any rules or reg-
ulations pursuant thereto, including those required by Section 2.03, or with
the rules of any securities market in which the Securities are admitted to
trading, or to conform to general usage.
Each Security shall be dated the date of its authentication, shall bear in-
terest from the applicable date and shall be payable on the dates specified on
the face of the form of Security attached hereto as Exhibit A.
26
<PAGE>
Securities offered and sold in reliance on Rule 144A shall be issued ini-
tially in the form of a single permanent global Security in registered form,
substantially in the form of Exhibit A hereto (the "U.S. Global Security"),
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as herein provided. The aggregate
principal amount of the U.S. Global Security may from time to time be in-
creased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on Regula-
tion S shall be issued initially in the form of a single temporary global Se-
curity in registered form substantially in the form of Exhibit A hereto (the
"Temporary Offshore Global Security") deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as provided herein. At any time on and after January 6, 1997 (the
"Offshore Securities Exchange Date"), a single permanent global Security in
registered form substantially in the form hereinabove recited without the Pri-
vate Placement Legend (the "Permanent Offshore Global Security"; and together
with the Temporary Offshore Global Security, the "Offshore Global Securities")
duly executed by the Company and authenticated by the Trustee as provided
herein shall be deposited with the Trustee, as custodian for the Depositary,
and the Registrar shall reflect on its books and records the date and a de-
crease in the principal amount of the Temporary Offshore Global Security in an
amount equal to the principal amount of the beneficial interest in the Tempo-
rary Offshore Global Security transferred.
Securities offered and sold in reliance on Regulation D under the Securities
Act shall be issued in the form of permanent certificated Securities in regis-
tered form in substantially the form of Exhibit A hereto (the "U.S. Physical
Securities"). Securities issued pursuant to Section 2.07 in exchange for in-
terests in the Offshore Global Security following the Offshore Securities Ex-
change Date shall be in the form of permanent certificated Securities in reg-
istered form substantially in the form of Exhibit A hereto (the "Offshore
Physical Securities").
The Offshore Physical Securities and U.S. Physical Securities are sometimes
collectively herein referred to as the "Physical Securities". The U.S. Global
Security and the Offshore Global Security are sometimes referred to herein as
the "Global Securities".
The Person in whose name any Security is registered at the close of business
on any Interest Record Date with respect to any Interest Payment Date shall be
27
<PAGE>
entitled to receive the interest, if any, and Additional Interest, if any,
payable on such Interest Payment Date notwithstanding any transfer or exchange
of such Security subsequent to the Interest Record Date and prior to such In-
terest Payment Date, except if and to the extent the Company shall default in
the payment of the interest or Additional Interest due on such Interest Pay-
ment Date, in which case such defaulted interest, plus (to the extent lawful)
any interest payable on the defaulted interest and Additional Interest, shall
be paid to the Persons in whose names outstanding Securities are registered at
the close of business on a subsequent special record date (which shall be not
less than five business days prior to the date of such payment) established by
notice given by mail by or on behalf of the Company to the holders of Securi-
ties not less than 15 days preceding such subsequent record date.
Section 2.03. Restrictive Legends.
(a) Unless and until a Security is exchanged for an Exchange Security in con-
nection with an effective Registration pursuant to the Registration Rights
Agreement, the U.S. Global Security, Temporary Offshore Global Security and
each U.S. Physical Security shall bear the following legend on the face there-
of:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OF-
FERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS AC-
QUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED IN-
STITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLI-
ANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FUR-
NISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN
28
<PAGE>
BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AG-
GREGATE PRINCIPAL AMOUNT OF SECURITIES OF LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICA-
TIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULA-
TION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIR-
ING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIO-
LATION OF THE FOREGOING RESTRICTIONS.
(b) Each Global Security, whether or not an Exchange Security, shall also
bear the following legend on the face thereof:
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
29
<PAGE>
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REG-
ISTERED 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.
Section 2.04. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located in the
Borough of Manhattan, The City of New York, State of New York) where Securi-
ties may be presented for registration of transfer or for exchange (the "Reg-
istrar"), an office or agency (which shall be located in the Borough of Man-
hattan, The City of New York, State of New York) where Securities may be pre-
sented for payment (the "Paying Agent"), and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this In-
denture may be served. The Registrar shall keep a register or registers con-
taining the names and addresses of all Holders (the "Security Register(s)")
and of the transfer and exchange of Securities. Any notice to be given under
this Indenture or under the Securities by the Trustee or the Company to Hold-
ers shall be mailed by first class mail to each Holder at his address as it
appears at the time of such mailing in the Security Register. The Company may
have one or more co-Registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. Except as otherwise
provided herein, the Company or any Subsidiary thereof may act as Paying
Agent. The Company may also from time to time designate one or more other of-
fices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which shall incorporate the provisions of the
TIA. The Agreement shall implement the provisions of this Indenture that re-
late to such agent. The Company shall notify the Trustee of the name and ad-
dress of any such agent. If the Company fails to maintain a Registrar or Pay-
ing Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with Sec-
tion 7.07.
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The Company initially appoints the Corporate Trust Office of the Trustee as
Registrar, Paying Agent and agent for service of notices and demands in con-
nection with the Securities and this Indenture.
Section 2.05. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that such Paying Agent will hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, or interest or Additional Interest, if any, on the Securities
(whether such money has been paid to it by the Company or any other obligor on
the Securities), and the Company and the Paying Agent shall immediately notify
the Trustee of any default by the Company (or any other obligor on the Securi-
ties) in making any such payment. Unless the Company or any Subsidiary of the
Company is the Paying Agent, money held in trust by the Paying Agent need not
be segregated except as required by law and in no event shall the Paying Agent
be liable for any interest on any money received by it hereunder. The Company
at any time may require the Paying Agent to pay all money held by it to the
Trustee and account for any funds disbursed and the Trustee may at any time
during the continuance of any Event of Default specified in Section 6.01(1) or
(2), upon written request to the Paying Agent, require such Paying Agent to
pay forthwith all money so held by it to the Trustee and to account for any
funds disbursed. Upon making such payment, the Paying Agent shall have no fur-
ther liability for the money delivered to the Trustee. If the Company or any
Subsidiary of the Company acts as Paying Agent, it shall, on or before each
due date of the principal of or interest or Additional Interest, if any, on
the Securities, segregate and hold in trust for the benefit of the Persons en-
titled thereto a sum sufficient to pay the principal, interest or Additional
Interest, if any, so becoming due until such sums shall be paid to such Per-
sons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Section 2.06. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it from the Registrar of the names and ad-
dresses of Holders of Securities. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee at least five Business Days before each
Interest Payment Date, and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Holders of Securities, if any.
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Section 2.07. Registration, Transfer and Exchange.
The Securities are issuable only in registered form. The Company will keep at
the Registrar and each co-Registrar, a Security Register in which, subject to
such reasonable regulations as it may prescribe, it will register, and will
register the transfer of, Securities as in this Article provided. Such Secu-
rity Register shall be in written form in the English language or in any other
form capable of being converted into such form within a reasonable time. At
all reasonable times such Security Register or Security Registers shall be
open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security to the
Registrar or a co-Registrar, the Company shall execute and the Trustee shall
authenticate and make available for delivery in the name of the transferee or
transferees a new Security or Securities in authorized denominations for a
like aggregate principal amount.
A Holder may transfer a Security only by written application to the Registrar
stating the name of the proposed transferee and otherwise complying with the
terms of this Indenture. No such transfer shall be effected until, and such
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer by the Registrar in the Security Register.
Prior to the registration of any transfer by a Holder as provided herein, the
Company, the Trustee, and any Agent of the Company shall treat the person in
whose name the Security is registered as the owner thereof for all purposes
whether or not the Security shall be overdue, and neither the Company, the
Trustee, nor any such Agent shall be affected by notice to the contrary. Fur-
thermore, any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book entry system maintained by the Holder of
such Global Security (or its agent) and that ownership of a beneficial inter-
est in the Security shall be required to be reflected in a book entry. When
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer or to exchange them for an equal principal amount of Se-
curities of other authorized denominations (including an exchange of Securi-
ties for Exchange Securities), the Registrar shall register the transfer or
make the exchange as requested if the requirements for such transactions set
forth herein are met; provided that no exchanges of Securities for Exchange
Securities shall occur until a Registration Statement shall have been declared
effective by the Commission and that any Securities that are ex-
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changed for Exchange Securities shall be cancelled by the Trustee. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's request.
The Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.13, 3.06 or 10.05). No service charge to any Holder shall be made for any
such transaction.
The Company shall not be required to exchange or register a transfer of (a)
any Securities for a period of 15 days next preceding the first mailing of no-
tice of redemption of Securities to be redeemed, or (b) any Securities select-
ed, called or being called for redemption except, in the case of any Security
where public notice has been given that such Security is to be redeemed in
part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
Section 2.08. Book Entry Provisions for Global Securities.
(a) The U.S. Global Security and Offshore Global Security initially shall (i)
be registered in the name of the Depositary for such Global Securities or the
nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 2.03.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the Com-
pany or the Trustee, from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the De-
positary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
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(b) Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global Secu-
rity may be transferred in accordance with the rules and procedures of the De-
positary and the provisions of Section 2.09. In addition, U.S. Physical Secu-
rities and Offshore Physical Securities shall be transferred to all beneficial
owners in exchange for their beneficial interests in the U.S. Global Security
or the Offshore Global Security, respectively, if (i) the Depositary notifies
the Company that is unwilling or unable to continue as Depositary for the U.S.
Global Security or the Offshore Global Security, as the case may be, and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default of which the Trustee has actual notice has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue such Physical Securities.
(c) Any beneficial interest in one of the Global Securities that is trans-
ferred to a person who takes delivery in the form of an interest in the other
Global Security will, upon transfer, cease to be an interest in such Global
Security and become an interest in the other Global Security and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Security
for as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial interests
in the U.S. Global Security to beneficial owners pursuant to paragraph (b) of
this Section and Section 2.09 (a)(ii), the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the U.S.
Global Security in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Security to be transferred, and the Company shall
execute, and the Trustee shall authenticate and make available for delivery,
one or more U.S. Physical Securities of like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global Security or
Offshore Global Security to beneficial owners pursuant to paragraph (b) of
this Section, the U.S. Global Security or Offshore Global Security, as the
case may be, shall be deemed to be surrendered to the Trustee for cancella-
tion, and the Company shall execute, and the Trustee shall authenticate and
make available for delivery, to each beneficial owner identified by the Depos-
itary in exchange for its beneficial interest in the U.S. Global Security or
Offshore Global Security, as
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the case may be, an equal aggregate principal amount of U.S. Physical Securi-
ties or Offshore Physical Securities, as the case may be, of authorized denom-
inations.
(f) Any U.S. Physical Security delivered in exchange for an interest in the
U.S. Global Security pursuant to paragraph (b) or (d) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.09, bear the legend
regarding transfer restrictions applicable to the U.S. Physical Security set
forth in Section 2.03.
(g) Any Offshore Physical Security delivered in exchange for an interest in
the Offshore Global Security pursuant to paragraph (b) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.09, bear the legend
regarding transfer restrictions applicable to the Offshore Physical Security
set forth in Section 2.03.
(h) The registered holder of a Global Security may grant proxies and other-
wise authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
Section 2.09. Special Transfer Provisions.
Unless and until a Security is exchanged for an Exchange Security in connec-
tion with an effective Registration pursuant to the Registration Rights Agree-
ment, the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The following
provisions shall apply with respect to the registration of any proposed
transfer of a Security to any Institutional Accredited Investor which is not
a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Security, whether or
not such Security bears the Private Placement Legend, if (x) the requested
transfer is at least three years after the Original Issue Date of the Se-
curities or (y) the proposed transferee has delivered to the Registrar (A)
a certificate substantially in the form of Exhibit B hereto and (B) if the
principal amount of the Securities being transferred is less than $250,000
at the time of such transfer, an opinion of counsel acceptable to the Com-
pany that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a beneficial
interest in the U.S. Global Security, upon receipt by the Registrar of (x)
the documents, if any, required by paragraph (i) and (y) instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a de-
crease in the principal amount of the U.S. Global Security in an amount
equal to the
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principal amount of the beneficial interest in the U.S. Global Security to
be transferred and the Company shall execute, and the Trustee shall au-
thenticate and make available for delivery, one or more U.S. Physical Cer-
tificates of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect to
the registration of any proposed transfer of a U.S. Physical Security or an
interest in the U.S. Global Security to a QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of (x) U.S. Physical Secu-
rities, the Registrar shall register the transfer if such transfer is be-
ing made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such informa-
tion regarding the Company as it has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A or (y) an in-
terest in the U.S. Global Security, the transfer of such interest may be
effected only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Security to
be transferred consists of U.S. Physical Securities, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an in-
crease in the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the U.S. Physical Securities to be trans-
ferred and the Trustee shall cancel the U.S. Physical Security so trans-
ferred.
(c) Transfers of Interests in the Temporary Offshore Global Security. The
following provisions shall apply with respect to registration of any pro-
posed transfer of interests in the Temporary Offshore Global Security:
(i) The Registrar shall register the transfer of any Security (x) if the
proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of Ex-
hibit C hereto or (y) if the proposed transferee is a QIB and the proposed
transferor has checked the box provided for on the form of Security stat-
ing, or has otherwise advised the Company and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A
to a trans-
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feree who has signed the certification provided for on the form of Secu-
rity stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Security for its own account or an ac-
count with respect to which it exercises sole investment discretion and
that it and any such account is a QIB within the meaning of Rule 144A, and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company
as it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from regis-
tration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by the
Registrar of the documents referred to in clause (i)(y) above and instruc-
tions given in accordance with the Depositary's and the Registrar's proce-
dures, the Registrar shall reflect on its books and records the date and
an increase in the principal amount of the U.S. Global Security, in an
amount equal to the principal amount of the Temporary Offshore Global Se-
curity to be transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Security in a like amount.
(d) Transfers of Interests in the Permanent Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Permanent Offshore
Global Security or Offshore Physical Securities to U.S. Persons: The Regis-
trar shall register the transfer of any such Security without requiring any
additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Security to a Non-U.S. Person:
(i) Prior to January 6, 1997, the Registrar shall register any proposed
transfer of a Security to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit C hereto from the proposed transfer-
or.
(ii) On and after January 6, 1997, the Registrar shall register any pro-
posed transfer to any Non-U.S. Person if the Security to be transferred is
a U.S. Physical Security or an interest in the U.S. Global Security, upon
receipt of a certificate substantially in the form of Exhibit C from the
proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a benefi-
cial interest in the U.S. Global Security, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (ii) and (y) instruc-
tions in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a de-
crease in the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred and (b) if the proposed transferee is an
Agent Member, upon
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receipt by the Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Offshore Global Security in an amount equal to the principal amount
of the U.S. Physical Securities or the U.S. Global Security, as the case
may be, to be transferred, and the trustee shall cancel the Physical Secu-
rity, if any, so transferred or decrease the amount of the U.S. Global Se-
curity, as the case may be.
(f) Private Placement Legend. Upon the transfer, exchange or replacement of
Securities not bearing the Private Placement Legend, the Registrar shall de-
liver Securities that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Securities bearing the Private Place-
ment Legend, the Registrar shall deliver only Securities that bear the Pri-
vate Placement Legend unless either (i) the circumstances contemplated by
the fifth paragraph of Section 2.02 or paragraph (a)(i)(x) or (e)(ii) of
this Section 2.09 exist or (ii) there is delivered to the Registrar an Opin-
ion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securi-
ties Act.
(g) General. By its acceptance of any Security bearing the Private Place-
ment Legend, each Holder of such a Security acknowledges the restrictions on
transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as pro-
vided in this Indenture. The Registrar shall not register a transfer of any
Security unless such transfer complies with the restrictions on transfer of
such Security set forth in this Indenture. In connection with any transfer
of Securities, each Holder agrees by its acceptance of the Securities to
furnish the Registrar or the Company such certifications, legal opinions or
other information as either of them may reasonably require to confirm that
such transfer is being made pursuant to an exemption from, or a transaction
not subject to, the registration requirements of the Securities Act; pro-
vided that the Registrar shall not be required to determine (but may rely on
a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.08 or this Section 2.09. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
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Section 2.10. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
In case any temporary or definitive Security shall become mutilated, defaced
or be apparently destroyed, lost or stolen, the Company in its discretion may
execute, and upon the written request of any Officer of the Company, the
Trustee shall authenticate and make available for delivery, a new Security,
bearing a number not contemporaneously outstanding, in exchange and substitu-
tion for the mutilated or defaced Security, or in lieu of and substitution for
the Security so apparently destroyed, lost or stolen. In every case the appli-
cant for a substitute Security shall furnish to the Company and to the Trustee
and any agent of the Company or the Trustee such security or indemnity as may
be required by them to indemnify and defend and to save each of them harmless
and, in every case of destruction, loss or theft, evidence to their satisfac-
tion of the apparent destruction, loss or theft of such Security and of the
ownership thereof.
Upon the issuance of any substitute Security, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case any Security which
has matured or is about to mature, or has been called for redemption in full,
shall become mutilated or defaced or be apparently destroyed, lost or stolen,
the Company may, instead of issuing a substitute Security, pay or authorize
the payment of the same (without surrender thereof except in the case of a mu-
tilated or defaced Security), if the applicant for such payment shall furnish
to the Company and to the Trustee and any agent of the Company or the Trustee
such security or indemnity as any of them may require to save each of them
harmless from all risks, however remote, and, in every case of apparent de-
struction, loss or theft, the applicant shall also furnish to the Company and
the Trustee and any agent of the Company or the Trustee evidence to their sat-
isfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or sto-
len shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Security shall be at
any time enforceable by anyone and shall be entitled to all the benefits of
(but shall be subject to all the limitations of rights set forth in) this In-
denture equally and proportionately with any and all other Securities duly au-
thenticated and delivered hereunder. All Securities shall be held and owned
upon the express condition that, to the extent
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permitted by law, the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, defaced, or apparently destroyed, lost or
stolen Securities and shall preclude any and all other rights or remedies not-
withstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
Section 2.11. Outstanding Securities.
The Securities outstanding at any time are all Securities that have been au-
thenticated by the Trustee except for (a) those cancelled by it, (b) those de-
livered to it for cancellation, (c) to the extent set forth in Sections 9.01
and 9.02, on or after the date on which the conditions set forth in Section
9.01 or 9.02 have been satisfied, those Securities theretofore authenticated
by the Trustee hereunder and (d) those described in this Section 2.11 as not
outstanding. Subject to Section 2.12, a Security does not cease to be out-
standing because the Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.10, it ceases to be outstand-
ing unless the Trustee receives proof satisfactory to it that the replaced Se-
curity is held by a bona fide purchaser in whose hands such Security is a le-
gal, valid and binding obligation of the Company.
If the principal amount of any Security is considered to be paid under Sec-
tion 4.01, it ceases to be outstanding and interest thereon shall cease to ac-
crue.
If the Paying Agent holds, in its capacity as such, on the Stated Maturity of
a Security, on any Redemption Date or any Purchase Date, money sufficient to
pay all accrued interest and Additional Interest and principal with respect to
such Securities payable on that date and is not prohibited from paying such
money to the Holders thereof pursuant to the terms of this Indenture, then on
and after that date such Securities cease to be outstanding and interest on
them ceases to accrue.
Section 2.12. Treasury Securities.
In determining whether the Holders of the required principal amount of Secu-
rities have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Securities owned by the Compa-
ny, any Guarantor or any of their respective Affiliates shall be disregarded
as though they were not outstanding, except that for the purposes of determin-
ing whether the Trustee shall be protected in relying on any such direction,
waiver
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or consent or any amendment, modification or other change to this Indenture,
only Securities that the Trustee actually knows are so owned shall be so
disregarded.
The Trustee may require an Officers' Certificate listing securities owned by
the Company, any Guarantor or any of their respective Affiliates.
Section 2.13. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute and
the Trustee shall authenticate and deliver temporary Securities (printed,
lithographed, typewritten or otherwise reproduced, in each case in form satis-
factory to the Trustee). Temporary Securities shall be issuable as registered
Securities without coupons, of any authorized denomination, and substantially
in the form of the definitive Securities but with such omissions, insertions
and variations as may be appropriate for temporary Securities, all as may be
determined by the Company with the concurrence of the Trustee. Temporary Secu-
rities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Company and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Securities. Without
unreasonable delay the Company shall execute and shall furnish definitive Se-
curities and thereupon temporary Securities may be surrendered in exchange
therefor without charge to the Registrar or the Paying Agent, and the Trustee
shall authenticate and deliver in exchange for such temporary Securities a
like aggregate principal amount of definitive Securities of authorized denomi-
nations. Until so exchanged the temporary Securities shall be entitled to the
same benefits under this Indenture as definitive Securities.
Section 2.14. Cancellation of Securities, Destruction Thereof.
All Securities surrendered for payment, redemption, registration of transfer
or exchange, if surrendered to the Company or any Agent of the Company or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be cancelled by it; and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. The Trustee may, but shall not be requied to, destroy cancelled Se-
curities held by it and deliver a certificate of destruction to the Company.
If the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are delivered to the Trustee for
cancellation.
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Section 2.15. CUSIP and CINS Number.
The Company in issuing the Securities may use a "CUSIP" or "CINS" number, and
if so, such CUSIP or CINS number shall be included in notices of redemption,
repurchase or exchange as a convenience to Holders, provided, however, that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP or CINS number printed in the notice or on the Secu-
rities, and that reliance may be placed only on the other identification num-
bers printed on the Securities. The Company will promptly notify the Trustee
of any change in the CUSIP or CINS number.
Section 2.16. Deposit of Moneys.
Prior to 12:00 noon, New York City time, on each Interest Payment Date, at
the Stated Maturity of the Securities, on each Redemption Date, on each Pur-
chase Date and on the Business Day immediately following any acceleration of
the Securities pursuant to Section 6.02, the Company shall deposit with the
Paying Agent in immediately available funds money (in United States dollars)
sufficient to make cash payments, if any, due on such Interest Payment Date,
Stated Maturity, Redemption Date, Purchase Date or Business Day, as the case
may be, in a timely manner which permits the Trustee to remit payment to the
Holders on such Interest Payment Date, Stated Maturity, Redemption Date, Pur-
chase Date or Business Day, as the case may be.
ARTICLE THREE
Redemption
Section 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5(a) or 5(b)
of the Securities at the applicable redemption price set forth thereon, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed. The Company shall give such notice at
least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
The Company shall give notice of a redemption pursuant to paragraph 5(c) of
the Securities (a "Special Redemption") to the Trustee at least three Business
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Days before the Redemption Date with respect to the Special Redemption (unless
a shorter notice period shall be agreed to by the Trustee in writing), to-
gether with an Officers' Certificate stating that such redemption will comply
with the conditions contained herein.
Section 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to paragraph 5
thereof, the Trustee shall select the Securities to be redeemed pro rata or by
lot or in such other manner as the Trustee shall deem appropriate and fair and
in such a manner as to comply with any applicable requirements of any securi-
ties exchange on which such Securities are listed; provided, however, that se-
lection of the Securities to be redeemed pursuant to paragraph 5(b) of the Se-
curities shall be made by the Trustee only on a pro rata basis (based on the
then outstanding principal amounts thereof) among the Securities and the Se-
nior Notes. The Trustee shall make the selection from the Securities then out-
standing, subject to redemption and not previously called for redemption. The
Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations
larger than $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for redemp-
tion.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date (other
than with respect to a Special Redemption), the Company shall mail a notice of
redemption by first-class mail to each Holder whose Securities are to be re-
deemed; provided, however, that notice of a redemption pursuant to paragraph
5(b) of the Securities shall be mailed to each Holder whose Securities are to
be redeemed no later than 60 days following the consummation of the relevent
Equity Public Offering. In the event of a Special Redemption other than on the
Special Redemption Date, at least three Business Days before the Redemption
Date, the Company shall mail a notice of redemption by first-class mail to
each Holder of Securities.
Each notice of redemption shall identify the Securities to be redeemed and
shall state:
(1) the Redemption Date;
(2) the redemption price;
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(3) that, if any Security contains a CUSIP, CINS or other identification
number as provided in Section 2.15, no representation is being made as to
the correctness of the CUSIP, CINS, ISIN or other identification number ei-
ther as printed on the Securities or as contained in the notice of redemp-
tion and that reliance may be placed only on the other identification num-
bers printed on the Securities;
(4) the name and address of the Paying Agent to which the Securities are to
be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that, unless the Company defaults in making the redemption payment, in-
terest and Additional Interest on Securities called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the redemption price upon surrender to the
Paying Agent; and
(7) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the Redemption Date,
upon surrender of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of redemption on
behalf of the Company, in the Company's name and at the Company's expense.
Section 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for redemption be-
come due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price, plus accrued interest and Additional Interest, if any, thereon to the
Redemption Date, but interest installments whose maturity is on or prior to
such Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date.
Section 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company shall de-
posit with the Paying Agent (or if the Company is its own Paying Agent, shall,
on or before the Redemption Date, segregate and hold in trust) money suffi-
cient to pay the redemption price of and accrued interest and Additional In-
terest, if any, on all Securities to be redeemed on that date other than Secu-
rities or portions thereof called for redemption on that date which have been
delivered by the Company to the Trustee for cancellation.
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Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall au-
thenticate for the Holder a new Security equal in principal amount to the un-
redeemed portion of the Security surrendered.
ARTICLE FOUR
Covenants
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest and Additional Interest,
if any, on the Securities in the manner provided in the Securities and the
Registration Rights Agreement. An installment of principal, interest or Addi-
tional Interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary or an Affiliate of the Com-
pany) holds on that date money designated for and sufficient to pay the in-
stallment in full and is not prohibited from paying such money to the Holders
of the Securities pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the same rate per an-
num borne by the Securities. The Company shall pay interest on overdue in-
stallments of interest and Additional Interest at the same rate per annum
borne by the Securities, to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City ofNew York,
an office or agency where Securities may be surrendered for registration of
transfer or exchange or for presentation for payment and where notices and de-
mands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such presenta-
tions, surrenders, notices and demands may be made or served at the address of
the Trustee set forth in Section 13.02.
The Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all
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such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.
Section 4.03. Limitation on Transactions with Affiliates and Related Persons.
The Company will not, and will not permit any of its Subsidiaries to, enter
into directly or indirectly any transaction with an Affiliate or Related Per-
son of the Company (other than the Company or a Subsidiary of the Company),
including, without limitation, the purchase, sale, lease or exchange of prop-
erty, the rendering of any service, or the making of any guarantee, loan, ad-
vance or Investment, either directly or indirectly, involving aggregate con-
sideration in excess of $1,000,000 unless (i) a majority of the disinterested
directors of the Board of Directors of the Company 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 the Company or
such Subsidiary, as the case may be; and (ii) such transaction is, in the
opinion of a majority of the disinterested directors of the Board of Directors
of the Company evidenced by a resolution of such Board of Directors filed with
the Trustee, on terms no less favorable to the Company 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 Per-
son.
The provisions of this Section 4.03 shall not apply to (i) the Transaction or
the execution, delivery and performance of any Transaction Agreement, (ii) any
employment or indemnification agreement or similar arrangements entered into
by the Company or any of its Subsidiaries in the ordinary course of business,
(iii) transactions permitted by the provisions of Section 4.06, and (iv) the
payment of reasonable fees to directors of the Company or its Subsidiaries.
Section 4.04. Limitation on Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to, Incur,
directly or indirectly, any Indebtedness, except: (i) Indebtedness of the Com-
pany 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 the Company for the four full
fiscal quarters
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for which quarterly or annual financial statements are available next preced-
ing 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 the Compa-
ny, 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 Section 4.05 or pursuant to the terms of such Senior
Credit Facility or otherwise; (iii) Indebtedness owed by the Company to any
Wholly Owned Subsidiary of the Company or Indebtedness owed by a Subsidiary of
the Company to the Company or a Wholly Owned Subsidiary of the Company; pro-
vided, however, that upon either (I) the transfer or other disposition by such
Wholly Owned Subsidiary or the Company of any Indebtedness so permitted under
this clause (iii) to a Person other than the Company or another Wholly Owned
Subsidiary of the Company or (II) the issuance (other than directors' qualify-
ing 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 the Company or another such
Wholly Owned Subsidiary of the Company, 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, trans-
fer or other disposition, as the case may be; (iv) Indebtedness of the Company
or its Subsidiaries under any Interest Rate Agreement or Currency Agreement to
the extent entered into to hedge any other Indebtedness permitted under this
Indenture; (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 the prior clause
(i) above or the Securities or the Senior Notes; provided, however, that (I)
such Indebtedness does not exceed the principal amount (or accrued 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 Indebt-
edness refunded or the amount of any premium reasonably determined by the Com-
pany as necessary to accomplish such refunding by means of a tender offer, ex-
change offer, or privately negotiated repurchase, plus the expenses of the
Company or such Subsidiary incurred in connection therewith and (II)(A) in the
case of any refunding of Indebtedness that is pari passu with the Securities
or Guarantees thereof, such refunding Indebtedness is made pari passu with or
subordinate in right of payment to the Securities or Guarantees thereof, and,
in the case of any refunding of
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Indebtedness that is subordinate in right of payment to the Securities or
Guarantees thereof, such refunding Indebtedness is subordinate in right of
payment to the Securities 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 the Com-
pany or a Subsidiary of the Company) 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 pur-
chase made by the Company or a Subsidiary of the Company) which is conditioned
upon a change of control of the Company pursuant to provisions substantially
similar to those contained in Section 4.14 and (C) any Indebtedness Incurred
to refund any other Indebtedness is Incurred by the obligor on the Indebted-
ness being refunded or by the Company; (vi) Indebtedness of the Company or its
Subsidiaries, not otherwise permitted to be Incurred pursuant to clauses (i)
through (v) above, which, together with any other outstanding Indebtedness In-
curred pursuant to this clause (vi), has an aggregate principal amount not in
excess of $50 million at any time outstanding; and (vii) Indebtedness of the
Company under the Securities and the Senior Notes and Indebtedness of the
Guarantors under the Guarantees and the guarantees of the Senior Notes.
For purposes of determining compliance with this Section 4.04, (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, the
Company, 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 liabil-
ity in respect thereof determined in conformity with GAAP.
Section 4.05. Limitation on Certain Asset Dispositions.
(a) The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, make one or more Asset Dispositions for aggregate con-
sideration of, or in respect of assets having an aggregate fair market value
of, $25 million or more in any 12-month period, unless: (i) the Company or
such
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Subsidiary, as the case may be, receives consideration for such Asset Disposi-
tion at least equal to the fair market value of the assets sold or disposed of
as determined by the Board of Directors of the Company in good faith and evi-
denced 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 Securi-
ties or Guarantees thereof) of the Company or such Subsidiary or other obliga-
tions relating to such assets (and release of the Company 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 the Company (including
the Capital Stock of another Person (other than the Company or any Person that
is a Subsidiary of the Company immediately prior to such investment); provid-
ed, however, that immediately after giving effect to any such investment (and
not prior thereto) such Person shall be a Subsidiary of the Company), are ap-
plied, on or prior to the 360th day after such Asset Disposition, unless and
to the extent that the Company shall determine to make an Offer to Purchase,
either to (A) the permanent reduction and prepayment of any Indebtedness of
the Company (other than Indebtedness which is expressly subordinate to the Se-
curities) then outstanding (including a permanent reduction of commitments in
respect thereof) or (B) the permanent reduction and repayment of any Indebted-
ness of any Subsidiary of the Company (other than Indebtedness which is ex-
pressly subordinate to the Guarantee of such Subsidiary of the Securities)
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 As-
set Disposition and (y) the 31st day after the date that the Company shall
have determined not to apply any Net Available Proceeds from any Asset Dispo-
sition 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 the Company
has determined not to so apply shall be referred to as the "Unutilized Net
Available Proceeds." Within thirty days after the Asset Sale Offer Trigger
Date, the Company shall make an Offer to Purchase outstanding Securities at a
purchase price in cash equal to 100% of their principal amount plus any ac-
crued and unpaid interest and Additional Interest to the Purchase Date. Not-
withstanding the foregoing, the Company may defer making any Offer to Purchase
out-
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standing Securities until there are aggregate Unutilized Net Available Pro-
ceeds 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 the Company or any of its Subsidiaries ranking pari
passu with the Securities or Guarantees thereof requires that prepayment of,
or an offer to prepay, such Indebtedness be made with any Net Available Pro-
ceeds, the Company may apply such Net Available Proceeds pro rata (based on
the aggregate principal amount of the Securities then outstanding and the ag-
gregate principal amount (or accreted value, if less) of all such other In-
debtedness then outstanding) to the making of an Offer to Purchase the Securi-
ties in accordance with the foregoing provisions and the prepayment or the of-
fer to prepay such pari passu Indebtedness. The Company shall make a further
Offer to Purchase Securities in an aggregate principal amount equal to any
such Net Available Proceeds not utilized to actually prepay such other Indebt-
edness at a purchase price in cash equal to 100% of the principal amount of
the Securities plus any accrued and unpaid interest and Additional 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 the Company for any other purpose (subject to
the other provisions of this Indenture) and the amount of Net Available Pro-
ceeds then required to be otherwise applied in accordance with this Section
4.05 shall be reset to zero, subject to any subsequent Asset Disposition.
In the event that the Company makes an Offer to Purchase the Securities, the
Company shall comply with any applicable securities laws and regulations, in-
cluding any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of this Indenture relat-
ing to such Offer to Purchase occurring as a result of such compliance shall
not be deemed an Event of Default or a Default.
(b) Each Holder shall be entitled to tender all or any portion of the Securi-
ties owned by such Holder with respect to an Offer to Purchase pursuant to
this Section 4.05, subject to the requirement that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount
and subject to any proration of the Offer among tendering Holders if the ag-
gregate amount of Securities tendered exceeds the Net Available Proceeds.
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(c) Not later than the date of the Offer with respect to an Offer to Purchase
pursuant to this Section 4.05, the Company shall deliver to the Trustee an Of-
ficers' Certificate as to the Purchase Amount.
On or prior to the Purchase Date specified in the Offer to Purchase, the Com-
pany shall (i) accept for payment (on a pro rata basis, if necessary) Securi-
ties or portions thereof validly tendered pursuant to such Offer, (ii) deposit
with the Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 2.05) money sufficient to
pay the Purchase Price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee for cancellation all Se-
curities so accepted together with an Officers' Certificate stating the Secu-
rities or portions thereof accepted for payment by the Company. The Paying
Agent (or the Company, if so acting) shall promptly mail or deliver to Holders
of Securities so accepted, payment in an amount equal to the Purchase Price
for such Securities, and the Trustee shall promptly authenticate and mail or
deliver to each Holder of Securities a new Security or Securities equal in
principal amount to any unpurchased portion of the Security surrendered as re-
quested by the Holder. Any Security not accepted for payment shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Offer on or as soon as practicable after
the Purchase Date.
(d) Notwithstanding the foregoing, this Section 4.05 shall not apply to the
Transaction or any Asset Disposition consummated in compliance with the provi-
sions of Section 5.01.
(e) Any Purchase Date (as defined in the Senior Note Indenture) set for the
Senior Notes and any purchase date or dates for all other Senior Indebtedness
required by its terms to be repaid with the proceeds of an Asset Disposition
shall be a date prior to the Purchase Date established by the Company for re-
purchase of the Securities pursuant to this Section 4.05.
Section 4.06. Limitation on Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, (i) declare or pay any dividend, or make any distribu-
tion 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
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acquire its Capital Stock (other than Disqualified Stock), (y) in the case of
any Subsidiary of the Company, dividends or distributions payable to the Com-
pany or a Subsidiary of the Company or (z) the dividends and distributions
paid or made in connection with the Transaction on or prior to the date of the
Shipbuilding Distribution, (ii) purchase, redeem, or otherwise acquire or re-
tire for value shares of Capital Stock of the Company or any of its Subsidiar-
ies, any options, warrants or rights to purchase or acquire shares of Capital
Stock of the Company or any of its Subsidiaries or any securities convertible
or exchangeable into shares of Capital Stock of the Company or any of its Sub-
sidiaries, excluding any such shares of Capital Stock, options, warrants,
rights or securities which are owned by the Company or a Subsidiary of the
Company, (iii) make any Investment in (other than a Permitted Investment), or
payment on a guarantee of any obligation of, any Person, other than the Com-
pany or a Wholly Owned Subsidiary of the Company, or (iv) redeem, defease, re-
purchase, retire or otherwise acquire or retire for value, prior to any sched-
uled maturity, repayment or sinking fund payment, Indebtedness which is subor-
dinate in right of payment to the Securities (each of the transactions de-
scribed 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 contin-
uing, or (2) upon giving effect to such Restricted Payment, the Company could
not Incur at least $1.00 of additional Indebtedness pursuant to clause (i) of
Section 4.04, or (3) upon giving effect to such Restricted Payment, the aggre-
gate of all Restricted Payments made on or after the Issue Date exceeds the
sum of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in
the case cumulative Consolidated Net Income of the Company 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 finan-
cial statements are available; plus (b) 100% of the aggregate net proceeds re-
ceived after the Issue Date (other than pursuant to or in connection with the
Shipbuilding Distribution or the Transaction), including the fair market value
of property other than cash (determined in good faith by the Board of Direc-
tors of the Company as evidenced by a resolution of such Board of Directors
filed with the Trustee), from the issuance of Capital Stock of the Company
(other than Disqualified Stock) and warrants, rights or options on Capital
Stock of the Company (other than Disqualified Stock) (other than in respect of
any such issuance to a Subsidiary of the Company) and the principal amount of
Indebtedness of the Company or any of its Subsidiaries that has been converted
into or exchanged
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for Capital Stock of the Company which Indebtedness was Incurred after the Is-
sue Date; plus (c) in the case of the disposition or repayment of any Invest-
ment 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 disposi-
tion of such Investment; provided, however, that at the time any such Invest-
ment is made the Company delivers to the Trustee a resolution of its Board of
Directors to the effect that, for purposes of this Section 4.06, such Invest-
ment 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 the Company or any Subsidiary of the Company paid within
60 days after the declaration thereof if, on the date when the dividend was
declared, the Company or such Subsidiary, as the case may be, could have paid
such dividend in accordance with the provisions of this Indenture, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to clause (v) of Section 4.04, (iii) the exchange or con-
version of any Indebtedness of the Company or any Subsidiary of the Company
for or into Capital Stock of the Company (other than Disqualified Stock of the
Company), (iv) any payments, loans or other advances made pursuant to any em-
ployee benefit plans (including plans for the benefit of directors) or employ-
ment agreements or other compensation arrangements, in each case as approved
by the Board of Directors of the Company in its good faith judgment, (v) the
redemption of the Company's rights issued pursuant to the Rights Agreement be-
tween the Company 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 the Company (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 busi-
nesses of the Company and its Subsidiaries as of the Issue Date in an aggre-
gate outstanding amount (valued at the cost thereof) not to exceed at any time
$50 million, (viii) the redemption, repurchase, retirement or other acquisi-
tion of any Capital Stock of the Company in exchange for or out of the net
cash proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of Capital Stock of the Company (other than Disqualified
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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 Securities in exchange for or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Compa-
ny) of Capital Stock of the Company (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 para-
graph or (x) so long as no Default or Event of Default has occurred and is
continuing, the payment of cash dividends on the Company's Common Stock not to
exceed $5.5 million in any fiscal year of the Company. Each Restricted Payment
described in clauses (i), (iv), (v), (vii) and (x) 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.
Section 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each of its
Subsidiaries in accordance with the respective organizational documents of
each such Subsidiary and the rights (charter and statutory) and material fran-
chises of the Company and its Subsidiaries; provided, however, that the Com-
pany shall not be required to preserve any such right or franchise, or the
corporate existence of any Subsidiary, if the Board of Directors of the Com-
pany shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not, and will not be, adverse in any mate-
rial respect to the Holders; provided, further, however, that a determination
of the Board of Directors of the Company shall not be required in the event of
a merger of one or more Wholly Owned Subsidiaries of the Company with or into
another Wholly Owned Subsidiary of the Company or another Person, if the sur-
viving Person is a Wholly Owned Subsidiary of the Company organized under the
laws of the United States or a State thereof or of the District of Columbia.
Section 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all material taxes, assessments and gov-
ernmental charges levied or imposed upon the Company or any Subsidiary of the
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Company or upon the income, profits or property of the Company or any Subsidi-
ary of the Company and (2) all lawful claims for labor, materials and supplies
which, in each case, if unpaid, might by law become a material liability, or
Lien upon the property, of the Company or any Subsidiary of the Company; pro-
vided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by appro-
priate proceedings and for which appropriate provision has been made.
Section 4.09. Notice of Defaults.
(1) In the event that any Indebtedness of the Company or any of its Subsidi-
aries is declared due and payable before its maturity because of the occur-
rence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or pro-
poses to take with respect thereto.
(2) Upon becoming aware of any Default or Event of Default, the Company shall
promptly deliver an Officers' Certificate to the Trustee specifying the De-
fault or Event of Default.
Section 4.10. Maintenance of Properties.
The Company shall cause all material properties owned by or leased to it or
any of its Subsidiaries and used or useful in the conduct of its business or
the business of any of its Subsidiaries to be maintained and kept in normal
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such proper-
ties, or disposing of any of them, if such discontinuance or disposal is, in
the judgment of the Board of Directors or of the board of directors of the
Subsidiary concerned, or of an officer (or other agent employed by the Company
or of any of its Subsidiaries) of the Company or such Subsidiary having mana-
gerial responsibility for any such property, desirable in the conduct of the
business of the Company or any of its Subsidiaries, and if such discontinuance
or disposal is not adverse in any material respect to the Holders.
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Section 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 55 days after the end of each
of the first three fiscal quarters of the Company and within 100 days after
the close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the super-
vision of the signing officers with a view to determining whether a Default or
Event of Default has occurred and whether or not the signers know of any De-
fault or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do know of such a Default or Event of Default,
the certificate shall describe all such Defaults or Events of Default, their
status and the action the Company is taking or proposes to take with respect
thereto. The first certificate to be delivered by the Company pursuant to this
Section 4.11 shall be for the fiscal year ending December 31, 1996.
Section 4.12. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d) of the Ex-
change Act, or any successor provision thereto, the Company shall file with
the SEC the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to such Section
13(a) or 15(d) or any successor provision thereto if the Company were so re-
quired, such documents to be filed with the SEC on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been re-
quired so to file such documents if the Company were so required. The Company
shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit
by mail to all Holders of Securities, as their names and addresses appear in
the Security Register, without cost to such Holders, and (ii) file with the
Trustee, copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC 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, the filing
of such documents by the Company with the SEC is not permitted under the Ex-
change Act, promptly upon written request supply copies of such documents to
any Holder. The Company will also comply with (S) 314(a) of the TIA.
Section 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatso-
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ever claim or take the benefit or advantage of, any stay or extension law or
any usury law or other law, which would prohibit or forgive the Company or
such Guarantor from paying all or any portion of the principal of and/or in-
terest and/or Additional Interest, if any, on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company and each Guarantor hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
Section 4.14. Change of Control.
(a) The Company shall, within 45 days following the date of the consummation
of a transaction resulting in a Change of Control, commence an Offer to Pur-
chase all outstanding Securities at a purchase price in cash equal to 101% of
their aggregate principal amount plus any accrued and unpaid interest and Ad-
ditional Interest thereon to the Purchase Date. Each Holder shall be entitled
to tender all or any portion of the Securities owned by such Holder pursuant
to the Offer to Purchase, subject to the requirement that any portion of a Se-
curity tendered must be tendered in an integral multiple of $1,000 principal
amount.
(b) On or prior to the Purchase Date specified in the Offer to Purchase, the
Company shall (i) accept for payment all Securities or portions thereof val-
idly tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust
as provided in Section 2.05) money sufficient to pay the Purchase Price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof ac-
cepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of Se-
curities a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the re-
sults of the Offer on or as soon as practicable after the Purchase Date.
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(c) A "Change of Control" will be deemed to have occurred in the event that
(whether or not otherwise permitted by this Indenture) after the Issue Date
(a) any Person or any Persons acting together that would constitute a group
(other than, until the date all of the outstanding Common Stock of the Company
is distributed by Tenneco to its common stockholders, Tenneco) (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 "ben-
eficially own" (as defined in Rule 13d-3 under the Exchange Act, or any suc-
cessor provision thereto) at least 35% of the voting power of the outstanding
Voting Stock of the Company; (b) any sale, lease or other transfer (in one
transaction or a series of related transactions) is made by the Company or any
of its Subsidiaries of all or substantially all of the consolidated assets of
the Company to any Person (other than a Wholly Owned Subsidiary of the Company
which is a Guarantor); (c) Continuing Directors cease to constitute at least a
majority of the Board of Directors of the Company; or (d) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company.
(d) In the event that the Company makes an Offer to Purchase the Securities
pursuant to this Section 4.14, the Company shall comply with any applicable
securities laws and regulations, including any applicable requirements of Sec-
tion 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the
provisions of this Indenture relating to such Offer to Purchase occurring as a
result of such compliance shall not be deemed a Default or an Event of De-
fault.
(e) Any Purchase Date (as defined in the Senior Note Indenture) set for the
Senior Notes and any purchase date or dates for all other Senior Indebtedness
required to be repaid by its terms in the event of a Change of Control shall
be a date prior to the Purchase Date established by the Company for repurchase
of the Securities pursuant to this Section 4.14.
(f) A third party may also make and consummate an Offer to Purchase the Secu-
rities in the manner and at the times and otherwise in compliance with this
Section 4.14.
Section 4.15. Limitation on Senior Subordinated Indebtedness.
The Company shall not (i) directly or indirectly Incur any Indebtedness that
by its terms would expressly rank senior in right of payment to the Securities
and expressly rank subordinate in right of payment to any Senior Indebtedness
of the Company or (ii) permit any Guarantor to, and no Guarantor will, di-
rectly or indirectly Incur any Indebtedness that by its terms would expressly
rank senior
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in right of payment to the Guarantee of such Guarantor and expressly rank sub-
ordinate in right of payment to any Guarantor Senior Indebtedness of such
Guarantor.
Section 4.16. Limitations Concerning Distributions and Transfers by Subsidiar-
ies.
The Company will not, and will not permit any of its Subsidiaries to, di-
rectly or indirectly, create or otherwise cause or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary of the
Company to (i) pay, directly or indirectly, dividends or make any other dis-
tributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Subsidiary of the Company, (ii) make
loans or advances to the Company or any Subsidiary of the Company or guarantee
any Indebtedness of the Company or any of its Subsidiaries or (iii) transfer
any of its property or assets to the Company or any Subsidiary of the Company,
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 Se-
nior 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 the Company and
outstanding on such date and not Incurred in anticipation or contemplation of
becoming a Subsidiary of the Company and provided such encumbrance or restric-
tion shall not apply to any assets of the Company 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 as-
sets, (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 agree-
ment 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
the Company as evidenced by a resolution of such Board of Directors filed with
the Trustee, (e) this Indenture and the Senior Note Indenture, (f) applicable
law, (g) customary provisions restricting subletting or assignment of any
lease governing any leasehold interest of any Subsidiary of the Company, (h)
purchase money obligations for property acquired in the ordinary course of
business that
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impose restrictions of the type referred to in clause (iii) of this Section
4.16 or (i) restrictions of the type referred to in clause (iii) of this Sec-
tion 4.16 contained in security agreements securing Indebtedness of a Subsidi-
ary of the Company to the extent that such Liens were otherwise incurred in
accordance with this Indenture and the Senior Note Indenture and restrict the
transfer of property subject to such agreements.
Section 4.17. Limitation on Issuance and Sale of Capital Stock of Subsidiar-
ies.
The Company (a) will not, and will not permit any Subsidiary of the Company
to, transfer, convey, sell or otherwise dispose of any shares of Capital Stock
of such Subsidiary or any other Subsidiary (other than to the Company or a
Wholly Owned Subsidiary of the Company), except that the Company and any Sub-
sidiary of the Company may, in any single transaction, sell all, but not less
than all, of the issued and outstanding Capital Stock of any Subsidiary of the
Company to any Person, subject to complying with the provisions of Section
4.05 and except for the Incurrence of Liens permitted under Section 4.18 and
(b) will not permit any Subsidiary of the Company to issue shares of its Capi-
tal 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 the Company or a Wholly Owned
Subsidiary of the Company.
Section 4.18. Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries to, Incur
any Lien on or with respect to any property or assets of the Company or any
Subsidiary of the Company owned on the Issue Date or thereafter acquired or on
the income or profits thereof to secure Indebtedness of any Person (other than
Senior Indebtedness of the Company or Guarantor Senior Indebtedness) without
making, or causing such Subsidiary to make, effective provision for securing
the Securities and all other amounts due under this Indenture (and, if the
Company shall so determine, any other Indebtedness of the Company or such Sub-
sidiary, including Indebtedness which is subordinate in right of payment to
the Securities or the Guarantee thereof by such Subsidiary; provided, however,
that Liens securing the Securities and any Indebtedness pari passu with the
Securities or such Guarantee are senior to such Liens securing such subordi-
nated Indebtedness) equally and ratably with such Indebtedness or, in the
event such Indebtedness is subordinate in right of payment to the Securities
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 re-
strictions shall not apply to (i) Liens
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securing Senior Indebtedness of the Company or Guarantor Senior Indebtedness;
(ii) Liens securing the Securities or the Guarantees thereof; (iii) Liens with
respect to assets of a Subsidiary of the Company granted by such Subsidiary to
the Company or a Wholly Owned Subsidiary of the Company to secure Indebtedness
owing by such Subsidiary to the Company 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 the Com-
pany or a Subsidiary of the Company within 180 days of the acquisition, con-
struction or improvement of such property and (d) the Incurrence of Indebted-
ness is permitted by Section 4.04; (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 the Company or any
Subsidiary of the Company (and not created in anticipation or contemplation
thereof); (vii) Liens existing on the Issue Date securing Indebtedness exist-
ing 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 re-
ferred to in the foregoing clauses (i)-(vii) so long as such Liens do not ex-
tend 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 pre-
mium reasonably determined by the Company as necessary to accomplish such re-
newal, refinancing or refunding by means of a tender offer, exchange offer or
privately negotiated repurchase, plus the expenses of the Company or such Sub-
sidiary incurred in connection with such renewal, refinancing or refunding;
and (ix) Permitted Liens.
Section 4.19. Deposit of Funds with Trustee Pending Consummation of the Ship-
building Distribution.
(a) On the Issue Date, the Company shall deposit with the Trustee as herein-
after provided the net proceeds of the offering of the Securities before de-
ducting offering expenses ($195,000,000) (the "Net Offering Proceeds").
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(b) In order to partially secure the payment and performance of the Company's
obligation to redeem the Securities upon a Special Redemption, the Company
hereby grants to the Trustee, for the benefit of the Holders, a continuing se-
curity interest in and to the Collateral, whether now owned or existing or
hereafter acquired or arising. The Trustee shall have no obligation to file
any financing statement or otherwise take any action to maintain or perfect
any such security interest.
(c) At all times until the earlier to occur of (i) March 31, 1997 (the "Spe-
cial Redemption Date"), if the Shipbuilding Distribution shall not have been
consummated on or prior to the Special Redemption Date, (ii) receipt by the
Trustee of an Officers' Certificate stating that a material condition to the
Shipbuilding Distribution will not be satisfied on or prior to the Special Re-
demption Date and (iii) receipt by the Trustee of an Officers' Certificate in
the form of Exhibit D hereto stating that each of the material conditions to
the Shipbuilding Distribution have been satisfied, there shall be maintained
with the Trustee an account (the "Collateral Account") designated "Newport
News Shipbuilding Inc. Account Pledged to The Bank of New York, as Trustee,"
which account shall be under the sole dominion and control of the Trustee. On
the Issue Date, the Company shall cause the Net Offering Proceeds to be depos-
ited in the Collateral Account. Amounts on deposit in the Collateral Account
shall be invested and reinvested in Cash Equivalents as directed by the Com-
pany in writing. In the event the Company shall fail to provide such direc-
tions to the Trustee, the Trustee shall invest amounts on deposit in the Col-
lateral Account in Cash Equivalents. Any income received with respect to the
balance from time to time standing to the credit of the Collateral Account,
including any interest or capital gains on Cash Equivalents, shall remain, or
be deposited, in the Collateral Account. The Trustee shall not be liable or
accountable for any losses resulting without negligence on the part of the
Trustee from the sale or depreciation in the market value of any investment of
amounts on deposit in the Collateral Account. Subject to Article Seven hereof,
the Trustee solely in its individual capacity hereby waives any rights it may
have in such individual capacity to the Collateral Account and all funds and
investments therein including, without limitation, any such rights arising
through any counterclaim, defense, recoupment, charge, lien or right of set-
off.
(d) Upon the occurrence of the event specified in subclause (c) (iii) above,
the security interest in the Collateral shall terminate as of the date of re-
ceipt by the Trustee of the Officers' Certificate described in subclause
(c)(iii) above and all
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funds in the Collateral Account (the "Collateral Funds") shall be released to
the Company to an account designated by the Company by wire transfer of imme-
diately available funds. Upon the occurrence of either of the events specified
in subsections (c) (i) and (c) (ii) above, the Trustee shall apply the Collat-
eral Funds to fund the Special Redemption. Section 314(d) of the TIA shall not
apply to the release of Collateral pursuant to this provision if such release
occurs prior to the filing of the Registration Statement under the Securities
Act pursuant to the Registration Rights Agreement, after which time this sen-
tence shall be deemed deleted from this Indenture.
ARTICLE FIVE
Mergers; Successor Corporation
Section 5.01. Restriction on Mergers, Consolidations and Certain Sales of
Assets.
Neither the Company nor any Subsidiary of the Company will consolidate or
merge with or into any Person, and the Company will not, and will not permit
any of its Subsidiaries to, sell, assign, lease, convey or otherwise dispose
of all or substantially all of the Company's consolidated assets (as an en-
tirety 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 con-
solidation or merger (if other than the Company 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 Co-
lumbia; provided, however, that any Subsidiary (other than a 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 ex-
isting; (ii) the Surviving Entity assumes by supplemental indenture all of the
obligations, if any, of the Company or such Subsidiary, as the case may be, on
the Securities or such Guarantor's Guarantee, as the case may be, and under
this Indenture; (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 the Company or the Surviving Entity (in the case of any transac-
tion involving the Company or all or substantially all of the Company's con-
solidated assets), as the case may be, would be at least equal to the Consoli-
dated Net Worth of the Company immediately prior to such transaction; (iv) im-
mediately after giving effect to such transaction and the use of any net pro-
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ceeds therefrom on a pro forma basis, the Company or the Surviving Entity (in
the case of any transaction involving the Company or all or substantially all
of the Company's consolidated assets), as the case may be, could Incur at
least $1.00 of Indebtedness pursuant to clause (i) of Section 4.04; (v) imme-
diately before and after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of the Company or such Subsidiary, as
the case may be, as a result of such transaction as having been incurred by
the Company or such Subsidiary, as the case may be, at the time of the trans-
action, no Event of Default or event that with the passing of time or the giv-
ing of notice, or both, would constitute an Event of Default shall have oc-
curred and be continuing; and (vi) if, as a result of any such transaction,
property or assets of the Company or a Subsidiary of the Company would become
subject to a Lien not excepted from the provisions of Section 4.18, the Compa-
ny, any such Subsidiary or the Surviving Entity, as the case may be, shall
have secured the Securities as required by said Section 4.18. The provisions
of this Section 5.01 shall not apply to any merger of a Subsidiary of the Com-
pany with or into the Company or a Wholly Owned Subsidiary of the Company or
any transaction pursuant to which a Guarantor's Guarantee is to be released in
accordance with the terms of the Guarantee and this Indenture in connection
with any transaction complying with the provisions of Section 4.05.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation of the Company or any Subsidiary of the Company with,
or merger of the Company or any such Subsidiary into, any other Person or any
sale, assignment, lease, conveyance or other disposition of all or substan-
tially all of the Company's consolidated assets (as an entirety or substan-
tially as an entirety in one transaction or a series of related transactions,
including by way of liquidation or dissolution) in accordance with Section
5.01, upon the execution of a supplemental indenture by the Surviving Person
in form and substance satisfactory to the Trustee (in reliance on an Opinion
of Counsel) (as evidenced by the Trustee's execution thereof), the Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of and shall assume all obligations of, the Company or such Subsidi-
ary, as the case may be, under this Indenture and the Securities or the Guar-
antees, as the case may be, with the same effect as if such Surviving Person
had been named as the Company or such Subsidiary, as the case may be, herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the Securi-
ties or the Guarantees, as the case may be.
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ARTICLE SIX
Default and Remedies
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company fails to pay any interest or Additional Interest on any Se-
curity when the same becomes due and payable and the Default continues for a
period of 30 days, whether or not such payment is prohibited by Article
Eight hereof;
(2) the Company fails to pay the principal of any Security when the same
becomes due and payable at maturity, upon redemption, upon repurchase pursu-
ant to an Offer to Purchase or otherwise, whether or not such payment is
prohibited by Article Eight hereof;
(3) the Company fails to perform or comply with any of the provisions of
Section 5.01;
(4) the Company fails to perform any other covenant, warranty or agreement
under this Indenture or in the Securities, and the Default continues for the
period and after the notice specified in the last paragraph of this Section
6.01;
(5) a default or defaults under the terms of one or more instruments evi-
dencing or securing Indebtedness of the Company or any Subsidiary of the
Company having an outstanding principal amount of $30 million or more indi-
vidually or in the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or the Company or any of its Subsidiaries fails
to pay principal when due at the stated maturity of any such Indebtedness;
(6) there shall have been any final judgment or judgments (not subject to
appeal) against the Company or any Material Subsidiary of the Company 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;
(7) the Company or any of its Material Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in an invol-
untary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all or sub-
stantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
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(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary of the
Company in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any Material Subsidiary of the
Company or for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material Subsidiary of
the Company,
and in each case the order or decree remains unstayed and in effect for 60
days; provided, however, that if the entry of such order or decree is ap-
pealed and dismissed on appeal then the Event of Default hereunder by reason
of the entry of such order or decree shall be deemed to have been cured;
(9) the Guarantee of any Guarantor ceases to be in full force and effect
(other than in accordance with the terms of such Guarantee and this Inden-
ture) 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 such Guarantee and this Indenture); or
(10) the Company fails to either (x) consummate the Shipbuilding Distribu-
tion on or prior to the Special Redemption Date or (y) effect a Special Re-
demption pursuant to Section 4.19 of this Indenture on or prior to the Spe-
cial Redemption Date, whether or not payment upon the Special Redemption is
prohibited by Article Eight hereof.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official un-
der any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the Trustee noti-
fies the Company, or the Holders of at least 25% in principal amount of the
outstanding Securities notify the Company and the Trustee, of the Default in
writing and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default." Such notice shall be given
by the Trustee if so requested by the Holders of at least 25% in principal
amount of the Securities then outstanding. When a Default is cured, it ceases.
Section 6.02. Acceleration.
If an Event of Default with respect to the Securities (other than an Event of
Default specified in clause (7) or (8) of Section 6.01 with respect to the
Company) occurs and is continuing, the Trustee or the Holders of at least 25%
in
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aggregate principal amount of the outstanding Securities by notice in writing
to the Company (and to the Trustee if given by the Holders) may declare the
unpaid principal of and accrued interest and Additional Interest, if any, to
the date of acceleration on all the outstanding Securities to be due and pay-
able immediately and, upon any such declaration, such principal amount and ac-
crued interest and Additional Interest, if any, notwithstanding anything con-
tained in this Indenture or the Securities to the contrary, but subject to the
provisions limiting payment in Article Eight hereof, shall become immediately
due and payable; provided, however, that so long as the Senior Credit Facility
shall be in full force and effect or the Senior Notes shall be outstanding, if
an Event of Default shall have occurred and be continuing (other than an Event
of Default specified in clause (7) or (8) of Section 6.01 with respect to the
Company), the Securities 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 Securities to the agent under the Senior Credit Facility
and the trustee under the Senior Note Indenture, 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 of Default specified in clause (7) or (8) of Section 6.01 with
respect to the Company occurs all unpaid principal of and accrued interest and
Additional Interest, if any, on the outstanding Securities shall ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder thereof.
After a declaration of acceleration, but before a judgment or decree of the
money due in respect of the Securities has been obtained, the Holders of not
less than a majority in aggregate principal amount of the Securities then out-
standing by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest and Additional Interest, if any, on the Securities
which has become due solely by virtue of such acceleration) have been cured or
waived and if the rescission would not conflict with any judgment or decree.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest or Additional Interest, if any, on the Securities or
to enforce the performance of any provision of the Securities or this Inden-
ture.
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The Trustee may maintain a proceeding even if it does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or omis-
sion by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or con-
stitute a waiver of or acquiescence in the Event of Default. No remedy is ex-
clusive of any other remedy. All available remedies are cumulative to the ex-
tent permitted by law.
Section 6.04. Waiver of Past Default.
Subject to Sections 2.12, 6.07 and 10.02, prior to the declaration of accel-
eration of the Securities, the Holders of not less than a majority in aggre-
gate principal amount of the outstanding Securities by written notice to the
Trustee may waive an existing Default or Event of Default and its conse-
quences, except a Default in the payment of principal of or interest or Addi-
tional Interest on any Security as specified in clauses (1) and (2) of Section
6.01 or a Default in respect of any term or provision of this Indenture that
may not be amended or modified without the consent of each Holder affected as
provided in Section 10.02. The Company shall deliver to the Trustee an Offi-
cers' Certificate stating that the requisite percentage of Holders have con-
sented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to
their former positions and rights hereunder and under the Securities, respec-
tively. This paragraph of this Section 6.04 shall be in lieu of (S)
316(a)(1)(B) of the TIA and such (S) 316(a)(1)(B) of the TIA is hereby ex-
pressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be deemed to have
been cured and not to have occurred, and any Event of Default arising there-
from shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
Section 6.05. Control by Majority.
Subject to Section 2.12, the Holders of a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
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that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of another Securityholder, or that may in-
volve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee which is not inconsis-
tent with such direction. In the event the Trustee takes any action or follows
any direction pursuant to this Indenture, the Trustee shall be entitled to in-
demnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of (S) 316(a)(1)(A) of the TIA, and such (S)
316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and
the Securities, as permitted by the TIA.
Section 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of the out-
standing Securities make a written request to the Trustee to pursue a reme-
dy;
(3) such Holder or Holders offer and, if requested, provide to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or ex-
pense;
(4) the Trustee does not comply with the request within 60 days after re-
ceipt of the request and the offer and, if requested, the provision of in-
demnity; and
(5) during such 60-day period the Holders of a majority in principal amount
of the outstanding Securities (excluding Affiliates of the Company) do not
give the Trustee a direction which, in the opinion of the Trustee, is incon-
sistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of an-
other Securityholder or to obtain a preference or priority over such other
Securityholder.
Section 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest and Additional Inter-
est, if any, on the Security, on or after the respective due dates expressed
in the Security, or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of the Holder.
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Section 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest, Additional Interest or princi-
pal specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole
amount of principal, accrued interest and Additional Interest, if any, remain-
ing unpaid, together with interest overdue on principal and to the extent that
payment of such interest is lawful, interest on overdue installments of inter-
est and Additional Interest, if any, in each case at the rate per annum borne
by the Securities and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation, ex-
penses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee (in-
cluding any claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and the Securityholders al-
lowed in any judicial proceedings relative to the Company (or any other obli-
gor upon the Securities), its creditors or its property and shall be entitled
and empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian
in any such judicial proceedings is hereby authorized by each Securityholder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any
other amounts due the Trustee under Section 7.07. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Securityholder any plan of reorganization, arrange-
ment, adjustment or composition affecting the Securities or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Securityholder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article Six,
it shall pay out the money or property in the following order:
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First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for princi-
pal, interest and Additional Interest, if any, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Se-
curities for principal, interest and Additional Interest, if any, respec-
tively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party liti-
gant in the suit of an undertaking to pay the costs of the suit, and the court
in its discretion may assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in the suit, having due regard to the merits
and good faith of the claims or defenses made by the party litigant. This Sec-
tion 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or
group of Holders of more than 10% in aggregate principal amount of the out-
standing Securities, or to any suit instituted by any Holder for the enforce-
ment or the payment of the principal, interest or Additional Interest on any
Securities on or after the respective due dates expressed in the Security.
ARTICLE SEVEN
Trustee
Section 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill in their exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of such du-
ties as are specifically set forth herein; and
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(2) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions conforming to the require-
ments of this Indenture; however, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee shall not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, ex-
cept that:
(1) This paragraph does not limit the effect of paragraph (b) of this Sec-
tion 7.01;
(2) The Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer, unless it is proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the perfor-
mance of any of its duties hereunder or to take or omit to take any action un-
der this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive an indemnity satisfactory to it in
its sole discretion against such risk, liability, loss, fee or expense which
might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the Trustee
is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required
by law.
Section 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may require an Of-
ficers' Certificate and an Opinion of Counsel, which shall conform to the
provisions of Section 13.05. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through attorneys and agents of its selection and
shall not be responsible for the misconduct or negligence of any agent or
attorney (other than an agent who is an employee of the Trustee) appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized or within
its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of such
counsel as to matters of law shall be full and complete authorization and
protection from liability in respect of any action taken, omitted or suf-
fered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be suf-
ficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolu-
tion.
(g) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any
of the Securityholders pursuant to this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable security or in-
demnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, deben-
ture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investiga-
tion into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be enti-
tled to examine the books, records and premises of the Company, personally
or by agent or attorney.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or its Affili-
ates with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights. However, the Trustee is subject to Sections 7.10
and 7.11.
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Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the Trustee
knows of such Defaults or Events of Default, the Trustee shall mail to each
Securityholder notice of the Default or Event of Default within 30 days after
the occurrence thereof. Except in the case of a Default or an Event of Default
in payment of principal of or interest or Additional Interest on any Security
or a Default or Event of Default in complying with Section 5.01, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interest of
Securityholders. This Section 7.05 shall be in lieu of the proviso to (S)
315(b) of the TIA and such proviso to (S) 315(b) of the TIA is hereby ex-
pressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Section 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each June 15 beginning
with the June 15 following the date of this Indenture, the Trustee shall mail
to each Securityholder a report dated as of such June 15 that complies with
TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange, if any, on which the Se-
curities are listed.
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or of any delisting thereof.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for its
services. The Trustee's compensation shall not be limited by any law on com-
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pensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
(including fees, disbursements and expenses of its agents and counsel) in-
curred or made by it in addition to the compensation for its services except
any such disbursements, expenses and advances as may be attributable to the
Trustee's negligence or bad faith. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel and any taxes or other expenses incurred by a trust cre-
ated pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless against any
and all loss, damage, claims, liability or expense, including taxes (other
than franchise taxes imposed on the Trustee and taxes based upon, measured by
or determined by the income of the Trustee), arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder, in-
cluding the costs and expenses of defending itself against any claim or lia-
bility in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent that such loss, damage, claim, liabil-
ity or expense is due to its own negligence or bad faith. The Trustee shall
notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed
by the Trustee will be limited to the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need
not reimburse any expense or indemnify against any loss or liability incurred
by the Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations in this Section 7.07, the Trustee
shall have a Lien prior to the Securities against all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or prop-
erty held in trust to pay principal of or interest or Additional Interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of De-
fault specified in Section 6.01(7) or (8) occurs, the expenses (including the
reasonable
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fees and expenses of its agents and counsel) and the compensation for the
services shall be preferred over the status of the Holders in a proceeding un-
der any Bankruptcy Law and are intended to constitute expenses of administra-
tion under any Bankruptcy Law. The Company's obligations under this Section
7.07 and any claim arising hereunder shall survive the resignation or removal
of any Trustee, the discharge of the Company's obligations pursuant to Article
Nine and any rejection or termination under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in writing.
The Holders of a majority in principal amount of the outstanding Securities
may remove the Trustee by so notifying the Trustee and the Company in writing
and may appoint a successor Trustee with the Company's consent. The Company
may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any Bankruptcy
Law;
(3) a custodian or other public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Company shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a ma-
jority in principal amount of the Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. As promptly as practicable after
that, the retiring Trustee shall transfer, after payment of all sums then ow-
ing to the Trustee pursuant to Section 7.07, all property held by it as
Trustee to the successor Trustee, subject to the Lien provided in Section
7.07, the resignation or removal of the retiring Trustee shall become effec-
tive, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Hold-
ers
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of at least 10% in principal amount of the outstanding Securities may petition
any court of competent jurisdiction for the appointment of a successor Trust-
ee.
If the Trustee fails to comply with Section 7.10, any Securityholder may pe-
tition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 shall continue for the benefit of the
retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation
or banking corporation, the resulting, surviving or transferee corporation or
banking corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to act as
Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall ac-
quire any "conflicting interest" within the meaning of TIA (S) 310(b), the
Trustee and the Company shall comply with the provisions of TIA (S) 310(b);
provided, however, that there shall be excluded from the operation of TIA (S)
310(b)(1) any indenture or indentures under which other securities or certifi-
cates of interest or participation in other securities of the Company are out-
standing if the requirements for such exclusion set forth in TIA (S) 310(b)(1)
are met. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Trustee shall resign immediately in
the manner and with the effect hereinbefore specified in this Article Seven.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor rela-
tionship listed in TIA (S) 311(b). A Trustee who has resigned or been removed
shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE EIGHT
Subordination of Securities
Section 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of the Se-
curities by his acceptance thereof likewise covenant and agree, that all Secu-
rities shall be issued subject to the provisions of this Article; and each
person holding any Security, whether upon original issue or upon transfer, as-
signment or exchange thereof, accepts and agrees that all payments of the
principal of and interest and Additional Interest on the Securities by the
Company shall, to the extent and in the manner set forth in this Article, be
subordinated and junior in right of payment to the prior payment in full in
cash of all amounts payable under Senior Indebtedness.
Section 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment (including any payment made to Holders of
the Securities under the terms of Indebtedness subordinated to the Securities,
but excluding any payment or distribution of Permitted Junior Securities) by
or on behalf of the Company of principal of or interest or Additional Interest
on the Securities, whether pursuant to the terms of the Securities, upon ac-
celeration, pursuant to an Offer to Purchase or otherwise, shall 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 bene-
fits 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 Trustee of written notice (a "Payment Blockage Notice" )
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 Holders of the Securities under the terms of Indebtedness
subordinated to the Securities, but excluding any payment or distribution of
Permitted Junior Securities) shall be made by or on behalf
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of the Company of principal of or interest or Additional Interest on the Secu-
rities, except from those funds held in trust for the benefit of the Holders
of any Securities pursuant to the procedures set forth in Article Nine hereof,
to such Holders, during a period (a "Payment Blockage Period") commencing on
the date of receipt of such notice by the Trustee and ending 179 days thereaf-
ter.
Notwithstanding anything herein or in the Securities to the contrary, (x) in
no event shall 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 for purposes of this Section
8.02(a) unless and until 360 days shall have elapsed since the date the imme-
diately prior Payment Blockage Notice became effective. Not more than one Pay-
ment Blockage Period may be commenced with respect to the Securities during
any period of 360 consecutive days. No default or event of default that ex-
isted or was continuing on the date of commencement of any Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such Pay-
ment Blockage Period (to the extent the holder of Designated Senior Indebted-
ness, or trustee or agent, giving notice commencing such Payment Blockage Pe-
riod 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 Block-
age 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.
(b) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder when such payment is prohibited by Sec-
tion 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior Indebted-
ness or their respective representatives, or to the trustee or trustees under
any indenture pursuant to which any of such Designated Senior Indebtedness may
have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or
a trustee) notify the Trustee in writing of the amounts then due and owing on
the Designated Senior Indebtedness, if any, and only the amounts specified in
such notice to the Trustee shall be paid to the holders of Designated Senior
Indebtedness.
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Section 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the Company
of any kind or character, whether in cash, property or securities (including
any payment made to Holders of the Securities under the terms of Indebtedness
subordinated to the Securities, but excluding any payment or distribution of
Permitted Junior Securities), upon any dissolution or winding-up or total or
partial liquidation or reorganization of the Company, whether voluntary or in-
voluntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due with respect to Senior Indebtedness shall first
be paid in full in cash before the Holders of the Securities or the Trustee on
behalf of such Holders shall be entitled to receive any payment by the Company
of the principal of or interest or Additional Interest on the Securities, or
any payment to acquire any of the Securities for cash, property or securities,
or any distribution with respect to the Securities of any cash, property or
securities (including any payment made to Holders of the Securities under the
terms of Indebtedness subordinated to the Securities, but excluding any pay-
ment or distribution of Permitted Junior Securities). Before any payment may
be made by, or on behalf of, the Company of the principal of or interest or
Additional Interest on the Securities upon any such dissolution or winding-up
or liquidation or reorganization, any payment or distribution of assets or se-
curities of the Company of any kind or character, whether in cash, property or
securities (including any payment made to Holders of the Securities under the
terms of Indebtedness subordinated to the Securities, but excluding any pay-
ment or distribution of Permitted Junior Securities), to which the Holders of
the Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Per-
son 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 under any agreement or indenture pursuant to which any
of such Senior Indebtedness may have been issued, as their respective inter-
ests 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.
(b) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets or securi-
ties of the Company of any kind or character, whether in cash, property or se-
curities, shall
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be received by the Trustee or any Holder of Securities at a time when such
payment or distribution is prohibited by Section 8.03(a) and before all obli-
gations in respect of Senior Indebtedness are paid in full in cash, or payment
provided for, such payment or distribution shall be received and held in trust
for the benefit of, and shall be paid over or delivered to, the holders of Se-
nior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective rep-
resentatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respec-
tive interests may appear, for application to the payment of Senior Indebted-
ness remaining unpaid until all such Senior Indebtedness has been paid in full
in cash after giving effect to any concurrent payment, distribution or provi-
sion therefor to or for the holders of such Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company with or
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or sub-
stantially as an entirety, to another corporation upon the terms and condi-
tions provided in Article Five shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
Section 8.04. Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or provision for
payment, the Holders of the Securities shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company made on such Senior Indebtedness
until the principal of and interest and Additional Interest, if any, on the
Securities shall be paid in full in cash; and, for the purposes of such subro-
gation, no payments or distributions to the holders of the Senior Indebtedness
of any cash, property or securities to which the Holders of the Securities or
the Trustee on their behalf would be entitled except for the provisions of
this Article, and no payment over pursuant to the provisions of this Article
to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee on their behalf shall, as between the Company, its creditors other
than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment by the Company to or on account of the Senior Indebted-
ness. It is understood that the provisions of this
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Article are and are intended solely for the purpose of defining the relative
rights of the Holders of the Securities, on the one hand, and the holders of
the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the Securities would
otherwise have been entitled but for the provisions of this Article shall have
been applied, pursuant to the provisions of this Article, to the payment of
all amounts payable under Senior Indebtedness, then and in such case, the
Holders of the Securities shall be entitled to receive from the holders of
such Senior Indebtedness any payments or distributions received by such hold-
ers of Senior Indebtedness in excess of the amount required to make payment in
full, or provision for payment, of such Senior Indebtedness.
Section 8.05. Obligations of Company Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company and the Hold-
ers of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of and
interest and Additional Interest, if any, on the Securities as and when the
same shall become due and payable in accordance with their terms, or is in-
tended to or shall affect the relative rights of the Holders of the Securities
and creditors of the Company other than the holders of the Senior Indebted-
ness, nor shall anything herein or therein prevent the Holder of any Security
or the Trustee on their behalf from exercising all remedies otherwise permit-
ted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of the Senior Indebtedness
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in this
Article shall restrict the right of the Trustee or the Holders of Securities
to take any action to declare the Securities to be due and payable prior to
their stated maturity pursuant to Section 6.01 or to pursue any rights or rem-
edies hereunder; provided, however, that all Senior Indebtedness then due and
payable shall first be paid in full before the Holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest or Additional Interest on the Securities.
Section 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact known
to the Company which would prohibit the making of any payment to or
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by the Trustee in respect of the Securities pursuant to the provisions of this
Article. The Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Senior Indebtedness or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing at
its Corporate Trust Office to that effect signed by an Officer of the Company,
or by a holder of Senior Indebtedness or trustee or agent therefor; and prior
to the receipt of any such written notice, the Trustee shall, subject to Arti-
cle Seven, be entitled to assume that no such facts exist; provided that if
the Trustee shall not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the terms of this In-
denture any moneys shall become payable for any purpose (including, without
limitation, the payment of the principal of or interest or Additional Interest
on any Security), then, regardless of anything herein to the contrary, the
Trustee shall have full power and authority to receive any moneys from the
Company and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by
it on or after such prior date. Nothing contained in this Section 8.06 shall
limit the right of the holders of Senior Indebtedness to recover payments as
contemplated by Section 8.03. The Trustee shall be entitled to rely on the de-
livery to it of a written notice by a Person representing himself or itself to
be a holder of any Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given
by a holder of such Senior Indebtedness or a trustee or representative on be-
half of any such holder.
In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Senior Indebt-
edness to participate in any payment or distribution pursuant to this Article,
the Trustee may request such Person to furnish evidence to the reasonable sat-
isfaction of the Trustee as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to in this
Article, the Trustee and the Holders of the Securities shall be entitled to
rely
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upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribu-
tion, delivered to the Trustee or to the Holders of the Securities for the
purpose of ascertaining the persons entitled to participate in such distribu-
tion, the holders of the Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
Section 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights set
forth in this Article with respect to any Senior Indebtedness which may at any
time be held by it in its individual or any other capacity to the same extent
as any other holder of Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee or any Paying Agent of any of its rights as such
holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are spe-
cifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Indebtedness shall be read into this In-
denture against the Trustee. The Trustee shall not be deemed to owe any fidu-
ciary duty to the holders of Senior Indebtedness (except as provided in Sec-
tion 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securi-
ties to which any holders of Senior Indebtedness shall be entitled by virtue
of this Article or otherwise.
Section 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to en-
force subordination as provided herein shall at any time in any way be preju-
diced or impaired by any act or failure to act on the part of the Company or
by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with. The provisions of this Article are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Indebtedness.
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Section 8.10. Securityholders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be nec-
essary or appropriate to effectuate the subordination provided in this Arti-
cle, and appoints the Trustee his attorney-in-fact for such purposes, includ-
ing, in the event of any dissolution, winding-up, liquidation or reorganiza-
tion of the Company (whether in bankruptcy, insolvency, receivership, reorga-
nization or similar proceedings or upon an assignment for the benefit of cred-
itors or otherwise) tending towards liquidation of the business and assets of
the Company, the filing of a claim for the unpaid balance of its or his Secu-
rities in the form required in those proceedings.
Section 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest or Addi-
tional Interest on the Securities by reason of any provision of this Article
shall not be construed as preventing the occurrence of an Event of Default
specified in clause (1) or (2) of Section 6.01.
Section 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the Trustee pursuant to
other sections in this Indenture.
Section 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the holders of
Senior Indebtedness may, at any time and from time to time, without the con-
sent of or notice to the Trustee or the Holders of the Securities, without in-
curring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Indebted-
ness, do any one or more of the following: (a) change the manner, place or
terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding or secured; (b) sell, exchange, re-
lease or otherwise deal with any property pledged, mortgaged or otherwise se-
curing Senior Indebtedness; (c) release any Person liable in any manner for
the collection of Senior Indebtedness; and (d) exercise or refrain from exer-
cising any rights against the Company and any other Person.
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Section 8.14. Subordination Provisions Not Applicable to Money Held in Trust
for Securityholders; Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited in trust with
the Trustee pursuant to and in accordance with Article Nine shall be for the
sole benefit of the Holders and shall not be subject to this Article Eight.
Nothing contained in this Article or elsewhere in this Indenture shall pre-
vent (i) the Company, except under the conditions described in Section 8.02,
from making payments of principal of and interest and Additional Interest on
the Securities, or from depositing with the Trustee any moneys for such pay-
ments or from effecting a termination of the Company's and the Guarantors' ob-
ligations under the Securities and this Indenture as provided in Article Nine,
or (ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest and Additional
Interest on the Securities, to the holders entitled thereto unless at least
two Business Days prior to the date upon which such payment becomes due and
payable, the Trustee shall have received the written notice provided for in
Section 8.02(b) or in Section 8.06. The Company shall give prompt written no-
tice to the Trustee of any dissolution, winding-up, liquidation or reorganiza-
tion of the Company.
Section 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of Default,
the Company shall promptly notify holders of the Senior Indebtedness of the
acceleration.
ARTICLE NINE
Discharge of Indenture
Section 9.01. Termination of Company's Obligations.
Subject to the provisions of Article Eight, the Company may terminate its and
the Guarantors' substantive obligations in respect of the Securities by deliv-
ering all outstanding Securities to the Trustee for cancellation and paying
all sums payable by it on account of principal of and interest and Additional
Interest on all Securities or otherwise. In addition to the foregoing, subject
to the provisions of Article Eight with respect to the creation of the defea-
sance trust provided for
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in the following clause (i), the Company 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 Section 6.01(7) or
(8), any time on or prior to the 95th calendar day after the date of such de-
posit (it being understood that this condition shall not be deemed satisfied
until after such 95th day)) and provided that no default under any Senior In-
debtedness would result therefrom, terminate its and the Guarantors' substan-
tive obligations in respect of the Securities (except for its obligations to
pay the principal of and interest and Additional Interest, if any, on the Se-
curities and the Guarantors' guarantee thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or direct
non-callable obligations of the United States of America for the payment of
which the full faith and credit of the United States is pledged ("United
States Government Obligations" ) sufficient (without reinvestment) to pay all
remaining indebtedness on the Securities, (ii) delivering to the Trustee ei-
ther an Opinion of Counsel or a ruling directed to the Trustee from the Inter-
nal Revenue Service to the effect that the Holders of the Securities 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 Trustee
an Opinion of Counsel to the effect that the Company's exercise of its option
under this paragraph will not result in any of the Company, the Trustee or the
trust created by the Company's deposit of funds pursuant to this provision be-
coming or being deemed to be an "investment company" under the Investment Com-
pany Act of 1940, as amended (the "Investment Company Act"), and (iv) deliver-
ing to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating compliance with all conditions precedent provided for herein. In addi-
tion, subject to the provisions of Article Eight with respect to the creation
of the defeasance trust provided for in the following clause (i), the Company
may, provided that no Default or Event of Default has occurred and is continu-
ing or would arise therefrom (or, with respect to a Default or Event of De-
fault specified in Section 6.01(7) or (8), 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)) and pro-
vided that no default under any Senior Indebtedness would arise therefrom,
terminate all of its and the Guarantors' substantive obligations in respect of
the Securities (including its obligations to pay the principal of and interest
and Additional Interest, if any, on the Securities and the Guarantors' guaran-
tee thereof) by (i) depositing with the Trustee, under the terms of an irrevo-
cable trust agreement, money or United States Government Obligations suffi-
cient (without reinvestment) to pay all remaining indebtedness on the
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Securities, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of
the Securities 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 Trustee or a
change in the applicable Federal tax law since the date of this Indenture to
such effect, (iii) delivering to the Trustee an Opinion of Counsel to the ef-
fect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the
Company's deposit of funds pursuant to this provision becoming or being deemed
to be an "investment company" under the Investment Company Act and (iv) deliv-
ering to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating compliance with all conditions precedent provided for herein.
Notwithstanding the foregoing paragraph, the Company's obligations in Sec-
tions 2.04, 2.06, 2.07, 2.08, 2.09, 2.10 and 4.01 (but not with respect to
termination of substantive obligations pursuant to the third sentence of the
foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall survive until the
Securities are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07, 9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an Officers' Cer-
tificate and Opinion of Counsel, the Trustee upon request shall acknowledge in
writing the discharge of the Company's and the Guarantors' obligations under
the Securities and this Indenture except for those surviving obligations spec-
ified above.
Section 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government Obligations
deposited with it pursuant to Section 9.01, and shall apply the deposited
money and the money from United States Government Obligations in accordance
with this Indenture solely to the payment of principal of and interest on the
Securities.
Section 9.03. Repayment to Company.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to the Com-
pany upon written request any excess money held by it at any time. The Trustee
shall pay to the Company upon written request any money held by it for the
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payment of principal or interest or Additional Interest that remains unclaimed
for two years; provided, however, that the Trustee before being required to
make any payment may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and
that, after a date specified therein which shall be at least 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining shall be repaid to the Company. After payment to the Company,
Securityholders entitled to money must look to the Company for payment as gen-
eral creditors unless an applicable abandoned property law designates another
person and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
Section 9.04. Reinstatement.
If the Trustee is unable to apply any money or United States Government Obli-
gations in accordance with Section 9.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority en-
joining, restraining or otherwise prohibiting such application, the Company's
and the Guarantors' obligations under this Indenture and the Securities shall
be revived and reinstated as though no deposit had occurred pursuant to Sec-
tion 9.01 until such time as the Trustee is permitted to apply all such money
or United States Government Obligations in accordance with Section 9.01; pro-
vided, however, that if the Company has made any payment of interest or Addi-
tional Interest on or principal of any Securities because of the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Hold-
ers of such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
Amendments, Supplements and Waivers
Section 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of their re-
spective Boards of Directors, and the Trustee may amend or supplement this In-
denture or the Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency; provided, however, that
such amendment or supplement does not adversely affect the rights of any
Holder;
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(ii) to effect the assumption by a successor Person of all obligations of
the Company under the Securities and this Indenture in connection with any
transaction complying with Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition to or in place
of certificated Securities;
(iv) to comply with any requirements of the SEC in order to effect or main-
tain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional benefit or rights
to the Holders;
(vi) to make any other change that does not adversely affect the rights of
any Holder under this Indenture;
(vii) to evidence the succession of another Person to any Guarantor and the
assumption by any such successor of the covenants of such Guarantor herein
and in the Guarantee;
(viii) to add to the covenants of the Company or the Guarantors for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements of Section 4.18
or otherwise; or
(x) to reflect the release of a Guarantor from its obligations with respect
to its Guarantee in accordance with the provisions of Section 11.03 and to
add a Guarantor pursuant to the requirements of Section 11.07;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
Section 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when authorized by a
resolution of their respective Boards of Directors, and the Trustee may amend
or supplement this Indenture or the Securities with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securi-
ties. Subject to Section 6.07, the Holders of a majority in principal amount
of the outstanding Securities may waive compliance by the Company or any Guar-
antor with any provision of this Indenture or the Securities. However, without
the consent of each Securityholder affected, an amendment, supplement or waiv-
er, including a waiver pursuant to Section 6.04, may not:
(1) change the Stated Maturity of the principal of or any installment of
interest or Additional Interest on any Security or alter the optional re-
demption or repurchase provisions of any Security or this Indenture in a
manner adverse to the Holders of the Securities;
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(2) reduce the principal amount (or the premium) of any Security;
(3) reduce the rate of or extend the time for payment of interest or Addi-
tional Interest on any Security;
(4) change the place or currency of payment of the principal of or interest
or Additional Interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add sections of
this Indenture or the Securities subject thereto) or 6.07 or this Section
10.02 (other than to add sections of this Indenture or the Securities which
may not be amended, supplemented or waived without the consent of each
Securityholder affected);
(6) reduce the percentage of the principal amount of outstanding Securities
necessary for amendment to or waiver of compliance with any provision of
this Indenture or the Securities or for waiver of any Default;
(7) waive a default in the payment of the principal of, interest or Addi-
tional Interest on, or redemption payment with respect to, any Security (ex-
cept a rescission of acceleration of the Securities by the Holders as pro-
vided in Section 6.02 and a waiver of the payment default that resulted from
such acceleration);
(8) modify the ranking or priority of the Securities or the Guarantees in
respect thereof of any Guarantor, or modify the definition of Senior Indebt-
edness or Guarantor Senior Indebtedness, or amend or modify any of the pro-
visions of Article Eight or Article Twelve in any manner adverse to the
Holders;
(9) release any Guarantor from any of its obligations under its Guarantee
or this Indenture otherwise than in accordance with this Indenture; or
(10) modify the provisions relating to any Offer to Purchase required pur-
suant to Section 4.05 or 4.14 in a manner materially adverse to the Holders.
An amendment under this Section 10.02 may not make any change under Article
Eight, Article Nine, Article Eleven or Article Twelve hereof that adversely
affects in any material respect the rights of any holder of Senior Indebted-
ness then outstanding unless the holders of such Senior Indebtedness (or any
representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiv-
er, but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes effec-
tive, the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
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Section 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
Section 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of that Se-
curity or portion of that Security that evidences the same debt as the con-
senting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Hold-
ers of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then, notwith-
standing the last sentence of the immediately preceding paragraph, those per-
sons who were Holders of Securities at such record date (or their duly desig-
nated proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after
such record date. No such consent shall be valid or effective for more than 90
days after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind ev-
ery Securityholder, unless it makes a change described in any of clauses (1)
through (10) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
Section 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the
changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so
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determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not af-
fect the validity and effect of such amendment, supplement or waiver.
Section 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected in re-
lying upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Ten is authorized or
permitted by this Indenture and that such amendment, supplement or waiver con-
stitutes the legal, valid and binding obligation of the Company and the Guar-
antors, enforceable in accordance with its terms (subject to customary excep-
tions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE ELEVEN
Guarantee
Section 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally, guarantees to
each Holder of a Security authenticated by the Trustee and to the Trustee and
its successors and assigns that: the principal of and interest and Additional
Interest, if any, on the Securities will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration
or otherwise, and interest on the overdue principal and interest on any over-
due interest and Additional Interest on the Securities and all other obliga-
tions of the Company to the Holders or the Trustee hereunder or under the Se-
curities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; subject, however, to the limitations set forth
in Section 11.04. Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or enforce-
ability of the Securities or this Indenture, the absence of any action to en-
force the same, any waiver or consent by any Holder of the Securities with re-
spect to any provisions hereof or thereof, the recovery of
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any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge
or defense of a Guarantor. Each Guarantor hereby waives diligence, present-
ment, demand of payment, filing of claims with a court in the event of insol-
vency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that the Guarantee will not be discharged except by complete performance of
the obligations contained in the Securities, this Indenture, and this Guaran-
tee. If any Holder or the Trustee is required by any court or otherwise to re-
turn to the Company, any Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Guarantor, any
amount paid by the Company or any Guarantor to the Trustee or such Holder,
this Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect. Each Guarantor further agrees that, as between each
Guarantor, on the one hand, and the Holders and the Trustee, on the other
hand, (x) the maturity of the obligations guaranteed hereby may be accelerated
as provided in Article Six for the purpose of this Guarantee, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in re-
spect of the obligations guaranteed hereby, and (y) in the event of any accel-
eration of such obligations as provided in Article Six, such obligations
(whether or not due and payable) shall forth become due and payable by each
Guarantor for the purpose of this Guarantee.
Section 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or unen-
forceable, the validity, legality and enforceability of the remaining provi-
sions shall not in any way be affected or impaired thereby.
Section 11.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this Inden-
ture, 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 other-
wise) by the Company or any of its Subsidiaries in a transaction constituting
an Asset Disposition and if (x) the Net Available Proceeds from such Asset
Disposition are used in accordance with Section 4.05 or (y) the Company deliv-
ers to the Trustee an Officers' Certificate covenanting that the Net Available
Proceeds from such Asset Disposition shall be used in accordance with Section
4.05 and within the time limits specified by such Section 4.05, then such
Guarantor (in the event of a sale or other disposition of all of the Capital
Stock of such Guarantor) or the corpora-
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tion 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 deemed released
from all obligations under this Article Eleven without any further action re-
quired on the part of the Trustee or any Holder. The Trustee shall, at the
sole cost and expense of the Company and upon receipt at the reasonable re-
quest of the Trustee of an Opinion of Counsel that the provisions of this Sec-
tion 11.03 have been complied with, deliver an appropriate instrument evidenc-
ing such release upon receipt of a request by the Company accompanied by an
Officers' Certificate certifying as to the compliance with this Section. Any
Guarantor not so released remains liable for the full amount of principal of
and interest and Additional Interest, if any, on the Securities and the other
obligations of the Company hereunder as provided in this Article Eleven.
Section 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the Trustee,
hereby confirms that it is the intention of all such parties that the guaran-
tee by such Guarantor pursuant to its Guarantee not constitute a fraudulent
transfer or conveyance for purposes of title 11 of the United States Code, as
amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trans-
fer Act or any similar U.S. Federal or state or other applicable law. To ef-
fectuate the foregoing intention, the Holders and such Guarantor hereby irrev-
ocably agree that the obligations of such Guarantor under the Guarantee shall
be limited to the maximum amount as will, 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 Section 11.05, result in the obligations of such Guarantor under
the Guarantee not constituting such fraudulent transfer or conveyance.
Section 11.05. Contribution.
In order to provide for just and equitable contribution among the Guarantors,
the Guarantors agree, inter se, that in the event any payment or distribution
is made by any Guarantor (a "Funding Guarantor") under the Guarantee, such
Funding Guarantor shall be entitled to a contribution from all other Guaran-
tors in a pro rata amount, based on the net assets of each Guarantor (includ-
ing the Funding Guarantor), determined in accordance with GAAP, subject to
Section 11.04, for all payments, damages and expenses incurred by that Funding
Guar-
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antor in discharging the Company's obligations with respect to the Securities
or any other Guarantor's obligations with respect to the Guarantee.
Section 11.06. Execution of Guarantee.
To further evidence their Guarantee to the Holders, the Guarantors hereby
agree to execute the Guarantee in substantially the form set forth in Exhibit
A hereto to be endorsed on each Security ordered to be authenticated and de-
livered by the Trustee. Each Guarantor hereby agrees that its Guarantee set
forth in Section 11.01 shall remain in full force and effect notwithstanding
any failure to endorse on each Security a notation of such Guarantee. Each
such Guarantee shall be signed on behalf of each Guarantor by its Chairman of
the Board, its President or one of its Vice Presidents prior to the authenti-
cation of the Security on which it is endorsed, and the delivery of such Secu-
rity by the Trustee, after the authentication thereof hereunder, shall consti-
tute due delivery of such Guarantee on behalf of such Guarantor. Such signa-
ture upon the Guarantee may be manual or facsimile signature of such officer
and may be imprinted or otherwise reproduced on the Guarantee, and in case
such officer who shall have signed the Guarantee shall cease to be such offi-
cer before the Security on which such Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the Person who signed the Guarantee had not ceased to be such officer
of the Guarantor.
Section 11.07. Additional Guarantors.
The Company shall cause each Material Subsidiary, whether formed or acquired
after the Issue Date, to execute and deliver to the Trustee, promptly upon any
such formation or acquisition, (a) a supplemental indenture in form and sub-
stance satisfactory to the Trustee which subjects such Material Subsidiary to
the provisions of this Indenture as a Guarantor and (b) an Opinion of Counsel
to the effect that such supplemental indenture has been duly authorized and
executed by such Material Subsidiary and constitutes the legal, valid, binding
and enforceable obligation of such Material Subsidiary (subject to such cus-
tomary exceptions concerning fraudulent conveyance laws, creditors' rights and
equitable principles as may be acceptable to the Trustee in its reasonable
discretion); 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
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Material Subsidiary was so acquired and not entered into in anticipation or
contemplation of such acquisition shall not be required to comply with the
foregoing provisions of this Section so long as any such restriction is in ex-
istence and to the extent of any such restriction.
Section 11.08. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that arises
from the payment, performance or enforcement of such Guarantor's obligations
under its Guarantee or this Indenture, including, without limitation, any
right of subrogation, shall be subject and subordinate to, and no payment with
respect to any such claim of such Guarantor shall be made before, the payment
in full in cash of all outstanding Securities in accordance with the provi-
sions provided therefor in this Indenture.
ARTICLE TWELVE
Subordination of Guarantee
Section 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder of the
Securities by his acceptance thereof likewise covenant and agree, that the
Guarantees shall be issued subject to the provisions of this Article; and each
person holding any Security, whether upon original issue or upon transfer, as-
signment or exchange thereof, accepts and agrees that all payments of the
principal of and interest and Additional Interest on the Securities pursuant
to the Guarantee made by or on behalf of any Guarantor shall, to the extent
and in the manner set forth in this Article, be subordinated and junior in
right of payment to the prior payment in full in cash of all amounts payable
under Guarantor Senior Indebtedness of such Guarantor.
Section 12.02. No Payment on Guarantees in Certain Circumstances.
(a) No direct or indirect payment (including any payment made to Holders of
the Securities under the terms of Indebtedness subordinated to the Securities
but excluding any payment or distribution of Permitted Junior Securities) by
or on behalf of any Guarantor of principal of or interest or Additional Inter-
est on the Securities pursuant to such Guarantor's Guarantee, whether pursuant
to the terms of the Securities, upon acceleration or otherwise, shall be made
if, at the time of
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such payment, there exists a default in the payment of all or any portion of
the obligations on any Designated Guarantor Senior Indebtedness of such Guar-
antor, 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 Guaran-
tor Senior Indebtedness. In addition, during the continuance of any non-pay-
ment default or event of default with respect to any Designated Guarantor Se-
nior Indebtedness pursuant to which the maturity thereof may be accelerated,
and upon receipt by the Trustee of written notice (the "Guarantor Payment
Blockage Notice") from the holder or holders of such Designated Guarantor Se-
nior Indebtedness or the trustee or agent acting on behalf of such Designated
Guarantor 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
Guarantor Senior Indebtedness has been discharged or paid in full in cash, no
direct or indirect payment (including any payment made to Holders of the Secu-
rities under the terms of Indebtedness subordinated to the Securities but ex-
cluding any payment or distribution of Permitted Junior Securities) shall be
made by or on behalf of such Guarantor of principal of interest or Additional
Interest on the Securities, except from those funds held in trust for the ben-
efit of the Holders of any Securities pursuant to the procedures set forth in
Article Nine hereof to such Holders, during a period (a "Guarantor Blockage
Period") commencing on the date of receipt of such notice by the Trustee and
ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the contrary, (x) in
no event shall a Guarantor Blockage Period extend beyond 179 days from the
date the Guarantor Payment Blockage Notice was given and (y) in no event shall
a Guarantor Blockage Notice be effective for purposes of this Section 12.02(a)
unless and until 360 days shall have elapsed since the date the immediately
prior Guarantor Payment Blockage Notice became effective. Not more than one
Guarantor Blockage Period may be commenced with respect to any Guarantor dur-
ing any period of 360 consecutive days. No default or event of default that
existed or was continuing on the date of commencement of any other Guarantor
Blockage Period with respect to the Designated Guarantor Senior Indebtedness
initiating such Guarantor Blockage Period (to the extent the holder of Desig-
nated Guarantor Senior Indebtedness or trustee or agent giving notice concern-
ing such Guarantor Blockage Period had knowledge of such existing or continu-
ing default or event of default) may be, or be made, the basis for the com-
mencement of any other Guarantor Blockage Period by the holder or holders of
such Designated Guarantor Senior Indebtedness or the trustee or agent acting
on behalf of such Designated Guarantor Senior Indebtedness, whether or not
within a period of 360
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consecutive days, unless such default or event of default has been cured or
waived for a period of not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder when such payment is prohibited by Sec-
tion 12.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Designated Guarantor
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Guaran-
tor Senior Indebtedness may have been issued, as their respective interests
may appear, but only to the extent that, upon notice from the Trustee to the
holders of such Designated Guarantor Senior Indebtedness that such prohibited
payment has been made, the holders of such Designated Guarantor Senior Indebt-
edness (or their representative or representatives or a trustee) notify the
Trustee in writing of the amounts then due and owing on such Designated Guar-
antor Senior Indebtedness, if any, and only the amounts specified in such no-
tice to the Trustee shall be paid to the holders of such Designated Guarantor
Senior Indebtedness.
Section 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of any Guarantor
of any kind or character, whether in cash, property or securities (excluding
any payment or distribution of Permitted Junior Securities), upon any dissolu-
tion or winding-up or total or partial liquidation or reorganization of such
Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency, re-
ceivership or other proceedings, all amounts due or to become due with respect
to all Guarantor Senior Indebtedness of such Guarantor shall first be paid in
full before the Holders of the Securities or the Trustee on behalf of such
Holders shall be entitled to receive any payment by such Guarantor of the
principal of or interest or Additional Interest, if any, on the Securities
pursuant to such Guarantor's Guarantee, or any payment to acquire any of the
Securities for cash, property or securities, or any distribution with respect
to the Securities of any cash, property or securities. Before any payment may
be made by, or on behalf of, any Guarantor of the principal of or interest or
Additional Interest on the Securities upon any such dissolution or winding-up
or liquidation or reorganization, any payment or distribution of assets or se-
curities of such Guarantor of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior Secu-
rities), to which the Holders of the Securities or the Trustee on their behalf
would be entitled, but for the subordination provisions of this Indenture,
shall be made by such Guarantor or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other
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Person making such payment or distribution, directly to the holders of the
Guarantor Senior Indebtedness of such Guarantor (pro rata to such holders on
the basis of the respective amounts of such Guarantor Senior Indebtedness held
by such holders) or their representatives or to the trustee or trustees under
any agreement or indenture pursuant to which any of such Guarantor Senior In-
debtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Guarantor Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets or securi-
ties of any Guarantor of any kind or character, whether in cash, property or
securities, shall be received by the Trustee or any Holder of Securities at a
time when such payment or distribution is prohibited by Section 12.03(a) and
before all obligations in respect of the Guarantor Senior Indebtedness of such
Guarantor are paid in full in cash, or payment provided for, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of such Guarantor Senior Indebted-
ness (pro rata to such holders on the basis of the respective amounts of such
Guarantor Senior Indebtedness held by such holders) or their respective repre-
sentatives, or to the trustee or trustees under any indenture pursuant to
which any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such Guar-
antor Senior Indebtedness remaining unpaid until all such Guarantor Senior In-
debtedness has been paid in full in cash after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such
Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any Guarantor with
or into, another corporation or the liquidation or dissolution of any Guaran-
tor following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and condi-
tions provided in Article Five shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
Section 12.04. Subrogation.
Upon the payment in full in cash of all Guarantor Senior Indebtedness of a
Guarantor, or provision for payment, the Holders of the Securities shall be
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subrogated to the rights of the holders of such Guarantor Senior Indebtedness
to receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of
and interest and Additional Interest, if any, on the Securities shall be paid
in full in cash; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Guarantor Senior Indebtedness of any
cash, property or securities to which the Holders of the Securities or the
Trustee on their behalf would be entitled except for the provisions of this
Article, and no payment over pursuant to the provisions of this Article to the
holders of such Guarantor Senior Indebtedness by Holders of the Securities or
the Trustee on their behalf shall, as between such Guarantor, its creditors
other than holders of such Guarantor Senior Indebtedness, and the Holders of
the Securities, be deemed to be a payment by such Guarantor to or on account
of such Guarantor Senior Indebtedness. It is understood that the provisions of
this Article are and are intended solely for the purpose of defining the rela-
tive rights of the Holders of the Securities, on the one hand, and the holders
of Guarantor Senior Indebtedness of each Guarantor, on the other hand.
If any payment or distribution to which the Holders of the Securities would
otherwise have been entitled but for the provisions of this Article shall have
been applied, pursuant to the provisions of this Article, to the payment of
all amounts payable under Guarantor Senior Indebtedness, then and in such
case, the Holders of the Securities shall be entitled to receive from the
holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Guarantor Senior Indebtedness.
Section 12.05. Obligations of Guarantors Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities or the Guarantees is intended to or shall impair, as among the
Guarantors and the Holders of the Securities, the obligation of each Guaran-
tor, which is absolute and unconditional, to pay to the Holders of the Securi-
ties the principal of and interest and Additional Interest, if any, on the Se-
curities as and when the same shall become due and payable in accordance with
the terms of the Guarantee of such Guarantor, or is intended to or shall af-
fect the relative rights of the Holders of the Securities and creditors of any
Guarantor other than the holders of Guarantor Senior Indebtedness of such
Guarantor, nor shall anything herein or therein prevent the Holder of any Se-
curity or the Trustee on their behalf from
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exercising all remedies otherwise permitted by applicable law upon default un-
der this Indenture, subject to the rights, if any, under this Article of the
holders of Guarantor Senior Indebtedness in respect of cash, property or secu-
rities of any Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in this
Article shall restrict the right of the Trustee or the Holders of Securities
to take any action to declare the Securities to be due and payable prior to
their stated maturity pursuant to Section 6.01 or to pursue any rights or rem-
edies hereunder; provided, however, that all Guarantor Senior Indebtedness of
any Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest or Additional
Interest on the Securities pursuant to such Guarantor's Guarantee.
Section 12.06. Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Company or such Guarantor which would pro-
hibit the making of any payment to or by the Trustee in respect of the Securi-
ties pursuant to the provisions of this Article. The Trustee shall not be
charged with knowledge of the existence of any default or event of default
with respect to any Guarantor Senior Indebtedness or of any other facts which
would prohibit the making of any payment to or by the Trustee unless and until
the Trustee shall have received notice in writing at its Corporate Trust Of-
fice to that effect signed by an Officer of the Company or such Guarantor, or
by a holder of Guarantor Senior Indebtedness or trustee or agent therefor; and
prior to the receipt of any such written notice, the Trustee shall, subject to
Article Seven, be entitled to assume that no such facts exist; provided that
if the Trustee shall not have received the notice provided for in this Section
at least two Business Days prior to the date upon which by the terms of this
Indenture any moneys shall become payable for any purpose (including, without
limitation, the payment of the principal of or interest or Additional Interest
on any Security), then, regardless of anything herein to the contrary, the
Trustee shall have full power and authority to receive any moneys from any
Guarantor and to apply the same to the purpose for which they were received,
and shall not be affected by any notice to the contrary which may be received
by it on or after such prior date. Nothing contained in this Section 12.06
shall limit the right of the holders of Guarantor Senior Indebtedness to re-
cover payments as contemplated by Section 12.03. The Trustee shall be entitled
to rely
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on the delivery to it of a written notice by a Person representing himself or
itself to be a holder of any Guarantor Senior Indebtedness (or a trustee on
behalf of, or other representative of, such holder) to establish that such no-
tice has been given by a holder of such Guarantor Senior Indebtedness or a
trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Guarantor Se-
nior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Guarantor Senior
Indebtedness held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent
to the rights of such Person under this Article, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Section 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a Guarantor re-
ferred to in this Article, the Trustee and the Holders of the Securities shall
be entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or re-
organization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the Se-
curities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of Guarantor Senior Indebtedness of such
Guarantor and other indebtedness of such Guarantor, the amount thereof or pay-
able thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 12.08. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights set
forth in this Article with respect to any Guarantor Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Guarantor Senior Indebtedness, and nothing
in this Indenture shall deprive the Trustee or any Paying Agent of any of its
rights as such holder.
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With respect to the holders of Guarantor Senior Indebtedness, the Trustee un-
dertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or ob-
ligations with respect to the holders of Guarantor Senior Indebtedness shall
be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebted-
ness (except as provided in Section 12.03(b)). The Trustee shall not be liable
to any such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other person
cash, property or securities to which any holders of Guarantor Senior Indebt-
edness shall be entitled by virtue of this Article or otherwise.
Section 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior Indebted-
ness to enforce subordination as provided herein shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by any Guarantor with the terms of this Indenture, re-
gardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Guarantor Se-
nior Indebtedness.
Section 12.10. Securityholders Authorize Trustee To Effectuate Subordination
of Guarantee.
Each Holder of Securities by his acceptance of such Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be nec-
essary or appropriate to effectuate the subordination provided in this Arti-
cle, and appoints the Trustee his attorney-in-fact for such purposes, includ-
ing, in the event of any dissolution, winding-up, liquidation or reorganiza-
tion of any Guarantor (whether in bankruptcy, insolvency, receivership, reor-
ganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of such Guarantor, the filing of a claim for the unpaid balance of its or his
Securities in the form required in those proceedings.
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Section 12.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest or Addi-
tional Interest on the Securities by reason of any provision of this Article
shall not be construed as preventing the occurrence of an Event of Default
specified in clauses (1) or (2) of Section 6.01.
Section 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the Trustee pursuant to
other sections in this Indenture.
Section 12.13. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the holders of
Guarantor Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the obli-
gations hereunder of the Holders of the Securities to the holders of Guarantor
Senior Indebtedness, do any one or more of the following: (a) change the man-
ner, place or terms of payment or extend the time of payment of, or renew or
alter, Guarantor Senior Indebtedness or any instrument evidencing the same or
any agreement under which Guarantor Senior Indebtedness is outstanding or se-
cured; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Guarantor Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against
any Guarantor and any other Person.
Section 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article or elsewhere in this Indenture shall pre-
vent (i) a Guarantor, except under the conditions described in Section 12.02,
from making payments of principal of and interest and Additional Interest on
the Securities, or from depositing with the Trustee any moneys for such pay-
ments, or (ii) the application by the Trustee of any moneys deposited with it
for the purpose of making such payments of principal of and interest and Addi-
tional Interest on the Securities, to the holders entitled thereto unless at
least two Business Days prior to the date upon which such payment becomes due
and payable, the Trustee shall have received the written notice provided for
in Section 12.02(b) or in Section 12.06. A Guarantor shall give prompt written
notice to the Trustee of any dissolution, winding-up, liquidation or reorgani-
zation of such Guarantor.
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ARTICLE THIRTEEN
Miscellaneous
Section 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are required to
be a part of this Indenture, and shall, to the extent applicable, be governed
by such provisions. If any provision of this Indenture modifies any TIA provi-
sion that may be so modified, such TIA provision shall be deemed to apply to
this Indenture as so modified. If any provision of this Indenture excludes any
TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any Person
(including the provisions automatically deemed included unless expressly ex-
cluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
Section 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing and de-
livered in person, by facsimile and confirmed by overnight courier, or mailed
by first-class mail addressed as follows:
if to the Company or to the Guarantors:
Newport News Shipbuilding Inc. 4101 Washington Avenue Newport News, Vir-
ginia 23607
Attention:Chief Financial Officer
Facsimile:804-273-0232
Telephone:757-380-2000
with a copy to:
Jenner and Block
1 IBM Plaza
Chicago, IL 60611
Attention: Craig R. Culbertson
Facsimile: 312-923-2637
Telephone: 312-222-9350
106
<PAGE>
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Administration
Facsimile:212-815-5915
Telephone: 212-815-6285
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a Holder
including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA(S) 315(b), shall be mailed to him at his ad-
dress as set forth on the Security Register and shall be sufficiently given to
him if so mailed within the time prescribed. To the extent required by the
TIA, any notice or communication shall also be mailed to any Person described
in TIA (S) 313(c).
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
Except for a notice to the Trustee, which is deemed given only when received,
if a notice or communication is mailed in the manner provided above, it is
duly given, whether or not the addressee receives it.
Section 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the Secu-
rities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA (S) 312(c).
Section 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or re-
frain from taking any action under this Indenture, the Company shall furnish
to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions prece-
dent, if any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the Trustee
stating that, in the opinion of such counsel, all such conditions precedent
have been complied with.
107
<PAGE>
Section 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has read
such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or in-
vestigation upon which the statements or opinions contained in such certifi-
cate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such exam-
ination or investigation as is necessary to enable him to express an in-
formed opinion as to whether or not such covenant or condition has been com-
plied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
Section 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
Section 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the Securities
and the Guarantee without regard to principles of conflicts of law.
Section 13.08. 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 or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their crea-
tion. Each Securityholder by accepting a Security waives and releases all such
liability.
Section 13.09. Successors.
All agreements of the Company in this Indenture and the Securities shall bind
its successor. All agreements of each Guarantor in this Indenture and such
Guarantor's Guarantee shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
108
<PAGE>
Section 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same agreement.
Section 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the Guaran-
tee shall be invalid, illegal or unenforceable, the validity, legality and en-
forceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
Section 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment, payment may
be made at that place on the next succeeding Business Day, and no interest
shall accrue for the intervening period.
[Signature Pages Follow]
109
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed as of the date first written above.
Newport News Shipbuilding Inc.
/s/ Stephen B. Clarkson
By _____________________________________
Name: Stephen B. Clarkson
Title: Vice President & General Counsel
Newport News Shipbuilding and Dry Dock
Company
/s/ Stephen B. Clarkson
By _____________________________________
Name: Stephen B. Clarkson
Title: Vice President & General Counsel
The Bank of New York, as Trustee
/s/ Byron Merino
By _____________________________________
Name: Byron Merino
Title:
110
<PAGE>
EXHIBIT A
(Form of Face of Security)
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 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
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"), prom-
ises 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 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 that purpose in the Borough of Man-
hattan, the City of New York and at any other
A-2
<PAGE>
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 Se-
curity 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.
The Securities are subordinated in right of payment to all Senior Indebted-
ness 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 subordi-
nation 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 "Securi-
ties"), limited in aggregate principal amount to $200,000,000 (except as oth-
erwise provided in the Indenture) issuable under an indenture dated as of No-
vember 26, 1996 (the "Indenture"), among the Company, Newport News Shipbuild-
ing and Dry Dock Company, as the Guarantor (herein collectively called the
"Guarantors", which term includes any successor Person or additional Guarantor
under the Indenture) and the Trustee. 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 In-
denture.
A-3
<PAGE>
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' 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............................................................ 104.625%
2002............................................................ 103.083%
2003............................................................ 101.542%
2004 and thereafter............................................. 100.000%
</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 109.250% 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
Notes and the Securities. Notice of redemption pursuant to this paragraph must
be mailed to Holders of Securities not later than 60 days following consumma-
tion 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 Securi-
A-4
<PAGE>
ties, in whole but not in part, at any time on or prior to the Special Redemp-
tion 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 Dis-
tribution 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 Redemp-
tion 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 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 Holder's 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 redemp-
tion.
8. Additional Interest.
[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 Issue Date, (ii) the Exchange Offer Registration Statement
is not declared effective on or prior to the 150th day following the Issue
Date, or (iii) the Exchange Offer is not consummated or (unless the Exchange
Offer is consummated) a registration statement with respect to resale of this
Security is not declared effective on or prior to the later of the 180th day
following the Issue Date and the 120th day following the date of the event the
occurrence of which
A-5
<PAGE>
obligated the Company and the Guarantors to file such registration statement
(each such event referred to in clauses (i) through (iii), a "Registration De-
fault"), then the Company will pay Additional Interest (in addition to the in-
terest otherwise due on the Notes) ("Additional Interest") to the Holder of
this Security during the first 90-day period immediately following the occur-
rence of each such Registration Default in an amount equal to 0.25% per annum.
The amount of Additional Interest will increase by an additional 0.25% per an-
num 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 this Security when the Registration
Default has been cured. The Company's obligation with respect to the payment
of Additional Interest upon the occurrence and during the continuance of a
Registration Default is subordinated in right of payment to all existing and
future Senior Indebtedness of the Company to the same extent the Securities
are subordinated in right of payment to the prior payment of all such Senior
Indebtedness.]/1/
[There shall also be payable in respect of this Security all Additional In-
terest 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.]/2/
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 pro-
vided in the Indenture, Securities may be exchanged for a like aggregate prin-
cipal amount of Securities of other authorized denominations. Upon due pre-
sentment 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.
- ---------
/1To/be included in Securities not Exchange Securities.
/2To/be included in Exchange Securities.
A-6
<PAGE>
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 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.
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 Inden-
ture 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 cer-
tain payments and investments, limits the Indebtedness which the Company and
its Subsidiaries may incur and limits the terms on which the Company may en-
gage in Asset Dispositions. The Company is also obligated under certain cir-
cumstances 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
A-7
<PAGE>
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.
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
A-8
<PAGE>
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 redemp-
tion 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.
A-9
<PAGE>
[Form of Notation on Security Relating to Guarantee]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Security upon
which this notation is endorsed) hereby unconditionally guarantees on a senior
subordinated basis (such guarantee by the Guarantor 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 pay-
ment 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 ac-
cordance with the terms set forth in Article Eleven of the Indenture.
The obligations of the Guarantor 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 Guarantor, 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 Guar-
antee 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.
Newport News Shipbuilding and Dry Dock
Company
By: ________________________________________
Name:
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.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES,
PERMANENT OFFSHORE GLOBAL SECURITIES AND
OFFSHORE PHYSICAL SECURITIES]
In connection with any transfer of this Security occurring prior to the date
which is the earlier of (i) the date of an effective Registration or (ii)
three years after the later of the original issuance of this Security or the
last date on which this Security was held by the Company or an Affiliate of
the Company, the undersigned confirms that without utilizing any general so-
licitation or general advertising that:
[CHECK ONE]
[_](a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended, pro-
vided by Rule 144A thereunder.
OR
[_](b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the condi-
tions of transfer set forth in this Security and the Indenture.
<PAGE>
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Security in the name of any Person
other than the Holder hereof unless and until the conditions to any such
transfer or registration set forth herein and in Section 2.09 of the Indenture
shall have been satisfied.
Date: _________________ ___________________________________________________
NOTICE: The signature to this assignment must cor-
respond with the name as written upon the face of
the within-mentioned instrument in every particu-
lar, without alteration or any change whatsoever.
Signature Guarantee: __________________________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole in-
vestment discretion and that it and any such account is a "qualified institu-
tional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has de-
termined not to request such information and that it is aware that the trans-
feror is relying upon the undersigned's foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
Date: _________________ ___________________________________________________
NOTICE: To be executed by an executive officer
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 sideof this Security)
Signature Guarantee: __________________________________________________________
<PAGE>
EXHIBIT B
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
,
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Administration
Re: Newport News Shipbuilding Inc. (the "Company") 9 1/4% Senior
Subordinated Notes due 2006 (the "Securities")
Dear Sirs:
In connection with our proposed purchase of $ aggregate principal amount
of the Securities, we confirm that:
A. We understand that any subsequent transfer of the Securities is subject to
certain restrictions and conditions set forth in the Indenture dated as of No-
vember 26, 1996, relating to the Securities (the "Indenture") and the under-
signed agrees to be bound by, and not to resell, pledge or otherwise transfer
the Securities except in compliance with, such restrictions and conditions and
the Securities Act of 1993, as amended (the "Securities Act").
B. We understand that the offer and sale of the Securities have not been reg-
istered under the Securities Act, and that the Securities may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities within three years after the
original issuance of the Securities, we will do so only (A) to the Company or
any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an in-
stitutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes to you a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the Securities (the
form of which letter can be obtained from the Company or you) and, if such
transfer is in respect of an aggregate principal amount of Securities of less
than $250,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (D)
<PAGE>
outside the United States in accordance with Rule 904 of Regulation S under
the Securities Act, (E) pursuant to the exemption from registration provided
by Rule 144 under the Securities Act, or (F) pursuant to an effective regis-
tration statement under the Securities Act, and we further agree to provide to
any person purchasing any of the Securities from us a notice advising such
purchaser that resales of the Securities are restricted as stated herein.
C. We understand that, on any proposed resale of any Securities, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Securities purchased by us will bear a legend to the fore-
going effect.
D. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capa-
ble of evaluating the merits and risks of our investment in the Securities,
and we and any accounts for which we are acting are each able to bear the eco-
nomic risk of our or its investment.
E. We are acquiring the Securities purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official injury with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By: ________________________________________
Authorized Signature
________________________________
Signature Guarantee
B-2
<PAGE>
EXHIBIT C
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
,
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Administration
Re: Newport News Shipbuilding Inc. (the "Company") 9 1/4% Senior
Subordinated Notes due 2006 (the "Securities")
Dear Sirs:
In connection with our proposed sale of U.S.$ aggregate principal amount
of the Securities, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the Securities Act of 1933, as amended,
and, accordingly, we represent that:
A. The offer of the Securities was not made to a person in the United States;
B. At the time the buy order was originated, the transferee was outside the
United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
C. No directed selling efforts have been made by us in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
D. The transaction is not part of a plan or scheme to evade the registration
requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby. Terms used in this certificate have the meanings
set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ________________________________________
Authorized Signature
________________________________
Signature Guarantee
<PAGE>
EXHIBIT D
FORM OF OFFICERS' CERTIFICATE
The undersigned, the [title] and [title] of Newport News Shipbuilding Inc.,
a Delaware corporation, DO HEREBY CERTIFY to The Bank of New York as Trustee
under the Senior Subordinated Note Indenture (the "Indenture") dated as of No-
vember 26, 1996 among Newport News Shipbuilding Inc., Newport News Shipbuild-
ing and Dry Dock Company and The Bank of New York as follows:
(A) We have read Section 4.19(d) of the Indenture and such other provi-
sions of the Indenture as we have deemed relevant, and have examined and
investigated such other matters as we have deemed necessary, to enable us
to express an informed opinion as to whether the conditions precedent in
the Indenture relating to the release of the funds in the Collateral Ac-
count to the Company have been satisfied.
(B) Based upon the foregoing, to the best of our knowledge:
(i) all material conditions to the Debt Realignment, the Distribu-
tions (other than the consummation of the Debt Realignment) and the
consummation of the transactions contemplated by the Merger Agreement
(other than the consummation of the Debt Realignment and the Distribu-
tions) have been satisfied in accordance with the Merger Agreement and
related documents, and
(ii) the Transaction is being (or will be) closed substantially in
accordance with the Transaction Agreements.
"Debt Realignment" means the restructuring (through debt tender and exchange
offers, defeasances, prepayments, refinancings and the like), immediately
prior to the Distributions of the outstanding indebtedness for money borrowed
of Tenneco and its subsidiaries.
Terms used herein and not defined have the meanings assigned to them in the
Indenture.
--------------------------------------------
Name:
Title:
--------------------------------------------
Name:
Title:
Dated:
<PAGE>
EXHIBIT 4.7
- --------------------------------------------------------------------------------
NEWPORT NEWS SHIPBUILDING INC.,
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY,
NNS DELAWARE MANAGEMENT COMPANY
and
THE BANK OF NEW YORK, as Trustee
----------
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 11, 1996
to
INDENTURE
Dated as of November 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC., as Issuer
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, as Guarantor
and
THE BANK OF NEW YORK, as Trustee
----------
$200,000,000
8-5/8% Senior Notes Due 2006
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
ADDITIONAL GUARANTOR
Section 1.01 Additional Guarantor....................................... 1
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01 Terms Defined.............................................. 2
Section 2.02 Indenture.................................................. 2
Section 2.03 Governing Law.............................................. 2
Section 2.04 Successors................................................. 2
Section 2.05 Multiple Counterparts...................................... 2
Section 2.06 Effectiveness.............................................. 2
Section 2.07 Trustee Disclaimer......................................... 2
Signatures............................................................... 4
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE dated as of December 11, 1996 ("First
Supplemental Indenture") among NEWPORT NEWS SHIPBUILDING INC., a Delaware
corporation (the "Company"), NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, a
Virginia corporation ("Newport News"), NNS DELAWARE MANAGEMENT COMPANY, a
Delaware corporation ("NNS"), and THE BANK OF NEW YORK, as Trustee (the
"Trustee").
WHEREAS, the Company and Newport News heretofore executed and delivered to
the Trustee an Indenture dated as of November 26, 1996 (the "Indenture") in
respect of $200,000,000 aggregate principal amount of the Company's 8-5/8%
Senior Notes Due 2006; and
WHEREAS, there have been issued and are now outstanding under the Indenture
Securities in the aggregate principal amount of $200,000,000; and
WHEREAS, NNS was formed on December 3, 1996 and has become a Material
Subsidiary of the Company; and
WHEREAS, NNS desires by this First Supplemental Indenture, pursuant to
Section 9.01 of the Indenture, to expressly become a party to the Indenture and
become subject to the provisions of the Indenture as a Guarantor as required by
Section 10.07 of the Indenture; and
WHEREAS, the execution and delivery of this First Supplemental Indenture
has been authorized by a resolution of the Board of Directors of NNS; and
WHEREAS, all conditions and requirements necessary to make this First
Supplemental Indenture a valid, binding and legal instrument in accordance with
its terms have been performed and fulfilled by the parties hereto and the
execution and delivery hereof have been in all respects duly authorized by the
parties hereto.
NOW, THEREFORE, in consideration of the above premises, each party hereto
agrees as follows for the benefit of each other party and for the equal and
ratable benefit of the Holders of the Securities:
ARTICLE I
ADDITIONAL GUARANTOR
Section 1.01. Additional Guarantor. NNS hereby expressly and
unconditionally agrees to be bound by and subject
<PAGE>
to all the provisions of the Indenture as a Guarantor and to execute and deliver
a Guarantee of the Securities substantially in the form set forth in Exhibit A
to the Indenture, as required by Sections 10.06 and 10.07 of the Indenture. For
all purposes of the Indenture, NNS shall be deemed a party to the Indenture by
virtue of its execution of this First Supplemental Indenture and the defined
term the "Guarantor" contained in Section 1.01 of the Indenture shall be deemed
to expressly include NNS.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01 Terms Defined. For all purposes of this First Supplemental
Indenture, except as otherwise defined or unless the context otherwise requires,
terms used in capitalized form in this First Supplemental Indenture and defined
in the Indenture have the meanings specified in the Indenture.
Section 2.02 Indenture. Except as amended hereby, the Indenture and the
Securities are in all respects ratified and confirmed and all the terms shall
remain in full force and effect.
Section 2.03 Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS FIRST SUPPLEMENTAL INDENTURE WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
Section 2.04 Successors. All agreements of NNS in this First Supplemental
Indenture and its Guarantee shall bind its successor. All agreements of the
Trustee in this First Supplemental Indenture shall bind its successor.
Section 2.05 Multiple Counterparts. The parties may sign multiple
counterparts of this First Supplemental Indenture. Each signed counterpart
shall be deemed an original, but all of them together represent the same
agreement.
Section 2.06 Effectiveness. The provisions of this First Supplemental
Indenture will take effect immediately upon its execution and delivery by the
parties hereto pursuant to Section 9.01 of the Indenture.
Section 2.07 Trustee Disclaimer. The Trustee shall not be responsible for
any recital herein, all of which are
<PAGE>
made solely by the Company, Newport News and NNS, or the validity of the
execution by the Company, Newport News and NNS of this First Supplemental
Indenture. The Trustee makes no representations as to the validity or
sufficiency of this First Supplemental Indenture.
[Signature Pages Follow]
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
NEWPORT NEWS SHIPBUILDING INC.
/s/ D. R. Wyatt
By:____________________________
Name: D. R. Wyatt
Title: Treasurer
NEWPORT NEWS SHIPBUILDING AND
DRY DOCK COMPANY
/s/ D. R. Wyatt
By:____________________________
Name: D. R. Wyatt
Title: Treasurer
NNS DELAWARE MANAGEMENT COMPANY
/s/ D. R. Wyatt
By:____________________________
Name: D. R. Wyatt
Title: Vice President
THE BANK OF NEW YORK, as Trustee
/s/ Byron Merino
By:____________________________
Name: Byron Merino
Title: Assistant Treasurer
<PAGE>
EXHIBIT 4.8
---------------------------------------------------------
NEWPORT NEWS SHIPBUILDING INC.,
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY,
NNS DELAWARE MANAGEMENT COMPANY
and
THE BANK OF NEW YORK, as Trustee
----------
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 11, 1996
to
INDENTURE
Dated as of November 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC., as Issuer
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, as Guarantor
and
THE BANK OF NEW YORK, as Trustee
----------
$200,000,000
9-1/4% Senior Subordinated Notes Due 2006
---------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
ADDITIONAL GUARANTOR
Section 1.01 Additional Guarantor............................................ 1
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01 Terms Defined................................................... 2
Section 2.02 Indenture....................................................... 2
Section 2.03 Governing Law................................................... 2
Section 2.04 Successors...................................................... 2
Section 2.05 Multiple Counterparts........................................... 2
Section 2.06 Effectiveness................................................... 2
Section 2.07 Trustee Disclaimer.............................................. 2
Signatures................................................................... 4
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE dated as of December 11, 1996 ("First
Supplemental Indenture") among NEWPORT NEWS SHIPBUILDING INC., a Delaware
corporation (the "Company"), NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, a
Virginia corporation ("Newport News"), NNS DELAWARE MANAGEMENT COMPANY, a
Delaware corporation ("NNS"), and THE BANK OF NEW YORK, as Trustee (the
"Trustee").
WHEREAS, the Company and Newport News heretofore executed and delivered to
the Trustee an Indenture dated as of November 26, 1996 (the "Indenture") in
respect of $200,000,000 aggregate principal amount of the Company's 9-1/4%
Senior Subordinated Notes Due 2006; and
WHEREAS, there have been issued and are now outstanding under the Indenture
Securities in the aggregate principal amount of $200,000,000; and
WHEREAS, NNS was formed on December 3, 1996 and has become a Material
Subsidiary of the Company; and
WHEREAS, NNS desires by this First Supplemental Indenture, pursuant to
Section 10.01 of the Indenture, to expressly become a party to the Indenture and
become subject to the provisions of the Indenture as a Guarantor as required by
Section 11.07 of the Indenture; and
WHEREAS, the execution and delivery of this First Supplemental Indenture
has been authorized by a resolution of the Board of Directors of NNS; and
WHEREAS, all conditions and requirements necessary to make this First
Supplemental Indenture a valid, binding and legal instrument in accordance with
its terms have been performed and fulfilled by the parties hereto and the
execution and delivery hereof have been in all respects duly authorized by the
parties hereto.
NOW, THEREFORE, in consideration of the above premises, each party hereto
agrees as follows for the benefit of each other party and for the equal and
ratable benefit of the Holders of the Securities:
ARTICLE I
ADDITIONAL GUARANTOR
Section 1.01. Additional Guarantor. NNS hereby expressly and
unconditionally agrees to be bound by and subject
<PAGE>
to all the provisions of the Indenture as a Guarantor and to execute and deliver
a Guarantee of the Securities substantially in the form set forth in Exhibit A
to the Indenture, as required by Sections 11.06 and 11.07 of the Indenture. For
all purposes of the Indenture, NNS shall be deemed a party to the Indenture by
virtue of its execution of this First Supplemental Indenture and the defined
term the "Guarantor" contained in Section 1.01 of the Indenture shall be deemed
to expressly include NNS.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01 Terms Defined. Form all purposes of this First Supplemental
Indenture, except as otherwise defined or unless the context otherwise requires,
terms used in capitalized form in this First Supplemental Indenture and defined
in the Indenture have the meanings specified in the Indenture.
Section 2.02 Indenture. Except as amended hereby, the Indenture and the
Securities are in all respects ratified and confirmed and all the terms shall
remain in full force and effect.
Section 2.03 Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS FIRST SUPPLEMENTAL INDENTURE WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
Section 2.04 Successors. All agreements of NNS in this First Supplemental
Indenture and its Guarantee shall bind its successor. All agreements of the
Trustee in this First Supplemental Indenture shall bind its successor.
Section 2.05 Multiple Counterparts. The parties may sign multiple
counterparts of this First Supplemental Indenture. Each signed counterpart shall
be deemed an original, but all of them together represent the same agreement.
Section 2.06. Effectiveness. The provisions of this First Supplemental
Indenture will take effect immediately upon its execution and delivery by the
parties hereto pursuant to Section 10.01 of the Indenture.
Section 2.07 Trustee Disclaimer. The Trustee shall not be responsible for
any recital herein, all of which are
<PAGE>
made solely by the Company, Newport News and NNS, or the validity of the
execution by the Company, Newport News and NNS of this First Supplemental
Indenture. The Trustee makes no representations as to the validity or
sufficiency of this First Supplemental Indenture.
[Signature Pages Follow]
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
NEWPORT NEWS SHIPBUILDING INC.
By: /s/ D. R. Wyatt
------------------------------
Name: D. R. Wyatt
Title: Treasurer
NEWPORT NEWS SHIPBUILDING AND
DRY DOCK COMPANY
By: /s/ D. R. Wyatt
------------------------------
Name: D. R. Wyatt
Title: Treasurer
NNS DELAWARE MANAGEMENT COMPANY
By: /s/ D. R. Wyatt
------------------------------
Name: D. R. Wyatt
Title: Vice President
THE BANK OF NEW YORK, as Trustee
By: /s/ Byron Merino
-------------------------------
Name: Byron Merino
Title: Assistant Treasurer
<PAGE>
SENIOR NOTES
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC.,
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY,
AND
J.P. MORGAN SECURITIES INC.,
CS FIRST BOSTON CORPORATION,
MORGAN STANLEY & CO. INCORPORATED,
BA SECURITIES, INC.
AND
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of November
26, 1996, by and among NEWPORT NEWS SHIPBUILDING INC., a Delaware corporation
(the "Company"), NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, a Virginia
corporation (collectively with each Material Subsidiary, whether formed or
acquired after the Closing Date, that becomes a guarantor under the Indenture,
the "Guarantors"), and J.P. MORGAN SECURITIES INC., CS FIRST BOSTON
CORPORATION, MORGAN STANLEY & CO. INCORPORATED, BA SECURITIES, INC. and
NATIONSBANC CAPITAL MARKETS, INC. (collectively, the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of November 21, 1996, among the Company, Newport News Shipbuilding
and Dry Dock Company and the Initial Purchasers (the "Purchase Agreement")
relating to the sale by the Company to the Initial Purchasers of $200,000,000
aggregate principal amount of its 8 5/8% Senior Notes due 2006 (the "Notes").
The Notes have been guaranteed (the "Guarantee") on a senior basis by the
Guarantors. In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company and the Guarantors have agreed to provide the
registration rights set forth in this Agreement for the equal benefit of the
Initial Purchasers and their respective direct and indirect transferees. The
execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4.
Advice: See Section 5.
Applicable Period: See Section 2.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
Effectiveness Date: The 150th day after the Closing Date.
Effectiveness Period: See Section 3.
Event Date: See Section 4.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules
and regulations of the SEC promulgated thereunder.
Exchange Offer: See Section 2.
Exchange Registration Statement: See Section 2.
Exchange Securities: See Section 2.
Expiration Date: See Section 2.
Filing Date: The 60th day after the Closing Date.
Guarantees: See the second introductory paragraph to this Agreement.
Guarantors: See the introductory paragraph to this Agreement.
Holder: Any holder of Registrable Securities.
1
<PAGE>
Indemnified Person: See Section 7.
Indemnifying Person: See Section 7.
Indenture: The Indenture, dated as of November 26, 1996, among the Company,
the Guarantors and The Bank of New York, as trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
Initial Purchasers: See the introductory paragraph to this Agreement.
Initial Shelf Registration Statement: See Section 3.
Inspectors: See Section 5(p).
Issue Date: The date of original issuance of the Notes.
Material Subsidiary: A Material Subsidiary as defined in the Indenture.
NASD: See Section 5(u).
Notes: See the second introductory paragraph to this Agreement.
Participant: See Section 7.
Participating Broker-Dealer: See Section 2.
Person: An individual, corporation, limited or general partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Private Exchange: See Section 2.
Private Exchange Securities: See Section 2.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this Agreement.
Records: See Section 5(p).
Registrable Securities: The Notes upon original issuance of the Notes and at
all times subsequent thereto, each Exchange Security as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times
subsequent thereto and, if issued, the Private Exchange Securities, until in
the case of any such Notes, Exchange Securities or Private Exchange
Securities, as the case may be, (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(iv) hereof is
applicable, the Exchange Offer Registration Statement) covering such Notes,
Exchange Securities or Private Exchange Securities has been declared effective
by the SEC and such Notes, Exchange Securities or Private Exchange Securities,
as the case may be, have been disposed of in accordance with such effective
Registration Statement, (ii) such Notes, Exchange Securities or Private
Exchange Securities, as the case may be, are sold in compliance with Rule 144,
or (iii) such Notes, Exchange Securities or Private Exchange Securities, as
the case may be, cease to be outstanding.
2
<PAGE>
Registration Statement: Any registration statement of the Company and the
Guarantors, including, but not limited to, the Exchange Offer Registration
Statement, that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2.
Shelf Registration Statement: See Section 3.
Shelf Registration Event: See Section 2(c).
Subsequent Shelf Registration Statement: See Section 3.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee under
any indenture governing the Exchange Securities and Private Exchange
Securities (if any).
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. EXCHANGE OFFER
(a) The Company and the Guarantors agree to file with the SEC on or before
the Filing Date, an offer to exchange (the "Exchange Offer") any and all of
the Registrable Securities for a like aggregate principal amount of senior
debt securities of the Company which are substantially identical to the Notes
and guaranteed on a senior basis by the Guarantors with terms identical to the
Guarantees (the "Exchange Securities") (and which are entitled to the benefits
of a trust indenture which is identical to the Indenture (other than such
changes as are necessary to comply with any requirements of the SEC to effect
or maintain the qualification of such trust indenture under the TIA) and which
has been qualified under the TIA), except that the Exchange Securities shall
have been registered pursuant to an effective Registration Statement under the
Securities Act and shall contain no restrictive legend thereon. The Company
and the Guarantors agree to use their respective best efforts to (i) cause the
Exchange Offer Registration Statement to become effective and commence the
Exchange Offer on or prior to the Effectiveness Date, (ii) keep the Exchange
Offer open for 30 days (or longer if required by applicable law) (the last day
of such period, the "Expiration Date") and (iii) exchange Exchange Securities
for all Notes validly tendered and not withdrawn pursuant to the Exchange
Offer on or prior to the 5th day following the Expiration Date. The Exchange
Offer will be registered under the Securities Act on the appropriate form (the
"Exchange Offer Registration Statement") and will comply with all applicable
tender offer rules and regulations under the Exchange Act.
3
<PAGE>
Each Holder who participates in the Exchange Offer will be deemed to
represent that any Exchange Securities received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company or the Guarantors within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this Section 2,
the provisions of this Agreement shall continue to apply, mutatis mutandis,
solely with respect to Registrable Securities that are Private Exchange
Securities, Exchange Securities to which Section 2(c)(iv) is applicable and
Exchange Securities held by Participating Broker-Dealers, and the Company and
the Guarantors shall have no further obligation to register Registrable
Securities (other than Private Exchange Securities and other than Exchange
Securities as to which Section 2(c)(iv) hereof applies) pursuant to Section 3
of this Agreement. No securities other than the Exchange Securities shall be
included in the Exchange Offer Registration Statement.
(b) The Company and the Guarantors shall include within the Prospectus
contained in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," reasonably acceptable to the Initial Purchasers, which
shall contain a summary statement of the positions taken or policies made by
the Staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Securities received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the Staff of the SEC or such
positions or policies, in the reasonable judgment of the Initial Purchasers,
represent the prevailing views of the Staff of the SEC. Such "Plan of
Distribution" section shall also allow the use of the prospectus by all
persons subject to the prospectus delivery requirements of the Securities Act,
including all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange
Securities.
The Company and the Guarantors shall use their respective best efforts to
keep the Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit such Prospectus
to be lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for at least 180 days (or such shorter time
as such persons must comply with such requirements in order to resell the
Exchange Securities) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, any Initial Purchaser holds
any 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, the Company upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the Exchange Securities in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal
amount of debt securities of the Company that are identical to the Exchange
Securities and guaranteed by the Guarantors with terms identical to the
Guarantees (the "Private Exchange Securities") (and which are issued pursuant
to the same indenture as the Exchange Securities). The Private Exchange
Securities shall bear the same CUSIP number as the Exchange Securities.
Interest on the Exchange Securities and Private Exchange Securities will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
Any indenture under which the Exchange Securities or the Private Exchange
Securities will be issued shall provide that the holders of any of the
Exchange Securities and the 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 Exchange Securities
and the 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).
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or
prior to
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the Effectiveness 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 Exchange Securities on the date of the
exchange that may be sold without restriction under state and federal
securities laws (the occurrence of any such event, a "Shelf Registration
Event"), then, in the case of each of clauses (i) to and including (iv) of
this sentence, the Company shall promptly deliver to the Holders and the
Trustee notice thereof (the "Shelf Notice") and shall thereafter file an
Initial Shelf Registration Statement pursuant to Section 3.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Initial Shelf Registration Statement. The Company and the Guarantors
shall promptly prepare and file with the SEC a Registration Statement for
an offering to be made on a continuous basis pursuant to Rule 415 covering
all of the Registrable Securities (the "Initial Shelf Registration
Statement"). If the Company and the Guarantors shall have not yet filed an
Exchange Offer Registration Statement, the Company and the Guarantors shall
use their respective best efforts to file with the SEC the Initial Shelf
Registration Statement on or prior to the Filing Date. Otherwise, the
Company and the Guarantors shall use their respective best efforts to file
with the SEC the Initial Shelf Registration Statement within 60 days of the
Shelf Registration Event. The Initial Shelf Registration Statement shall be
on Form S-1 or another appropriate form including Form S-3, if available,
permitting registration of such Registrable Securities for resale by such
holders in the manner designated by them (including, without limitation, an
underwritten offering). The Company and the Guarantors shall not permit any
securities other than the Registrable Securities to be included in the
Initial Shelf Registration Statement or any Subsequent Shelf Registration
Statement. The Company and the Guarantors shall use their respective best
efforts to cause the Initial Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the later of (A) the
180th day after the Issue Date and (B) the 120th day after the Shelf
Registration Event, and to keep the Initial Shelf Registration Statement
continuously effective under the Securities Act until the date which is 36
months from the Issue Date, or such shorter period ending when (i) all
Registrable Securities covered by the Initial Shelf Registration Statement
have been sold in the manner set forth and as contemplated in the Initial
Shelf Registration Statement or (ii) a Subsequent Shelf Registration
Statement covering all of the Registrable Securities has been declared
effective under the Securities Act (such 36 month or shorter period, the
"Effectiveness Period").
(b) Subsequent Shelf Registration Statement. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company and the Guarantors shall use their respective best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event the Company and the Guarantor shall
within 45 days of such cessation of effectiveness use their respective best
efforts to amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, the Company and the Guarantors shall use their respective best
efforts to cause the Subsequent Shelf Registration Statement to be declared
effective as soon as reasonably practicable after such filing and to keep
such Registration Statement continuously effective until the end of the
Effectiveness Period. As used herein the term "Shelf Registration
Statement" means the Initial Shelf Registration Statement and any
Subsequent Shelf Registration Statement.
(c) Supplements and Amendments. The Company and the Guarantors shall
promptly supplement and amend the Shelf Registration Statement if required
by the rules, regulations or instructions applicable to the registration
form used for such Shelf Registration Statement, if required by the
Securities Act, or if reasonably requested by the Holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
Registration Statement or by any underwriter of such Registrable
Securities.
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4. ADDITIONAL INTEREST
(a) The Company, the Guarantors and the Initial Purchasers agree that the
Holders of Notes will suffer damages if the Company and the Guarantors fail to
fulfill their obligations under Section 2 or Section 3 hereof and that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Company agrees to pay, as liquidated damages, additional
interest on the Notes ("Additional Interest") under the circumstances and to
the extent set forth below (each of which shall be given independent effect):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the date
required to be filed pursuant to this Agreement, Additional Interest shall
accrue on the Notes over and above the stated interest at a rate of .25%
per annum for the first 90 days immediately following such date, such
Additional Interest rate increasing by an additional .25% per annum at the
beginning of each subsequent 90-day period;
(ii) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the SEC on or
prior to the date required to be declared effective pursuant to this
Agreement, Additional Interest shall accrue on the Notes included or which
should have been included in such Registration Statement over and above the
stated interest at a rate of .25% per annum for the first 90 days
immediately following the day after such date, such Additional Interest
rate increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period; and
(iii) if (A) the Company has not exchanged Exchange Securities for all
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the 5th day after the Expiration Date or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the Expiration Date or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Notes
(over and above any interest otherwise payable on the Notes) at a rate of
.25% per annum for the first 90 days commencing on the (x) 6th day after
the Expiration Date, in the case of (A) above, or (y) the day the Exchange
Offer Registration Statement ceases to be effective in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest rate
increasing by an additional .25% per annum at the beginning of each such
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed at any one time in the aggregate 1.0% per annum; and provided, further,
that (1) upon the filing of the Exchange Offer Registration Statement or a
Shelf Registration Statement as required hereunder (in the case of clause (i)
of this Section 4(a)), (2) upon the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement as required
hereunder (in the case of clause (ii) of this Section 4(a)) or (3) upon the
exchange of Exchange Securities for all Notes validly tendered and not
withdrawn (in the case of clause (iii)(A) of this Section 4(a)), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased to
remain effective (in the case of (iii)(B) of this Section 4(a)), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of (iii)(C) of this Section 4(a)), Additional Interest
on the Notes as a result of such clause (or the relevant subclause thereof),
as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). The Company shall pay the
Additional Interest due on the Registrable Securities by depositing with the
Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. The Additional Interest amount due shall be payable on
each interest payment date to the record Holder of Registrable Securities
entitled to receive the interest payment to be made on such date as set forth
in the Indenture. Each obligation to pay Additional Interest shall be deemed
to accrue immediately following the occurrence of the applicable Event Date.
The parties hereto agree that the Additional Interest provided for in this
Section 4 constitute a reasonable estimate of the damages that may be incurred
by Holders of Registrable
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Securities by reason of the failure of a Shelf Registration Statement or
Exchange Offer Registration Statement to be filed or declared effective, or a
Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Section 4.
(c) The Guarantors guarantee the payment of the Additional Interest to the
same extent and in the same manner as the guarantee provisions set forth in
the Indenture, which provisions are incorporated herein by reference mutatis
mutandis.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Securities pursuant
to Sections 2 or 3 hereof, the Company and the Guarantors shall use their
respective best efforts to effect such registrations to permit the sale of
such Registrable Securities in accordance with the intended method or methods
of disposition thereof, and pursuant thereto the Company and the Guarantors
shall:
(a) Prepare and file with the SEC on or before the Filing Date, a
Registration Statement or Registration Statements as prescribed by Section
2 or 3, and to use their respective best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein, provided that, if (1) such filing is pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company and the
Guarantors shall furnish to and afford the Holders of the Registrable
Securities and each such Participating Broker-Dealer, as the case may be,
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (at least
five days prior to such filing). The Company and the Guarantors shall not
file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded a
reasonable opportunity to review prior to the filing of such document, if
the Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement, or such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness
Period, in the case of a Shelf Registration Statement, or until the later
of the Expiration Date and the Applicable Period (if applicable), in the
case of the Exchange Offer Registration Statement; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) under the Securities Act; and comply with the provisions of
the Securities Act, the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to it with respect to the disposition
of all securities covered by such Registration Statement as so amended or
in such Prospectus as so supplemented and with respect to the subsequent
resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus.
(c) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, notify the selling
Holders of Registrable Securities, or each such Participating Broker-
Dealer, as the case may be, their counsel and the managing underwriters, if
any, promptly (but in any event within five business days), and confirm
such notice in writing, (i) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective (including in such notice a written statement that any
Holder may, upon request, obtain, without charge, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules,
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<PAGE>
documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of
the Registrable Securities the representations and warranties of the
Company or the Guarantors contained in any agreement (including any
underwriting agreement) contemplated by Section 5(o) below cease to be true
and correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable
Securities or the Exchange Securities to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of
the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, use their respective best
efforts to prevent the issuance of any order suspending the effectiveness
of a Registration Statement or of any order preventing or suspending the
use of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Securities or the Exchange
Securities to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use their respective
best efforts to obtain the withdrawal of any such order at the earliest
possible moment.
(e) If a Shelf Registration Statement is filed pursuant to Section 3 and
if requested by the managing underwriters, if any, or the Holders of a
majority in aggregate principal amount of the Registrable Securities being
sold in connection with an underwritten offering, (i) promptly incorporate
in a prospectus supplement or post-effective amendment such information as
the managing underwriters, if any, or such Holders or counsel reasonably
request to be included therein, (ii) make all required filings of such
prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such Registration
Statement.
(f) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, furnish to each selling
Holder of Registrable Securities and to each such Participating Broker-
Dealer who so requests and to counsel and each managing underwriter, if
any, without charge, one conformed copy of the Registration Statement or
Statements and each post-effective amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, deliver to each selling
Holder of Registrable Securities, or each such Participating Broker-Dealer,
as the case may be, their counsel, and the underwriters, if any, without
charge, as many
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copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
and the Guarantors hereby consent to the use of such Prospectus and each
amendment or supplement thereto by each of the selling holders of
Registrable Securities or each such Participating Broker-Dealer, as the
case may be, and the underwriters or agents, if any, and dealers (if any),
in connection with the offering and sale of the Registrable Securities
covered by or the sale by Participating Broker-Dealers of the Exchange
Securities pursuant to such Prospectus and any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Securities or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, to use their respective best
efforts to register or qualify, and to cooperate with the selling Holders
of Registrable Securities or each such Participating Broker-Dealer, as the
case may be, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder, Participating Broker-Dealer, or the
managing underwriters reasonably request in writing, provided that where
Exchange Securities held by Participating Broker-Dealers or Registrable
Securities are offered other than through an underwritten offering, the
Company and the Guarantors agree to cause their counsel to (i) perform Blue
Sky investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h); (ii) use their respective best efforts
to keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be
kept effective; and (iii) do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Exchange
Securities held by Participating Broker-Dealers or the Registrable
Securities covered by the applicable Registration Statement, provided that
neither the Company nor the Guarantors shall be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction.
(i) If a Shelf Registration Statement is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Registrable Securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or Holders
may reasonably request.
(j) Use their respective best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company and the Guarantors will cooperate in
all reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly
as practicable prepare and (subject to Section 5(a) above) file with the
SEC, solely at the expense of the Company and the Guarantors, a supplement
or post-effective amendment to the Registration Statement or a supplement
to the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder or to the purchasers of the Exchange
Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus
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will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Use their respective best efforts to cause the Registrable Securities
covered by a Registration Statement or the Exchange Securities, as the case
may be, to be rated with the appropriate rating agencies, if so requested
by the Holders of a majority in aggregate principal amount of Registrable
Securities covered by such Registration Statement or the Exchange
Securities, as the case may be, or the managing underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with
printed certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Securities.
(n) [intentionally omitted]
(o) In connection with an underwritten offering of Registrable Securities
pursuant to a Shelf Registration Statement, enter into an underwriting
agreement as is customary in underwritten offerings and take all such other
actions as are reasonably requested by the managing underwriters in order
to expedite or facilitate the registration or the disposition of such
Registrable Securities, and in such connection, (i) make such
representations and warranties to the underwriters, with respect to the
business of the Company and its subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if
and when requested; (ii) obtain opinions of counsel to the Company and the
Guarantors and updates thereof in form and substance reasonably
satisfactory to the managing underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by
the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each
of the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings and such other matters as reasonably
requested by underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement and the managing underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section. The above shall be done
at each closing under such underwriting agreement, or as and to the extent
required thereunder.
(p) If (1) a Shelf Registration Statement is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Securities being sold,
or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable
Securities, if any, and any attorney, accountant or other agent retained by
any such selling holder or each such Participating Broker-Dealer, as the
case may be, or underwriter (collectively, the "Inspectors"), at the
offices where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees
of the Company and its subsidiaries to supply all information in each case
reasonably requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in good
faith, to be confidential and any Records which the Company notifies the
Inspectors are confidential shall not be
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disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made
generally available to the public. Each selling Holder of such Registrable
Securities and each such Participating Broker-Dealer will be required to
agree that information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company unless and until such
is made generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company at its expense to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(q) Provide an indenture trustee for the Registrable Securities or the
Exchange Securities, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a), as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable
Securities; and in connection therewith, cooperate with the trustee under
any such indenture and the holders of the Registrable Securities, to effect
such changes to such indenture as may be required for such Indenture to be
so qualified in accordance with the terms of the TIA; and execute, and use
their respective best efforts to cause such trustee to execute, all
documents as may be required to effect such changes, and all other forms
and documents required to be filed with the SEC to enable such indenture to
be so qualified in a timely manner.
(r) Comply with all applicable rules and regulations of the SEC and make
generally available to their securityholders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no
later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(s) Upon consummation of an Exchange Offer or a Private Exchange, obtain
an opinion of counsel to the Company and the Guarantors addressed to the
Trustee for the benefit of all Holders of Registrable Securities
participating in the Exchange Offer or the Private Exchange, as the case
may be, and which includes an opinion that (i) the Company and the
Guarantors have duly authorized, executed and delivered the Exchange
Securities and Private Exchange Securities and the related indenture, and
(ii) each of the Exchange Securities or the Private Exchange Securities, as
the case may be, and related indenture constitute legal, valid and binding
obligations of the Company and the Guarantors, enforceable against the
Company and the Guarantors in accordance with its respective terms (with
customary exceptions).
(t) If an Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Securities by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the
Company shall mark, or caused to be marked, on such Registrable Securities
that such Registrable Securities are being cancelled in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be;
in no event shall such Registrable Securities be marked as paid or
otherwise satisfied.
(u) Cooperate with each seller of Registrable Securities covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(v) Use their respective best efforts to take all other steps necessary
to effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby.
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The Company and the Guarantors may require each seller of Registrable
Securities or Participating Broker-Dealer as to which any registration is
being effected to furnish to the Company and the Guarantors such information
regarding such seller or Participating Broker-Dealer and the distribution of
such Registrable Securities or Exchange Securities to be sold by such
Participating Broker-Dealer, as the case may be, as the Company and the
Guarantors may, from time to time, reasonably request. The Company and the
Guarantors may exclude from such registration the Registrable Securities of
any seller or Participating Broker-Dealer who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
Each Holder of Registrable Securities and each Participating Broker-Dealer
agrees by acquisition of such Registrable Securities or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and
has received copies of any amendments or supplements thereto.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company and the Guarantors shall be borne by the Company
and the Guarantors whether or not the Exchange Offer or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i)
all registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees
and disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Securities or Exchange Securities and determination of the
eligibility of the Registrable Securities or Exchange Securities for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities or
Exchange Securities to be sold by a Participating Broker-Dealer during the
Applicable Period)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities or Exchange
Securities in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by
the managing underwriters, if any, or, in respect of Registrable Securities or
Exchange Securities to be sold by any Participating Broker-Dealer during the
Applicable Period, by the Holders of a majority in aggregate principal amount
of the Registrable Securities included in any Registration Statement or of
such Exchange Securities, as the case may be), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company and
the Guarantors and reasonable fees and disbursements of special counsel for
the sellers of Registrable Securities (subject to the provisions of Section
6(b)), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(o)(iii) (including, without limitation,
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) the reasonable fees and expenses of any
"qualified independent underwriter" or other independent appraiser
participating in an offering pursuant to Section 3 of Schedule E to the By-
laws of the National Association of Securities Dealers, Inc., (vii) rating
agency fees, (viii) Securities Act liability insurance, if the Company and the
Guarantors desire such insurance, (ix) fees and expenses of all other Persons
retained by the Company and the Guarantors, (x) internal expenses of the
Company and the Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Company and the Guarantors
performing legal or accounting duties), (xi) the expense of any annual audit,
(xii) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange and (xiii) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures
and any other documents necessary in order to comply with this Agreement.
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(b) In connection with any Shelf Registration Statement hereunder, the
Company and the Guarantors shall reimburse the Holders of the Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Securities to be included in such Registration Statement and
other reasonable out-of-pocket expenses of the Holders of Registrable
Securities incurred in connection with the registration of the Registrable
Securities.
7. INDEMNIFICATION
The Company and the Guarantors, jointly and severally, agree to indemnify
and hold harmless each Holder of Registrable Securities and each Participating
Broker-Dealer selling Exchange Securities during the Applicable Period, the
officers and directors of each such person, and each person, if any, who
controls any such person within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment
thereto) or Prospectus (as amended or supplemented if the Company or the
Guarantors shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished to the Company in writing by such Participant expressly for use
therein; provided that the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Participant (or to the
benefit of any person controlling such Participant) from whom the person
asserting any such losses, claims, damages or liabilities purchased
Registrable Securities or Exchange Securities if such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company and the Guarantors shall have furnished any
amendments or supplements thereto) and a copy of the related Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the sale of such Registrable Securities or Exchange Securities, as
the case may be, to such person.
Each Participant will be required to agree, severally and not jointly, to
indemnify and hold harmless each of the Company and the Guarantors, its
directors, its officers and each person who controls the Company or the
Guarantors within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company and the Guarantors to each Participant, but only with reference to
information furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus. The liability of any
Participant under this paragraph shall in no event exceed the proceeds
received by such Participant from sales of Registrable Securities giving rise
to such obligations.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any
person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related to such
proceeding, provided, that the failure to so notify the Indemnifying Person
shall not relieve it of any obligation or liability which it may have
hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights). In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
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such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary, (ii) the Indemnifying
Person has failed within a reasonable time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the
same counsel would be inappropriate due to a conflict of interest or the
defendants in any such action including both the Indemnified Person and the
Indemnifying Person and the Indemnified Person shall have been advised by
counsel that there may be one or more legal defenses available to it and/or
the other Indemnified Persons that are different from or additional to those
of the Indemnifying Person. It is understood that the Indemnifying Person
shall not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Indemnified Persons, and that
all such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Participants shall be designated in writing by
Participants who sold a majority in interest of Registrable Securities sold by
all such Participants and any such separate firm for the Company or the
Guarantors, its directors, its officers and such control persons of the
Company or the Guarantors shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying
Person to reimburse the Indemnified Person for reasonable fees and expenses
actually incurred by counsel as contemplated by the third sentence of this
paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person
shall not have reimbursed the Indemnified Person in accordance with such
request prior to the date of such settlement; provided, however, that the
Indemnifying Person shall not be liable for any settlement effected without
its consent pursuant to this sentence if the Indemnifying Party is contesting,
in good faith, the request for reimbursement. No Indemnifying Person shall,
without the prior written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement includes
an unconditional release of such Indemnified Person from all liability on
claims that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on
the one hand and the Indemnified Person or Persons on the other from the
offering of the Notes or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the Indemnifying Person or Persons on the one
hand and the Indemnified Person or Persons on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors on the one hand and the
Participants on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of discounts and commissions but before
deducting expenses) of the Notes received by the Company bears to the total
proceeds received by such Participant from the sale of Registrable Securities
or Exchange Securities, as the case may be. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company and the Guarantors on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
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The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable
Securities exceeds the amount of any damages that such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 7 will
be in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. RULE 144
The Company and the Guarantors covenant that they will file the reports
required to be filed by them under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner
and, if at any time the Company and the Guarantors are not required to file
such reports, they will, upon the request of any Holder of Registrable
Securities, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The
Company and the Guarantors further covenant that they will take such further
action as any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 and Rule 144A under the
Securities Act.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company.
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and
(b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) Remedies. In the event of a breach by the Company or the Guarantors of
any of their respective obligations under this Agreement, each Holder of
Registrable Securities, in addition to being entitled to exercise all rights
provided herein, in the Indenture or, in the case of the Initial Purchasers,
in the Purchase Agreement or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and the Guarantors agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by them of
any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, they
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of the
Guarantors has, as of the date hereof, entered and shall, after the date of
this Agreement, enter into any agreement with respect to any of their
securities that is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement
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<PAGE>
or otherwise conflicts with the provisions hereof. Neither the Company nor any
of the Guarantors has entered and will enter into any agreement with respect
to any of their securities which will grant to any Person "piggy-back" rights
with respect to a Registration Statement.
(c) Adjustments Affecting Registrable Securities. Neither the Company nor
any of the Guarantors shall, directly or indirectly, take any action with
respect to the Registrable Securities as a class that would adversely affect
the ability of the Holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this
Agreement.
(d) Additional Guarantors. So long as any Registrable Securities remain
outstanding, the Company shall cause each Material Subsidiary, whether formed
or acquired after the Closing Date, that becomes a guarantor under the
Indenture to execute and deliver a counterpart to this Agreement which
subjects such Material Subsidiary to the provisions of this Agreement as a
Guarantor.
(e) Amendments and Waivers. Except as provided for in paragraph (d) above,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, otherwise than with the prior written consent of (A) the Holders of not
less than a majority in aggregate principal amount of the then outstanding
Registrable Securities and (B) in circumstances that would adversely affect
the Participating Broker-Dealers, the Participating Broker-Dealers holding not
less than a majority in aggregate principal amount of the Exchange Securities
held by all Participating Broker-Dealers; provided, however, that Section 7
and this Section 10(c) may not be amended, modified or supplemented without
the prior written consent of each Holder and each Participating Broker-Dealer
(including any person who was a Holder or Participating Broker-Dealer of
Registrable Securities or Exchange Securities, as the case may be, disposed of
pursuant to any Registration Statement) affected by any such amendment,
modification or supplement. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Securities may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Securities being
sold by such Holders pursuant to such Registration Statement.
(f) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current address
given by the Trustee to the Company; and
(ii) if to the Company or the Guarantors, at Newport News Shipbuilding
Inc., 4101 Washington Avenue, Newport News, Virginia 23067, Attention:
Chief Financial Officer.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
(g) Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities; provided, that, with respect to the
indemnity and contribution agreements in Section 7, each Holder of Registrable
Securities subsequent to the Initial Purchasers shall be bound by the terms
thereof if (i) such Holder elects to include Registrable Securities in a Shelf
Registration Statement and (ii) such Holder is advised expressly by the
Company of the provisions contained in Section 7 and that such Holder's
election to include Registrable Securities in a Shelf Registration Statement
shall be deemed such Holder's agreement to be bound by such provisions.
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(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement,
is intended by the parties as a final expression of their agreement, and is
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(m) Securities Held by the Company or its Affiliates. Whenever the consent
or approval of holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Newport News Shipbuilding Inc.
/s/ Stephen B. Clarkson
By: _________________________________
Name: Stephen B. Clarkson
Title: Vice President &
General Counsel
Newport News Shipbuilding and Dry
Dock Company
/s/ Stephen B. Clarkson
By: _________________________________
Name: Stephen B. Clarkson
Title: Vice President &
General Counsel
J.P. Morgan Securities Inc.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
BA Securities, Inc.
Nationsbanc Capital Markets, Inc.
By: J.P. Morgan Securities Inc.
/s/ Steven Tulip
By: _________________________________
Name: Steven Tulip
Title: Vice President
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<PAGE>
SENIOR SUBORDINATED NOTES
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 26, 1996
AMONG
NEWPORT NEWS SHIPBUILDING INC.,
NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY,
AND
J.P. MORGAN SECURITIES INC.,
CS FIRST BOSTON CORPORATION,
MORGAN STANLEY & CO. INCORPORATED,
BA SECURITIES, INC.
AND
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of November
26, 1996, by and among NEWPORT NEWS SHIPBUILDING INC., a Delaware corporation
(the "Company"), NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, a Virginia
corporation (collectively with each Material Subsidiary, whether formed or
acquired after the Closing Date, that becomes a guarantor under the Indenture,
the "Guarantors"), and J.P. MORGAN SECURITIES INC., CS FIRST BOSTON
CORPORATION, MORGAN STANLEY & CO. INCORPORATED, BA SECURITIES, INC. AND
NATIONSBANC CAPITAL MARKETS, INC. (collectively, the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of November 21, 1996, among the Company, Newport News Shipbuilding
and Dry Dock Company and the Initial Purchasers (the "Purchase Agreement")
relating to the sale by the Company to the Initial Purchasers of $200,000,000
aggregate principal amount of its 9 1/4% Senior Subordinated Notes due 2006
(the "Notes"). The Notes have been guaranteed (the "Guarantees") on a senior
subordinated basis by the Guarantors. In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company and the
Guarantors have agreed to provide the registration rights set forth in this
Agreement for the equal benefit of the Initial Purchasers and their respective
direct and indirect transferees. The execution and delivery of this Agreement
is a condition to the Initial Purchasers' obligation to purchase the Notes
under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4.
Advice: See Section 5.
Applicable Period: See Section 2.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
Effectiveness Date: The 150th day after the Closing Date.
Effectiveness Period: See Section 3.
Event Date: See Section 4.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules
and regulations of the SEC promulgated thereunder.
Exchange Offer: See Section 2.
Exchange Offer Registration Statement: See Section 2.
Exchange Securities: See Section 2.
Expiration Date: See Section 2.
Filing Date: The 60th day after the Closing Date.
Guarantees: See the second introductory paragraph to this Agreement.
Guarantors: See the introductory paragraph to this Agreement.
Holder: Any holder of Registrable Securities.
Indemnified Person: See Section 7.
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Indemnifying Person: See Section 7.
Indenture: The Indenture, dated as of November 26, 1996, among the Company,
the Guarantors and The Bank of New York, as trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
Initial Purchasers: See the introductory paragraph to this Agreement.
Initial Shelf Registration Statement: See Section 3.
Inspectors: See Section 5(p).
Issue Date: The date of original issuance of the Notes.
Material Subsidiary: A Material Subsidiary as defined in the Indenture.
NASD: See Section 5(u).
Notes: See the second introductory paragraph to this Agreement.
Participant: See Section 7.
Participating Broker-Dealer: See Section 2.
Person: An individual, corporation, limited or general partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Private Exchange: See Section 2.
Private Exchange Securities: See Section 2.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this Agreement.
Records: See Section 5(p).
Registrable Securities: The Notes upon original issuance of the Notes and at
all times subsequent thereto, each Exchange Security as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times
subsequent thereto and, if issued, the Private Exchange Securities, until in
the case of any such Notes, Exchange Securities or Private Exchange
Securities, as the case may be, (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(iv) hereof is
applicable, the Exchange Offer Registration Statement) covering such Notes,
Exchange Securities or Private Exchange Securities has been declared effective
by the SEC and such Notes, Exchange Securities or Private Exchange Securities,
as the case may be, have been disposed of in accordance with such effective
Registration Statement, (ii) such Notes, Exchange Securities or Private
Exchange Securities, as the case may be, are sold in compliance with Rule 144,
or (iii) such Notes, Exchange Securities or Private Exchange Securities, as
the case may be, cease to be outstanding.
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Registration Statement: Any registration statement of the Company and the
Guarantors, including, but not limited to, the Exchange Offer Registration
Statement, that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2.
Shelf Registration Statement: See Section 3.
Shelf Registration Event: See Section 2(c).
Subsequent Shelf Registration Statement: See Section 3.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee under
any indenture governing the Exchange Securities and Private Exchange
Securities (if any).
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. EXCHANGE OFFER
(a) The Company and the Guarantors agree to file with the SEC on or before
the Filing Date, an offer to exchange (the "Exchange Offer") any and all of
the Registrable Securities for a like aggregate principal amount of senior
subordinated debt securities of the Company which are substantially identical
to the Notes and guaranteed on a senior subordinated basis by the Guarantors
with terms identical to the Guarantees (the "Exchange Securities") (and which
are entitled to the benefits of a trust indenture which is identical to the
Indenture (other than such changes as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification of such trust
indenture under the TIA) and which has been qualified under the TIA), except
that the Exchange Securities shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Company and the Guarantors agree to use their
respective best efforts to (i) cause the Exchange Offer Registration Statement
to become effective and commerce the Exchange Offer on or prior to the
Effectiveness Date, (ii) keep the Exchange Offer open for 30 days (or longer
if required by applicable law) (the last day of such period, the "Expiration
Date") and (iii) exchange Exchange Securities for all Notes validly tendered
and not withdrawn pursuant to the Exchange Offer on or prior to the 5th day
following the Expiration Date. The Exchange Offer will be registered under the
Securities Act on the appropriate form (the "Exchange Offer Registration
Statement") and will comply with all applicable tender offer rules and
regulations under the Exchange Act.
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Each Holder who participates in the Exchange Offer will be deemed to
represent that any Exchange Securities received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company or the Guarantors within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this Section 2,
the provisions of this Agreement shall continue to apply, mutatis mutandis,
solely with respect to Registrable Securities that are Private Exchange
Securities, Exchange Securities to which Section 2(c)(iv) is applicable and
Exchange Securities held by Participating Broker-Dealers, and the Company and
the Guarantors shall have no further obligation to register Registrable
Securities (other than Private Exchange Securities and other than Exchange
Securities as to which Section 2(c)(iv) hereof applies) pursuant to Section 3
of this Agreement. No securities other than the Exchange Securities shall be
included in the Exchange Offer Registration Statement.
(b) The Company and the Guarantors shall include within the Prospectus
contained in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," reasonably acceptable to the Initial Purchasers, which
shall contain a summary statement of the positions taken or policies made by
the Staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Securities received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the Staff of the SEC or such
positions or policies, in the reasonable judgment of the Initial Purchasers,
represent the prevailing views of the Staff of the SEC. Such "Plan of
Distribution" section shall also allow the use of the prospectus by all
persons subject to the prospectus delivery requirements of the Securities Act,
including all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange
Securities.
The Company and the Guarantors shall use their respective best efforts to
keep the Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit such Prospectus
to be lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for at least 180 days (or such shorter time
as such persons must comply with such requirements in order to resell the
Exchange Securities) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, any Initial Purchaser holds
any 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, the Company upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the Exchange Securities in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal
amount of debt securities of the Company that are identical to the Exchange
Securities and guaranteed by the Guarantors with terms identical to the
Guarantees (the "Private Exchange Securities") (and which are issued pursuant
to the same indenture as the Exchange Securities). The Private Exchange
Securities shall bear the same CUSIP number as the Exchange Securities.
Interest on the Exchange Securities and Private Exchange Securities will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
Any indenture under which the Exchange Securities or the Private Exchange
Securities will be issued shall provide that the holders of any of the
Exchange Securities and the 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 Exchange Securities
and the 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).
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or
prior to the Effectiveness Date days of the Filing Date, (iii) any holder of
Private Exchange Securities so requests, or
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(iv) in the case of any Holder that participates in the Exchange Offer, such
Holder does not receive Exchange Securities on the date of the exchange that
may be sold without restriction under state and federal securities laws (the
occurence of any such event, a "Shelf Registration Event"), then, in the case
of each of clauses (i) to and including (iv) of this sentence, the Company
shall promptly deliver to the Holders and the Trustee notice thereof (the
"Shelf Notice") and shall thereafter file an Initial Shelf Registration
Statement pursuant to Section 3.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Initial Shelf Registration Statement. The Company and the Guarantors
shall promptly prepare and file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Securities (the "Initial Shelf Registration Statement"). If
the Company and the Guarantors shall have not yet filed an Exchange Offer
Registration Statement, the Company and the Guarantors shall use their
respective best efforts to file with the SEC the Initial Shelf Registration
Statement on or prior to the Filing Date. Otherwise, the Company and the
Guarantors shall use their respective best efforts to file with the SEC the
Initial Shelf Registration Statement within 60 days of the Shelf Registration
Event. The Initial Shelf Registration Statement shall be on Form S-1 or
another appropriate form, including Form S-3, if available, permitting
registration of such Registrable Securities for resale by such holders in the
manner designated by them (including, without limitation, an underwritten
offering). The Company and the Guarantors shall not permit any securities
other than the Registrable Securities to be included in the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement. The
Company and the Guarantors shall use their respective best efforts to cause
the Initial Shelf Registration Statement to be declared effective under the
Securities Act on or prior to the later of (A) the 180th day after the Issue
Date and (B) the 120th day after the Shelf Registration Event, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 36 months from the Issue Date, or such
shorter period ending when (i) all Registrable Securities covered by the
Initial Shelf Registration Statement have been sold in the manner set forth
and as contemplated in the Initial Shelf Registration Statement or (ii) a
Subsequent Shelf Registration Statement covering all of the Registrable
Securities has been declared effective under the Securities Act (such 36 month
or shorter period, the "Effectiveness Period").
(b) Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases
to be effective for any reason at any time during the Effectiveness Period
(other than because of the sale of all of the securities registered
thereunder), the Company and the Guarantors shall use their respective best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event the Company and the Guarantor shall
within 45 days of such cessation of effectiveness use their respective best
efforts to amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to Rule
415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, the Company and the Guarantors shall use their respective best efforts
to cause the Subsequent Shelf Registration Statement to be declared effective
as soon as reasonably practicable after such filing and to keep such
Registration Statement continuously effective until the end of the
Effectiveness Period. As used herein the term "Shelf Registration Statement"
means the Initial Shelf Registration Statement and any Subsequent Shelf
Registration Statement.
(c) Supplements and Amendments. The Company and the Guarantors shall
promptly supplement and amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form
used for such Shelf Registration Statement, if required by the Securities Act,
or if reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement or
by any underwriter of such Registrable Securities.
4. ADDITIONAL INTEREST
(a) The Company, the Guarantors and the Initial Purchasers agree that the
Holders of Notes will suffer damages if the Company and the Guarantors fail to
fulfill their obligations under Section 2 or Section 3 hereof
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and that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company agrees to pay, as liquidated damages,
additional interest on the Notes ("Additional Interest") under the
circumstances and to the extent set forth below (each of which shall be given
independent effect):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the date
required to be filed pursuant to this Agreement, Additional Interest shall
accrue on the Notes over and above the stated interest at a rate of .25%
per annum for the first 90 days immediately following such date, such
Additional Interest rate increasing by an additional .25% per annum at the
beginning of each subsequent 90-day period;
(ii) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the SEC on or
prior to the date required to be declared effective pursuant to this
Agreement, Additional Interest shall accrue on the Notes included or which
should have been included in such Registration Statement over and above the
stated interest at a rate of .25% per annum for the first 90 days
immediately following the day after such date, such Additional Interest
rate increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period; and
(iii) if (A) the Company has not exchanged Exchange Securities for all
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the 5th day after the Expiration Date or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the Expiration Date or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Notes
(over and above any interest otherwise payable on the Notes) at a rate of
.25% per annum for the first 90 days commencing on the (x) 6th day after
the Expiration Date, in the case of (A) above, or (y) the day the Exchange
Offer Registration Statement ceases to be effective in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest rate
increasing by an additional .25% per annum at the beginning of each such
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed at any one time in the aggregate 1.0% per annum; and provided, further,
that (1) upon the filing of the Exchange Offer Registration Statement or a
Shelf Registration Statement as required hereunder (in the case of clause (i)
of this Section 4(a)), (2) upon the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement as required
hereunder (in the case of clause (ii) of this Section 4(a)) or (3) upon the
exchange of Exchange Securities for all Notes validly tendered and not
withdrawn (in the case of clause (iii)(A) of this Section 4(a)), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased to
remain effective (in the case of (iii)(B) of this Section 4(a)), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of (iii)(C) of this Section 4(a)), Additional Interest
on the Notes as a result of such clause (or the relevant subclause thereof),
as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). The Company shall pay the
Additional Interest due on the Registrable Securities by depositing with the
Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. The Additional Interest amount due shall be payable on
each interest payment date to the record Holder of Registrable Securities
entitled to receive the interest payment to be made on such date as set forth
in the Indenture. Each obligation to pay Additional Interest shall be deemed
to accrue immediately following the occurrence of the applicable Event Date.
The parties hereto agree that the Additional Interest provided for in this
Section 4 constitute a reasonable estimate of the damages that may be incurred
by Holders of Registrable Securities by reason of the failure of a Shelf
Registration Statement or Exchange Offer Registration Statement to be filed or
declared effective, or a Shelf Registration Statement to remain effective, as
the case may be, in accordance with this Section 4.
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(c) The Guarantors guarantee the payment of the Additional Interest to the
same extent and in the same manner as the guarantee provisions set forth in
the Indenture, which provisions are incorporated herein by reference mutatis
mutandis.
(d) The Company's obligation to pay Additional Interest upon the occurrence
and during the continuance of the events described in paragraph (a) above and
the Guarantors guarantee of the payment of such Additional Interest shall be
subordinated and junior in right of payment to the prior payment in full in
cash of all amounts payable under Senior Indebtedness (as defined in the
Indenture) and Guarantor Senior Indebtedness (as defined in the Indenture), as
the case may be, to the same extent and in the same manner as the
subordination provisions set forth in the Indenture, which provisions are
incorporated herein by reference mutatis mutandis.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Securities pursuant
to Sections 2 or 3 hereof, the Company and the Guarantors shall use their
respective best efforts to effect such registrations to permit the sale of
such Registrable Securities in accordance with the intended method or methods
of disposition thereof, and pursuant thereto the Company and the Guarantors
shall:
(a) Prepare and file with the SEC on or before the Filing Date, a
Registration Statement or Registration Statements as prescribed by Section 2
or 3, and to use their respective best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein,
provided that, if (1) such filing is pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, before filing any Registration Statement or Prospectus
or any amendments or supplements thereto, the Company and the Guarantors shall
furnish to and afford the Holders of the Registrable Securities and each such
Participating Broker-Dealer, as the case may be, covered by such Registration
Statement, their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (at least five days prior to such filing). The Company
and the Guarantors shall not file any Registration Statement or Prospectus or
any amendments or supplements thereto in respect of which the Holders must be
afforded a reasonable opportunity to review prior to the filing of such
document, if the Holders of a majority in aggregate principal amount of the
Registrable Securities covered by such Registration Statement, or such
Participating Broker-Dealer, as the case may be, their counsel, or the
managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period, in the case of
a Shelf Registration Statement, or until the later of the Expiration Date and
the Applicable Period (if applicable), in the case of the Exchange Offer
Registration Statement; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and with
respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus.
(c) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period,
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notify the selling Holders of Registrable Securities, or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within five business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective (including in such notice a written statement that
any Holder may, upon request, obtain, without charge, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection
with sales of the Registrable Securities the representations and warranties of
the Company or the Guarantors contained in any agreement (including any
underwriting agreement) contemplated by Section 5(o) below cease to be true
and correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Registrable Securities or the
Exchange Securities to be sold by any Participating Broker-Dealer for offer or
sale in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event or any information
becoming known that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in such Registration Statement, Prospectus or documents
so that, in the case of the Registration Statement, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading and
(vi) of the Company's reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, use their respective best efforts to prevent the
issuance of any order suspending the effectiveness of a Registration Statement
or of any order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the Registrable
Securities or the Exchange Securities to be sold by any Participating Broker-
Dealer, for sale in any jurisdiction, and, if any such order is issued, to use
their respective best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If a Shelf Registration Statement is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority
in aggregate principal amount of the Registrable Securities being sold in
connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or counsel reasonably request
to be included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as reasonably practicable
after the Company has received notification of the matters to be incorporated
in such prospectus supplement or post-effective amendment, and (iii)
supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, furnish to each selling Holder of Registrable
Securities and to each such Participating Broker-Dealer who so requests and to
counsel and each managing underwriter, if any, without charge, one conformed
copy of the Registration Statement or Statements and each post-effective
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
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(g) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, deliver to each selling Holder of Registrable
Securities, or each such Participating Broker-Dealer, as the case may be,
their counsel, and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses (including each form of preliminary prospectus)
and each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to the
last paragraph of this Section 5, the Company and the Guarantors hereby
consent to the use of such Prospectus and each amendment or supplement thereto
by each of the selling holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Securities covered by or the sale by Participating Broker-
Dealers of the Exchange Securities pursuant to such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or any delivery
of a Prospectus contained in the Exchange Offer Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, to use their respective best efforts to register or
qualify, and to cooperate with the selling Holders of Registrable Securities
or each such Participating Broker-Dealer, as the case may be, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriters
reasonably request in writing, provided that where Exchange Securities held by
Participating Broker-Dealers or Registrable Securities are offered other than
through an underwritten offering, the Company and the Guarantors agree to
cause their counsel to (i) perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); (ii) use their respective best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective; and (iii) do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Securities held by Participating Broker-
Dealers or the Registrable Securities covered by the applicable Registration
Statement, provided that neither the Company nor the Guarantors shall be
required to (A) qualify generally to do business in any jurisdiction where it
is not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in excess of a nominal dollar amount in any
such jurisdiction.
(i) If a Shelf Registration Statement is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use their respective best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities, except as may be required solely
as a consequence of the nature of such selling Holder's business, in which
case the Company and the Guarantors will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) above, as promptly as practicable prepare and
(subject to Section 5(a) above) file with the SEC, solely at the expense of
the Company and the Guarantors, a supplement or post-effective amendment to
the Registration Statement or a supplement to the
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related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder or to the purchasers of the Exchange Securities to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Use their respective best efforts to cause the Registrable Securities
covered by a Registration Statement or the Exchange Securities, as the case
may be, to be rated with the appropriate rating agencies, if so requested by
the Holders of a majority in aggregate principal amount of Registrable
Securities covered by such Registration Statement or the Exchange Securities,
as the case may be, or the managing underwriters, if any.
(m) Prior to the effective date of the first Registration Statement relating
to the Registrable Securities, (i) provide the Trustee with printed
certificates for the Registrable Securities in a form eligible for deposit
with The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities.
(n) [intentionally omitted]
(o) In connection with an underwritten offering of Registrable Securities
pursuant to a Shelf Registration Statement, enter into an underwriting
agreement as is customary in underwritten offerings and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection, (i) make such representations and
warranties to the underwriters, with respect to the business of the Company
and its subsidiaries and the Registration Statement, Prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii) obtain opinions of
counsel to the Company and the Guarantors and updates thereof in form and
substance reasonably satisfactory to the managing underwriters, addressed to
the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included
in the Registration Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings
and such other matters as reasonably requested by underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Securities covered by
such Registration Statement and the managing underwriters or agents) with
respect to all parties to be indemnified pursuant to said Section. The above
shall be done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(p) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Securities being sold, or each such Participating Broker-
Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, accountant or
other agent retained by any such selling holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries (collectively, the "Records")
as shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees of
the Company and its subsidiaries to supply all information in each case
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reasonably requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in good faith,
to be confidential and any Records which the Company notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in such Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public. Each selling Holder of such Registrable Securities
and each such Participating Broker-Dealer will be required to agree that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such is made
generally available to the public. Each selling Holder of such Registrable
Securities and each such Participating Broker-Dealer will be required to
further agree that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company at its expense to undertake appropriate action to prevent
disclosure of the Records deemed confidential.
(q) Provide an indenture trustee for the Registrable Securities or the
Exchange Securities, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Securities; and in
connection therewith, cooperate with the trustee under any such indenture and
the holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use their respective
best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable such indenture to be so qualified in a timely
manner.
(r) Comply with all applicable rules and regulations of the SEC and make
generally available to their securityholders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(s) Upon consummation of an Exchange Offer or a Private Exchange, obtain an
opinion of counsel to the Company and the Guarantors addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in the
Exchange Offer or the Private Exchange, as the case may be, and which includes
an opinion that (i) the Company and the Guarantors have duly authorized,
executed and delivered the Exchange Securities and Private Exchange Securities
and the related indenture, and (ii) each of the Exchange Securities or the
Private Exchange Securities, as the case may be, and related indenture
constitute legal, valid and binding obligations of the Company and the
Guarantors, enforceable against the Company and the Guarantors in accordance
with its respective terms (with customary exceptions).
(t) If an Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Securities by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the Company
shall mark, or caused to be marked, on such Registrable Securities that such
Registrable Securities are being cancelled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall such Registrable Securities be marked as paid or otherwise satisfied.
(u) Cooperate with each seller of Registrable Securities covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association
of Securities Dealers, Inc. (the "NASD").
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(v) Use their respective best efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby.
The Company and the Guarantors may require each seller of Registrable
Securities or Participating Broker-Dealer as to which any registration is
being effected to furnish to the Company and the Guarantors such information
regarding such seller or Participating Broker-Dealer and the distribution of
such Registrable Securities or Exchange Securities to be sold by such
Participating Broker-Dealer, as the case may be, as the Company and the
Guarantors may, from time to time, reasonably request. The Company and the
Guarantors may exclude from such registration the Registrable Securities of
any seller or Participating Broker-Dealer who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
Each Holder of Registrable Securities and each Participating Broker-Dealer
agrees by acquisition of such Registrable Securities or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and
has received copies of any amendments or supplements thereto.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company and the Guarantors shall be borne by the Company
and the Guarantors whether or not the Exchange Offer or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i)
all registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees
and disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Securities or Exchange Securities and determination of the
eligibility of the Registrable Securities or Exchange Securities for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities or
Exchange Securities to be sold by a Participating Broker-Dealer during the
Applicable Period)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities or Exchange
Securities in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by
the managing underwriters, if any, or, in respect of Registrable Securities or
Exchange Securities to be sold by any Participating Broker-Dealer during the
Applicable Period, by the Holders of a majority in aggregate principal amount
of the Registrable Securities included in any Registration Statement or of
such Exchange Securities, as the case may be), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company and
the Guarantors and reasonable fees and disbursements of special counsel for
the sellers of Registrable Securities (subject to the provisions of Section
6(b)), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(o)(iii) (including, without limitation,
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) the reasonable fees and expenses of any
"qualified independent underwriter" or other independent appraiser
participating in an offering pursuant to Section 3 of Schedule E to the By-
laws of the National Association of Securities Dealers, Inc., (vii) rating
agency fees, (viii) Securities Act liability insurance, if the Company and the
Guarantors desire such insurance, (ix) fees and expenses of all other Persons
retained by the Company and the Guarantors, (x) internal expenses of the
Company and the Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Company and the Guarantors
performing legal or accounting duties), (xi) the expense of any annual audit,
(xii) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange and (xiii) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures
and any other documents necessary in order to comply with this Agreement.
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(b) In connection with any Shelf Registration Statement hereunder, the
Company and the Guarantors shall reimburse the Holders of the Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Securities to be included in such Registration Statement and
other reasonable out-of-pocket expenses of the Holders of Registrable
Securities incurred in connection with the registration of the Registrable
Securities.
7. INDEMNIFICATION
The Company and the Guarantors, jointly and severally, agree to indemnify
and hold harmless each Holder of Registrable Securities and each Participating
Broker-Dealer selling Exchange Securities during the Applicable Period, the
officers and directors of each such person, and each person, if any, who
controls any such person within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment
thereto) or Prospectus (as amended or supplemented if the Company or the
Guarantors shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished to the Company in writing by such Participant expressly for use
therein; provided that the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Participant (or to the
benefit of any person controlling such Participant) from whom the person
asserting any such losses, claims, damages or liabilities purchased
Registrable Securities or Exchange Securities if such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company and the Guarantors shall have furnished any
amendments or supplements thereto) and a copy of the related Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the sale of such Registrable Securities or Exchange Securities, as
the case may be, to such person.
Each Participant will be required to agree, severally and not jointly, to
indemnify and hold harmless each of the Company and the Guarantors, its
directors, its officers and each person who controls the Company or the
Guarantors within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company and the Guarantors to each Participant, but only with reference to
information furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus. The liability of any
Participant under this paragraph shall in no event exceed the proceeds
received by such Participant from sales of Registrable Securities giving rise
to such obligations.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any
person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related to such
proceeding, provided, that the failure to so notify the Indemnifying Person
shall not relieve it of any obligation or liability which it may have
hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights). In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually
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agreed to the contrary, (ii) the Indemnifying Person has failed within a
reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to a conflict of interest or the defendants in any such
action including both the Indemnified Person and the Indemnifying Person and
the Indemnified Person shall have been advised by counsel that there may be
one or more legal defenses available to it and/or the other Indemnified
Persons that are different from or additional to those of the Indemnifying
Person. It is understood that the Indemnifying Person shall not, in connection
with any proceeding or related proceeding in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed as they are incurred. Any such separate firm for
the Participants shall be designated in writing by Participants who sold a
majority in interest of Registrable Securities sold by all such Participants
and any such separate firm for the Company or the Guarantors, its directors,
its officers and such control persons of the Company or the Guarantors shall
be designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for reasonable fees and expenses actually incurred by
counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of
the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement; provided, however, that the Indemnifying Person shall
not be liable for any settlement effected without its consent pursuant to this
sentence if the Indemnifying Party is contesting, in good faith, the request
for reimbursement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release
of such Indemnified Person from all liability on claims that are the subject
matter of such proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on
the one hand and the Indemnified Person or Persons on the other from the
offering of the Notes or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the Indemnifying Person or Persons on the one
hand and the Indemnified Person or Persons on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors on the one hand and the
Participants on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of discounts and commissions but before
deducting expenses) of the Notes received by the Company bears to the total
proceeds received by such Participant from the sale of Registrable Securities
or Exchange Securities, as the case may be. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company and the Guarantors on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
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The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable
Securities exceeds the amount of any damages that such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 7 will
be in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. RULE 144
The Company and the Guarantors covenant that they will file the reports
required to be filed by them under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner
and, if at any time the Company and the Guarantors are not required to file
such reports, they will, upon the request of any Holder of Registrable
Securities, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The
Company and the Guarantors further covenant that they will take such further
action as any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 and Rule 144A under the
Securities Act.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company.
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and
(b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) Remedies. In the event of a breach by the Company or the Guarantors of
any of their respective obligations under this Agreement, each Holder of
Registrable Securities, in addition to being entitled to exercise all rights
provided herein, in the Indenture or, in the case of the Initial Purchasers,
in the Purchase Agreement or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and the Guarantors agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by them of
any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, they
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of the
Guarantors has, as of the date hereof, entered and shall, after the date of
this Agreement, enter into any agreement with respect to any of their
securities that is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement
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or otherwise conflicts with the provisions hereof. Neither the Company nor any
of the Guarantors has entered and will enter into any agreement with respect
to any of their securities which will grant to any Person "piggy-back" rights
with respect to a Registration Statement.
(c) Adjustments Affecting Registrable Securities. Neither the Company nor
any of the Guarantors shall, directly or indirectly, take any action with
respect to the Registrable Securities as a class that would adversely affect
the ability of the Holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this
Agreement.
(d) Additional Guarantors. So long as any Registrable Securities remain
outstanding, the Company shall cause each Material Subsidiary, whether formed
or acquired after the Closing Date, that becomes a guarantor under the
Indenture to execute and deliver a counterpart to this Agreement which
subjects such Material Subsidiary to the provisions of this Agreement as a
Guarantor.
(e) Amendments and Waivers. Except as provided for in paragraph (d) above,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, otherwise than with the prior written consent of (A) the Holders of not
less than a majority in aggregate principal amount of the then outstanding
Registrable Securities and (B) in circumstances that would adversely affect
the Participating Broker-Dealers, the Participating Broker-Dealers holding not
less than a majority in aggregate principal amount of the Exchange Securities
held by all Participating Broker-Dealers; provided, however, that Section 7
and this Section 10(c) may not be amended, modified or supplemented without
the prior written consent of each Holder and each Participating Broker-Dealer
(including any person who was a Holder or Participating Broker-Dealer of
Registrable Securities or Exchange Securities, as the case may be, disposed of
pursuant to any Registration Statement) affected by any such amendment,
modification or supplement. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Securities may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Securities being
sold by such Holders pursuant to such Registration Statement.
(f) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current address
given by the Trustee to the Company; and
(ii) if to the Company or the Guarantors, at Newport News Shipbuilding
Inc., 4101 Washington Avenue, Newport News, Virginia 23607, Attention:
Chief Financial Officer.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
(g) Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities; provided, that, with respect to the
indemnity and contribution agreements in Section 7, each Holder of Registrable
Securities subsequent to the Initial Purchasers
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shall be bound by the terms thereof if (i) such Holder elects to include
Registrable Securities in a Shelf Registration Statement and (ii) such Holder
is advised expressly by the Company of the provisions contained in Section 7
and that such Holder's election to include Registrable Securities in a Shelf
Registration Statement shall be deemed such Holder's agreement to be bound by
such provisions.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement,
is intended by the parties as a final expression of their agreement, and is
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(m) Securities Held by the Company or its Affiliates. Whenever the consent
or approval of holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Newport News Shipbuilding Inc.
/s/ Stephen B. Clarkson
By: _________________________________
Name: Stephen B. Clarkson
Title: V. P. & G. C.
Newport News Shipbuilding and Dry
Dock Company
/s/ Stephen B. Clarkson
By: _________________________________
Name: Stephen B. Clarkson
Title: V. P. & G. C.
J.P. Morgan Securities Inc.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
BA Securities, Inc.
Nationsbanc Capital Markets, Inc.
By: J.P. Morgan Securities Inc.
/s/ Steven Tulip
By: _________________________________
Name: Steven Tulip
Title: Vice President
18
<PAGE>
DISTRIBUTION AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.
AND
NEWPORT NEWS SHIPBUILDING INC.
(FORMERLY KNOWN AS TENNECO INTERAMERICA INC.)
DATED AS OF
NOVEMBER 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I DEFINITIONS.................................................. 1
SECTION 1.01. General........................................ 1
SECTION 1.02. References..................................... 12
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. 13
SECTION 2.01. Corporate Restructuring Transactions........... 13
SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... 13
SECTION 2.03. Charters and Bylaws............................ 13
SECTION 2.04. Election of Directors of Industrial Company and
Shipbuilding Company............................. 13
SECTION 2.05. Transfer and Assignment of Certain Licenses and
Permits.......................................... 14
SECTION 2.06. Transfer and Assignment of Certain Agreements.. 14
SECTION 2.07. Consents....................................... 15
SECTION 2.08. Other Transactions............................. 15
SECTION 2.09. Election of Officers........................... 15
SECTION 2.10. Registration Statements........................ 16
SECTION 2.11. State Securities Laws.......................... 16
SECTION 2.12. Listing Application............................ 16
SECTION 2.13. Certain Financial and Other Arrangements....... 16
SECTION 2.14. Director, Officer and Employee Resignations.... 17
SECTION 2.15. Transfers Not Effected Prior to the
Distributions; Transfers Deemed Effective as of
the Distribution Date............................ 17
SECTION 2.16. Ancillary Agreements........................... 18
ARTICLE III THE DISTRIBUTIONS............................................ 18
SECTION 3.01. Tenneco Action Prior to the Distributions...... 18
SECTION 3.02. The Distributions.............................. 19
SECTION 3.03. Fractional Shares.............................. 19
ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. 20
SECTION 4.01. Conditions Precedent to the Distributions...... 20
SECTION 4.02. No Constraint.................................. 21
SECTION 4.03. Deferral of Distribution Date.................. 21
SECTION 4.04. Public Notice of Deferred Distribution Date.... 21
ARTICLE V COVENANTS.................................................... 22
SECTION 5.01. Further Assurances............................. 22
SECTION 5.02. Tenneco Name................................... 22
SECTION 5.03. Supplies and Documents......................... 22
SECTION 5.04. Assumption and Satisfaction of Liabilities..... 23
SECTION 5.05. No Representations or Warranties; Consents..... 23
SECTION 5.06. Removal of Certain Guarantees.................. 24
SECTION 5.07. Public Announcements........................... 24
SECTION 5.08. Intercompany Agreements........................ 25
SECTION 5.09. Tax Matters.................................... 25
ARTICLE VI ACCESS TO INFORMATION........................................ 25
SECTION 6.01. Provision, Transfer and Delivery of Applicable
Corporate Records........................................... 25
SECTION 6.02. Access to Information.......................... 26
SECTION 6.03. Reimbursement; Other Matters................... 26
SECTION 6.04. Confidentiality................................ 26
SECTION 6.05. Witness Services............................... 27
SECTION 6.06. Retention of Records........................... 27
SECTION 6.07. Privileged Matters............................. 27
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VII INDEMNIFICATION............................................ 28
SECTION 7.01. Indemnification by Tenneco................... 28
SECTION 7.02. Indemnification by Industrial Company........ 28
SECTION 7.03. Indemnification by Shipbuilding Company...... 28
SECTION 7.04. Limitations on Indemnification Obligations... 29
SECTION 7.05. Procedures for Indemnification............... 30
SECTION 7.06. Indemnification Payments..................... 31
SECTION 7.07. Other Adjustments............................ 31
SECTION 7.08. Obligations Absolute......................... 32
SECTION 7.09. Survival of Indemnities...................... 32
SECTION 7.10. Remedies Cumulative.......................... 32
SECTION 7.11. Cooperation of the Parties With Respect to
Actions and Third Party Claims................. 32
SECTION 7.12. Contribution................................. 33
ARTICLE VIII MISCELLANEOUS.............................................. 33
SECTION 8.01. Complete Agreement; Construction............. 33
SECTION 8.02. Ancillary Agreements......................... 33
SECTION 8.03. Counterparts................................. 33
SECTION 8.04. Survival of Agreements....................... 33
SECTION 8.05. Responsibility for Expenses.................. 34
SECTION 8.06. Notices...................................... 34
SECTION 8.07. Waivers...................................... 34
SECTION 8.08. Amendments................................... 34
SECTION 8.09. Assignment................................... 35
SECTION 8.10. Successors and Assigns....................... 35
SECTION 8.11. Termination.................................. 35
SECTION 8.12. Third Party Beneficiaries.................... 35
SECTION 8.13. Attorney Fees................................ 35
SECTION 8.14. Title and Headings........................... 35
SECTION 8.15. Exhibits and Schedules....................... 35
SECTION 8.16. Specific Performance......................... 35
SECTION 8.17. Governing Law................................ 35
SECTION 8.18. Severability................................. 36
SECTION 8.19. Subsidiaries................................. 36
SECTION 8.20. Shipbuilding Hedging Transactions............ 36
</TABLE>
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<PAGE>
EXHIBITS
EXHIBIT ABenefits Agreement
EXHIBIT BCorporate Restructuring Transactions
EXHIBIT CDebt and Cash Allocation Agreement
EXHIBIT DEnergy Business Pro Forma Balance Sheet
EXHIBIT EEnergy Subsidiaries
EXHIBIT FIndustrial Business Pro Forma Balance Sheet
EXHIBIT GIndustrial Subsidiaries
EXHIBIT HInsurance Agreement
EXHIBIT IShipbuilding Business Pro Forma Balance Sheet
EXHIBIT JShipbuilding Subsidiaries
EXHIBIT KTax Sharing Agreement
EXHIBIT LTBS Services Agreement
EXHIBIT MTransition Services Agreement
EXHIBIT NForm of Restated Certificate of Incorporation
EXHIBIT OForm of Bylaws
EXHIBIT PTenneco Transition Trademark License
EXHIBIT QShipbuilding Transition Trademark License
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<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made and entered into as of this first day of
November, 1996 by and among TENNECO INC., a Delaware corporation ("TENNECO"),
NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT
NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a
Delaware corporation ("SHIPBUILDING COMPANY").
R E C I T A L S
WHEREAS, Tenneco, El Paso Natural Gas Company, a Delaware corporation
("ACQUIROR"), and El Paso Merger Company, a Delaware corporation and an
indirect wholly owned subsidiary of Acquiror ("ACQUIROR SUBSIDIARY"), have
entered into an Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996 (as amended from time to time, the "MERGER AGREEMENT"),
providing for the merger of Acquiror Subsidiary with and into Tenneco (the
"MERGER"), with Tenneco continuing as the surviving corporation of the Merger
(the "SURVIVING CORPORATION"), upon the terms and subject to the conditions
set forth in the Merger Agreement;
WHEREAS, the Board of Directors of Tenneco has deemed it appropriate and
advisable, prior to the Merger and as contemplated by the Merger Agreement,
to:
(a) separate and divide the existing businesses of Tenneco so that (i)
the automotive, packaging and business services businesses shall be owned
directly and indirectly by Industrial Company, and (ii) the shipbuilding
business shall be owned directly and indirectly by Shipbuilding Company;
and
(b) distribute, following such separation and division and immediately
prior to the Merger, as a dividend to the holders of shares of Common
Stock, par value $5.00 per share, of Tenneco (the "TENNECO COMMON STOCK")
all of the outstanding shares of common stock, $.01 par value, of
Industrial Company (the "INDUSTRIAL COMMON STOCK") and all of the
outstanding shares of common stock, $.01 par value, of Shipbuilding Company
(the "SHIPBUILDING COMMON STOCK");
WHEREAS, following such separation, division and distributions, the
remaining businesses, operations, assets and liabilities of Tenneco and its
remaining direct and indirect subsidiaries shall be acquired by Acquiror
pursuant to the Merger; and
WHEREAS, each of Tenneco, Industrial Company and Shipbuilding Company has
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect such separation, division and
distributions and to set forth other agreements that will govern certain other
matters prior to and following such separation, division and distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL. Unless otherwise defined herein or unless the context
otherwise requires, the following terms will have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined).
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or any arbitration
tribunal.
"ACQUIROR SUBSIDIARY" has the meaning ascribed to such term in the
recitals to this Agreement.
"AFFILIATE" means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
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<PAGE>
"AGENT" means First Chicago Trust Company of New York, or such other
trust company or bank designated by Tenneco, who shall act as agent for the
holders of Tenneco Common Stock in connection with the Distributions.
"AGREEMENT" means this Distribution Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, including any amendments
hereto and each Schedule and Exhibit attached hereto.
"ANCILLARY AGREEMENTS" means all of the written agreements, instruments,
understandings, assignments or other arrangements (other than this
Agreement or the Merger Agreement) entered into by the parties hereto or
any other member of their respective Group in connection with the Corporate
Restructuring Transactions, the Distributions and the other transactions
contemplated hereby or thereby, including, without limitation, the
following:
(i) the Debt and Cash Allocation Agreement;
(ii) the Insurance Agreement;
(iii) the Conveyancing and Assumption Instruments;
(iv) the Benefits Agreement;
(v) the Tax Sharing Agreement;
(vi) the Transition Services Agreement;
(vii) the TBS Services Agreement; and
(viii) the Transition Trademark License.
"BENEFITS AGREEMENT" means the Benefits Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT A, except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"BOOKS AND RECORDS" means all books, records, manuals, agreements and
other materials (in any form or medium), including without limitation, all
mortgages, licenses, indentures, contracts, financial data, customer lists,
marketing materials and studies, advertising materials, price lists,
correspondence, distribution lists, supplier lists, production data, sales
and promotional materials and records, purchasing materials and records,
personnel records, manufacturing and quality control records and
procedures, blue prints, research and development files, records, data and
laboratory books, accounts records, sales order files, litigation files,
computer files, microfiche, tape recordings and photographs.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor law.
"COMMISSION" means the United States Securities and Exchange Commission.
"CONSENTS" has the meaning ascribed to such term in SECTION 2.07 hereof.
"CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the
various written agreements, instruments and other documents to be entered
into to effect the Corporate Restructuring Transactions or to otherwise
effect the transfer of assets and the assumption of Liabilities in the
manner contemplated by this Agreement, the Ancillary Agreements and the
Corporate Restructuring Transactions.
"CORPORATE RESTRUCTURING TRANSACTIONS" means, collectively, (a) each of
the distributions, transfers, conveyances, contributions, assignments and
other transactions described and set forth on EXHIBIT B attached hereto,
and (b) such other distributions, transfers, conveyances, contributions,
assignments and other transactions (so long as such other distributions,
transfers, conveyances, contributions, assignments and other transactions
do not, individually or in the aggregate, adversely affect the Energy
Business (other than to a de minimis extent) or materially delay or prevent
the consummation of the Merger) that may be required to be accomplished,
effected or consummated by any of Tenneco, Industrial Company,
2
<PAGE>
Shipbuilding Company or any of their respective Subsidiaries and Affiliates
in order to separate and divide, in a series of transactions that, to the
extent intended to qualify for tax-free transactions under the Code, shall
qualify for tax-free treatment under the Code, the existing businesses of
Tenneco so that, except as otherwise expressly set forth on EXHIBIT B
hereto:
(i) the Industrial Assets, Industrial Liabilities and Industrial
Business shall be owned, directly and indirectly, by Industrial
Company;
(ii) the Shipbuilding Assets, Shipbuilding Liabilities and
Shipbuilding Business shall be owned, directly and indirectly, by
Shipbuilding Company; and
(iii) the businesses, assets and liabilities of Tenneco that remain
after the separations and divisions described in clauses (i) and (ii)
above, including, without limitation, the Energy Assets, Energy
Liabilities and Energy Business, are, after giving effect to the
Distributions, owned, directly and indirectly, by Tenneco.
"DEBT AND CASH ALLOCATION AGREEMENT" means the Debt and Cash Allocation
Agreement by and among Tenneco, Industrial Company and Shipbuilding
Company, which agreement shall be entered into on or prior to the
Distribution Date in the form attached hereto as EXHIBIT C, except for such
changes or modifications thereto that do not, individually or in the
aggregate, adversely affect the Energy Business (other than to a de minimis
extent) or materially delay or prevent the consummation of the Merger.
"DEBT REALIGNMENT" has the meaning ascribed to such term in the Merger
Agreement.
"DEBT REALIGNMENT DOCUMENTS" means all documents furnished by Tenneco or
Industrial Company to any holders of indebtedness or debt securities of
Tenneco or any of its Subsidiaries or filed by Tenneco or Industrial
Company in connection therewith with any Governmental Authority or
securities exchange in connection with the Debt Realignment.
"DISTRIBUTIONS" means the Industrial Distribution and the Shipbuilding
Distribution.
"DISTRIBUTION DATE" means such date as may hereafter be determined by
Tenneco's Board of Directors as the date on which the Distributions shall
be effected.
"DISTRIBUTION RECORD DATE" means the close of business on the date
determined by the Board of Directors of Tenneco for the purpose of
determining the holders of record of Tenneco Common Stock entitled to
participate in the Distributions.
"DGCL" means the Delaware General Corporation Law, as amended.
"ENERGY ASSETS" means, collectively, all the rights and assets owned by
Tenneco or any of its Subsidiaries as of the close of business on the
Distribution Date other than the Industrial Assets, the Shipbuilding Assets
and the capital stock of Industrial Company and Shipbuilding Company,
including without limitation:
(i) the capital stock of the Energy Subsidiaries;
(ii) all of the assets included on the Energy Business Pro Forma
Balance Sheet which are owned by Tenneco and its Subsidiaries as of the
close of business on the Distribution Date and any other asset acquired
by Tenneco or any of its Subsidiaries from the date of the Energy
Business Pro Forma Balance Sheet to the close of business on the
Distribution Date that is owned by Tenneco and its Subsidiaries as of
the close of business on the Distribution Date and that is of a type or
nature that would have resulted in such asset being included as an
asset on the Energy Business Pro Forma Balance Sheet had it been
acquired on or prior to the date of the Energy Business Pro Forma
Balance Sheet, determined on a basis consistent with the determination
of assets included on the Energy Business Pro Forma Balance Sheet; and
(iii) all of the assets and rights expressly allocated to Tenneco or
any of the Energy Subsidiaries under this Agreement, any of the
Ancillary Agreements or the Merger Agreement.
"ENERGY BUSINESS" means the businesses (other than the Industrial
Business and the Shipbuilding Business) that, after giving effect to the
Corporate Restructuring Transactions, are or were conducted by:
(i) Tenneco, the Energy Subsidiaries or any of the other members of
the Energy Group;
(ii) any other division, Subsidiary or investment of Tenneco, or any
Energy Subsidiary or any of the other members of the Energy Group
managed or operated or in existence as of the date of this Agreement or
any prior time, unless such other division, Subsidiary or investment is
expressly included
3
<PAGE>
in either the Industrial Group or the Shipbuilding Group immediately
after giving effect to the Corporate Restructuring Transactions; and
(iii) any business entity acquired or established by or for Tenneco
or any of the Energy Subsidiaries between the date of this Agreement
and the close of business on the Distribution Date that is engaged in,
or intends to engage in, any business that is of a type or nature that
would have resulted in such business being included either as a
Subsidiary or an asset of Tenneco on the Energy Business Pro Forma
Balance Sheet had it been acquired or established on or prior to the
date of the Energy Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Energy Business Pro Forma Balance Sheet.
"ENERGY BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Tenneco and the Energy Subsidiaries as of
June 30, 1996 attached hereto as EXHIBIT D.
"ENERGY GROUP" means Tenneco, the Energy Subsidiaries and the
corporations, partnerships, joint ventures, investments and other entities
that represent equity investments of Tenneco or any of the Energy
Subsidiaries following consummation of the Corporate Restructuring
Transactions and the Distributions.
"ENERGY INDEMNITEES" means:
(i) Tenneco, the Energy Subsidiaries and each Affiliate thereof after
giving effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of such directors, officers, employees and
agents.
"ENERGY LIABILITIES" means, collectively, all of the Liabilities of
Tenneco and the Energy Subsidiaries and each of the other members of the
Energy Group remaining after giving effect to the Corporate Restructuring
Transactions, the Distributions and the transactions contemplated under the
Debt and Cash Allocation Agreement, including without limitation:
(i) all of the Liabilities included on the Energy Business Pro Forma
Balance Sheet which remain outstanding as of the close of business on
the Distribution Date;
(ii) all Liabilities which are incurred or which otherwise accrue or
are accrued at any time on, prior to or after the date of the Energy
Business Pro Forma Balance Sheet and which arise or arose out of, or in
connection with, the Energy Assets or the Energy Business, determined
on a basis consistent with the determination of Liabilities of Tenneco
included on the Energy Business Pro Forma Balance Sheet;
(iii) all of the Liabilities of Tenneco, the Energy Subsidiaries or
any of the other members of the Energy Group under, or to be retained
or assumed by Tenneco, any Energy Subsidiary or any of the other
members of the Energy Group pursuant to the Corporate Restructuring
Transactions, this Agreement, any of the Ancillary Agreements or the
Merger Agreement;
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Energy Business;
(v) all Securities Liabilities relating to or arising out of the
information and data (financial or otherwise and including pro forma
financial data) provided by or on behalf of Acquiror for inclusion in
the Registration Statement on Form S-4 of Industrial Company
registering certain debt securities of New Tenneco to be exchanged for
certain existing debt securities of Tenneco and certain of its
Subsidiaries in connection with the Debt Realignment, including,
without limitation, information, disclosures and data relating to or
concerning Acquiror, Acquiror Subsidiary, the business, operations and
management of the Energy Business and/or Energy Group following the
Merger and any refinancing or other transactions which Acquiror,
Acquiror Subsidiary and/or any member of the Energy Group anticipates
consummating following the Merger (collectively "ENERGY EXCHANGE
LIABILITIES"); and
4
<PAGE>
(vi) all other Liabilities of Tenneco, the Energy Subsidiaries or any
of the other members of the Energy Group (which do not constitute
Industrial Liabilities or Shipbuilding Liabilities), which other
Liabilities of Tenneco, the Energy Subsidiaries or any of the other
members of the Energy Group shall include, without limitation, any and
all Liabilities arising out of or relating to any Action or Third Party
Claim by any Governmental Authority or any other Person that is based
on (A) any violations or alleged violations by Tenneco, its
Subsidiaries (prior to giving effect to the Distributions) and/or any
of their respective directors, officers, employees, agents or
representatives of any of the provisions of the Exchange Act,
Securities Act, or the rules and regulations of the Commission
promulgated thereunder or any other securities or similar Law (other
than Liabilities (collectively "INFORMATION STATEMENT LIABILITIES") for
violations or alleged violations that arise out of, or in connection
with, the Industrial Information Statement, the Shipbuilding
Information Statement or information or data in the Joint Proxy
Statement or the Debt Realignment Documents concerning the Shipbuilding
Business or the Industrial Business), (B) any alleged breach of
fiduciary duty by the Board of Directors of Tenneco or any member
thereof, or (C) any stockholder derivative suit or other similar
Actions.
"ENERGY RECORDS" has the meaning ascribed to such term in SECTION 6.01(C)
hereof.
"ENERGY SUBSIDIARIES" means the Subsidiaries of Tenneco set forth on
EXHIBIT E hereto and all other Subsidiaries of Tenneco other than
Shipbuilding Company, Industrial Company, the Shipbuilding Subsidiaries and
the Industrial Subsidiaries.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et
seq.), whether now or hereafter in existence, relating to the environment,
natural resources or human health and safety or endangered or threatened
species of fish, wildlife and plants or to emissions, discharges or
releases of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE FILE MATERIAL" means the Registration Statements, as amended at
the times they were declared effective under the Exchange Act, the related
Information Statements or any amendment or supplement thereto, the related
letter of transmittal, any related stockholder communication, any other
exhibits to any of the foregoing and any amendment or supplement thereto,
in each case including all information incorporated by reference therein.
"GAAP" means United States generally accepted accounting principles and
practices, as in effect on the date of this Agreement, as promulgated by
the Financial Accounting Standards Board and its predecessors.
"GOVERNMENTAL AUTHORITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
"GROUP" means (i) with respect to Tenneco, the Energy Group, (ii) with
respect to Industrial Company, the Industrial Group, and (iii) with respect
to Shipbuilding Company, the Shipbuilding Group.
"INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all
losses, liabilities, penalties, claims, damages, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees,
investigation expenses and any and all other out-of-pocket expenses, but
excluding any punitive or consequential damages) or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by such Person either (a) in investigating, preparing for, defending
against or otherwise arising out of or in connection with any Actions, any
potential or threatened Actions or any Third Party
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Claims for which such Person would be entitled to indemnification under
ARTICLE VII hereof, or (b) in respect of any other event, occurrence or
matter for which such Person would be entitled to indemnification under
ARTICLE VII hereof, in each case whether accrued or incurred on, before or
after the date of this Agreement.
"INDEMNIFYING PARTY" has the meaning ascribed to such term in SECTION
7.04(A) hereof.
"INDEMNITEE" has the meaning ascribed to such term in SECTION 7.04(A)
hereof.
"INDUSTRIAL ASSETS" means, collectively, all of the following rights and
assets that are owned by Tenneco or any of its Subsidiaries as of the close
of business on the Distribution Date:
(i) the capital stock of the Industrial Subsidiaries;
(ii) all of the assets included on the Industrial Business Pro Forma
Balance Sheet that are owned by Tenneco or any of its Subsidiaries as
of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to Industrial
Company or any of the Industrial Subsidiaries under this Agreement or
any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Industrial Business Pro Forma Balance Sheet to the
close of business on the Distribution Date that is owned by Tenneco or
any of its Subsidiaries as of the close of business on the Distribution
Date and that is of a type or nature that would have resulted in such
asset being included as an asset on the Industrial Business Pro Forma
Balance Sheet had it been acquired on or prior to the date of the
Industrial Business Pro Forma Balance Sheet, determined on a basis
consistent with the determination of the assets included on the
Industrial Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Industrial Company, the Industrial Subsidiaries or any of the
other members of the Industrial Group; and
(ii) any business entity acquired or established by or for Tenneco,
Industrial Company or any of the Industrial Subsidiaries between the
date of this Agreement and the close of business on the Distribution
Date that is engaged in, or intends to engage in, any business that is
of a type or nature that would have resulted in such business being
included either as a Subsidiary or an asset of Industrial Company on
the Industrial Business Pro Forma Balance Sheet had it been acquired or
established on or prior to the date of the Industrial Business Pro
Forma Balance Sheet, determined on a basis consistent with the
determination of the Subsidiaries and assets included on the Industrial
Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Industrial Company and the Industrial
Subsidiaries as of June 30, 1996 attached hereto as EXHIBIT F.
"INDUSTRIAL COMMON SHARES" means the shares of Industrial Common Stock
owned by Tenneco after giving effect to the stock dividend provided for in
SECTION 2.02(A) hereof.
"INDUSTRIAL COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation.
"INDUSTRIAL DISTRIBUTION" means the distribution on the Distribution Date
as a dividend to holders of record of shares of Tenneco Common Stock as of
the Distribution Record Date of all of the outstanding Industrial Common
Shares owned by Tenneco on the basis provided in SECTION 3.02 hereof.
"INDUSTRIAL GROUP" means Industrial Company, the Industrial Subsidiaries
and the corporations, partnerships, joint ventures, investments and other
entities that represent equity investments of any of Industrial Company or
any of the Industrial Subsidiaries following the consummation of the
Corporate Restructuring Transactions and the Distributions.
"INDUSTRIAL INDEMNITEES" means:
(i) Industrial Company and each Affiliate thereof after giving effect
to the Corporate Restructuring Transactions and the Distributions; and
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(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"INDUSTRIAL INFORMATION STATEMENT" means the information statement or
registration statement relating to Industrial Company and the transactions
contemplated hereby to be distributed to holders of Tenneco Common Stock
pursuant to the terms of this Agreement.
"INDUSTRIAL LIABILITIES" means, collectively, all of the Liabilities of
Industrial Company, the Industrial Subsidiaries and each of the other
members of the Industrial Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated under the Debt and Cash Allocation Agreement, including,
without limitation:
(i) all of the Liabilities included on the Industrial Business Pro
Forma Balance Sheet which remain outstanding as of the close of
business on the Distribution Date;
(ii) all Liabilities (other than Energy Exchange Liabilities) which
are incurred or which otherwise accrue or are accrued at any time on,
prior to or after the date of the Industrial Business Pro Forma Balance
Sheet and which arise or arose out of, or in connection with (A) the
Industrial Assets, the Industrial Business or the Prior Industrial
Businesses, determined on a basis consistent with the determination of
Liabilities of Industrial Company on the Industrial Business Pro Forma
Balance Sheet, including Information Statement Liabilities which arise
or arose out of or in connection with, the Industrial Information
Statement or which arise or arose out of or in connection with
information or data in the Joint Proxy Statement or the Debt
Realignment Documents concerning the Industrial Business (except to the
extent such Liabilities constitute Shipbuilding Securities Liabilities
or are otherwise based on any of (i) the actions or inactions of
Shipbuilding Company, any other member of the Shipbuilding Group, or
any director, officer or employee of the Shipbuilding Company or any
other member of the Shipbuilding Group or any underwriter or investment
banking firm of any member of the Shipbuilding Group (or any of their
directors, officers, employees, advisors or representatives)
(collectively, the "SHIPBUILDING PARTIES," or individually, a
"SHIPBUILDING PARTY"), or (ii) the information or data provided in
writing by any Shipbuilding Party expressly for inclusion in the
Industrial Information Statement), or (B) the Shipbuilding Information
Statement to the extent such Information Statement Liabilities are
based on information or data concerning directly and solely the
Industrial Company or the Industrial Business that is provided in
writing by Industrial Company (or any other member of its Group or any
Affiliate thereof after giving effect to the Distributions) expressly
for inclusion in the Shipbuilding Information Statement;
(iii) all of the Liabilities of Industrial Company, the Industrial
Subsidiaries or any of the other members of the Industrial Group under,
or to be retained or assumed by Industrial Company, any Industrial
Subsidiary or any of the other members of the Industrial Group pursuant
to this Agreement or any of the Ancillary Agreements; and
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, at or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Industrial Business.
"INDUSTRIAL RECORDS" has the meaning ascribed to such term in SECTION
6.01(A) hereof.
"INDUSTRIAL REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations thereunder in
order to register the Industrial Common Stock under Section 12(b) of the
Exchange Act.
"INFORMATION STATEMENT LIABILITIES" has the meaning ascribed to such term
in CLAUSE (V) of the definitions herein of Energy Liabilities.
"INFORMATION STATEMENTS" means the Industrial Information Statement and
the Shipbuilding Information Statement.
"INDUSTRIAL SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT G
hereto.
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"INSURANCE AGREEMENT" means the Insurance Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT H except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"INSURANCE PROCEEDS" means, with respect to any insured party, those
monies, net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, or cost of reserve paid or held by or for
the benefit of such insured, which are either:
(i) received by an insured from an insurance carrier; or
(ii) paid by an insurance carrier on behalf of an insured.
"JOINT PROXY STATEMENT" has the meaning ascribed to such term in the
Merger Agreement.
"LAW" means all laws, statutes and ordinances and all regulations, rules
and other pronouncements of Governmental Authorities having the effect of
law of the United States, any foreign country, or any domestic or foreign
state, province, commonwealth, city, country, municipality, territory,
protectorate, possession or similar instrumentality, or any Governmental
Authority thereof.
"LIABILITIES" means any and all debts, liabilities, obligations,
responsibilities, response actions, losses, damages (whether compensatory,
punitive or treble), fines, penalties and sanctions, absolute or
contingent, matured or unmatured, liquidated or unliquidated, foreseen or
unforeseen, joint, several or individual, asserted or unasserted, accrued
or unaccrued, known or unknown, whenever arising, including, without
limitation, those arising under or in connection with any Law (including
any Environmental Law), Action, threatened Action, order or consent decree
of any Governmental Authority or any award of any arbitration tribunal, and
those arising under any contract, guarantee, commitment or undertaking,
whether sought to be imposed by a Governmental Authority, private party, or
party to this Agreement, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, or
otherwise, and including any costs, expenses, interest, attorneys' fees,
disbursements and expense of counsel, expert and consulting fees and costs
related thereto or to the investigation or defense thereof.
"MERGER" has the meaning ascribed to such term in the recitals to this
Agreement.
"MERGER AGREEMENT" has the meaning ascribed to such term in the recitals
to this Agreement.
"NYSE" means the New York Stock Exchange.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or
other entity, or any government, or any agency or political subdivision
thereof.
"PRIOR INDUSTRIAL BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Industrial
Business Pro Forma Balance Sheet, were included in the "automotive parts"
or "packaging" segments for purposes of segment reporting in any of
Tenneco's Annual Reports on Form 10-K, and were sold, transferred,
otherwise disposed of or discontinued prior to such date.
"PRIOR SHIPBUILDING BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Shipbuilding
Business Pro Forma Balance Sheet, were included in the "shipbuilding"
segment for purposes of segment reporting in any of Tenneco's Annual
Reports on Form 10-K, and were sold, transferred, otherwise disposed of or
discontinued prior to such date.
"PRIVILEGE" has the meaning ascribed to such term in SECTION 6.07(A)
hereof.
"PRIVILEGED INFORMATION" has the meaning ascribed to such term in SECTION
6.07(A) hereof.
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"REGISTRATION STATEMENTS" means the Industrial Registration Statement and
the Shipbuilding Registration Statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES LIABILITIES" means any and all losses, liabilities,
penalties, claims, damages, demands, costs or expenses or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by a Person arising out of or relating in whole or in part to any Action,
any potential or threatened Action or any Third Party Claim (or potential
or threatened Third Party Claim) by any Governmental Authority or any other
Person that is based on any violations or alleged violations of the
Securities Act, Exchange Act, any of the rules or regulations of the
Commission promulgated under the Securities Act or Exchange Act, or any
other securities or other similar Law.
"SHIPBUILDING ASSETS" means, collectively, all of the following rights
and assets that are owned by Tenneco and or any of its Subsidiaries as of
the close of business on the Distribution Date:
(i) the capital stock of the Shipbuilding Subsidiaries;
(ii) all of the assets included on the Shipbuilding Business Pro
Forma Balance Sheet that are owned by Tenneco or any of its
Subsidiaries as of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to
Shipbuilding Company or any of the Shipbuilding Subsidiaries under this
Agreement or any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Shipbuilding Business Pro Forma Balance Sheet to
the close of business on the Distribution Date that is owned by Tenneco
or any of its Subsidiaries as of the close of business on the
Distribution Date and that is of a nature or type that would have
resulted in such asset being included as an asset on the Shipbuilding
Business Pro Forma Balance Sheet had it been acquired on or prior to
the date of the Shipbuilding Business Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Shipbuilding Company, the Shipbuilding Subsidiaries or any of
the other members of the Shipbuilding Group; and
(ii) any business entity acquired or established by or for Tenneco,
Shipbuilding Company or any of the Shipbuilding Subsidiaries between
the date of this Agreement and the close of business on the
Distribution Date that is engaged in, or intends to engage in, any
business that is of a type or nature that would have resulted in such
business being included either as a Subsidiary or an asset of
Shipbuilding Company on the Shipbuilding Business Pro Forma Balance
Sheet had it been acquired or established on or prior to the date of
the Shipbuilding Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Shipbuilding Company and the Shipbuilding
Subsidiaries (prepared in accordance with GAAP) as of June 30, 1996
attached hereto as EXHIBIT I.
"SHIPBUILDING COMMON SHARES" means the Shares of Shipbuilding Common
Stock owned by Tenneco after giving effect to the stock dividend provided
for in SECTION 2.02(B) hereof.
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"SHIPBUILDING COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly
known as Tenneco InterAmerica Inc.), a Delaware corporation.
"SHIPBUILDING DISTRIBUTION" means the distribution on the Distribution
Date as a dividend to holders of record of shares of Tenneco Common Stock
as of the Distribution Record Date, of all of the outstanding Shipbuilding
Common Shares owned by Tenneco on the basis provided in SECTION 3.02
hereof.
"SHIPBUILDING FINANCING MATERIALS" means any registration statement,
private placement memorandum, offering circular, prospectus, information
memorandum and/or any other document or filing (with the Commission or any
Governmental Authority or the NYSE or other stock exchange) prepared by or
on behalf of Shipbuilding Company (or its Affiliates) and distributed to
prospective lenders or prospective purchasers of any debt or equity
securities of the Shipbuilding Company (or any other member of the
Shipbuilding Group) in connection with any of the transactions contemplated
under this Agreement, the Merger Agreement or any of the Ancillary
Agreements, including, without limitation, the Confidential Information
Memorandum dated September 1996 relating to the Senior Credit Facility (as
defined in the Shipbuilding Information Statement), the 144A Offering
Memorandum relating to the Senior Subordinated Notes and Senior Notes (as
such terms are defined in the Shipbuilding Information Statement), and the
registration statement on Form S-1 to be filed by Shipbuilding Company
after the Distribution Date to register the Senior Subordinated Notes and
Senior Notes under the Securities Act and all related documents.
"SHIPBUILDING GROUP" means Shipbuilding Company, the Shipbuilding
Subsidiaries and the corporations, partnerships, joint ventures,
investments and other entities that represent equity investments of
Shipbuilding Company or any of the Shipbuilding Subsidiaries following the
consummation of the Corporate Restructuring Transactions and the
Distributions.
"SHIPBUILDING INDEMNITEES" means:
(i) Shipbuilding Company and each Affiliate thereof after giving
effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"SHIPBUILDING INFORMATION STATEMENT" means the information statement or
registration statement relating to Shipbuilding Company and the
transactions contemplated hereby to be distributed to holders of Tenneco
Common Stock pursuant to the terms of this Agreement.
"SHIPBUILDING LIABILITIES" means, collectively, all of the Liabilities of
Shipbuilding Company, the Shipbuilding Subsidiaries and each of the other
members of the Shipbuilding Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated by the Debt and Cash Allocation Agreement, including, without
limitation:
(i) all of the Liabilities included on the Shipbuilding Business Pro
Forma Balance Sheet that remain outstanding as of the close of business
on the Distribution Date;
(ii) all other Liabilities that are incurred or which accrue or are
accrued at any time on, prior to or after the date of the Shipbuilding
Business Pro Forma Balance Sheet and that arise or arose out of, or in
connection with, the Shipbuilding Assets, the Shipbuilding Business or
the Prior Shipbuilding Businesses, determined on a basis consistent
with the determination of Liabilities of Shipbuilding Company on the
Shipbuilding Business Pro Forma Balance Sheet, including, without
limitation,
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Shipbuilding Securities Liabilities and Information Statement
Liabilities to the extent such Information Statement Liabilities (A)
arise or arose out of or in connection with the Shipbuilding
Information Statement or information or data in the Joint Proxy
statement or the Debt Realignment Documents concerning the Shipbuilding
Business or (B) are based on information or data provided in writing by
Shipbuilding Company (or any member of its Group or any Affiliate
(after giving effect to the Distributions) thereof) expressly for
inclusion in the Industrial Information Statement;
(iii) all of the Liabilities of Shipbuilding Company, the
Shipbuilding Subsidiaries or any of the other members of the
Shipbuilding Group under, or to be retained or assumed by Shipbuilding
Company, any Shipbuilding Subsidiary or any of the other members of the
Shipbuilding Group pursuant to, this Agreement or any of the Ancillary
Agreements; and
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Shipbuilding Business.
"SHIPBUILDING RECORDS" has the meaning ascribed to such term in SECTION
6.01(B) hereof.
"SHIPBUILDING REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations promulgated
thereunder in order to register the Shipbuilding Common Stock under Section
12(b) of the Exchange Act.
"SHIPBUILDING SECURITIES LIABILITIES" means any and all Securities
Liabilities arising out of, or in connection with, or relating in whole or
in part to any of the following: (i) the Shipbuilding Registration
Statement; (ii) the Shipbuilding Information Statement (whether in the form
as an Appendix to the Joint Proxy Statement or as the Information Statement
included in the Shipbuilding Registration Statement); (iii) the
Shipbuilding Financing Materials; (iv) any of the information, data
(financial or otherwise) or disclosures in (or any alleged failure to set
forth certain information, data or disclosures in) the Shipbuilding
Registration Statement, Shipbuilding Information Statement (whether in the
form as an Appendix to the Joint Proxy Statement or as the Information
Statement included in the Shipbuilding Registration Statement) or
Shipbuilding Financing Materials, irrespective of (A) who authored,
prepared or provided such information, data or disclosures (or, as the case
may be, the section or discussion in which certain information, data or
disclosure is alleged to have been omitted), or (B) the form in which, or
medium through which (e.g., verbally, in writing, etc.), such information,
data, disclosures, discussion or section were provided; or (v) any of the
information, data (financial or otherwise) or disclosures in (or any
alleged failure to set forth certain information, data or disclosures in)
the Joint Proxy Statement or the Debt Realignment Documents concerning any
matter relating to the business, operations, management, financial results
or potential risks of (or pending or threatened claims or investigations
relating to) the Shipbuilding Business, Prior Shipbuilding Businesses,
Shipbuilding Assets or Shipbuilding Liabilities, irrespective of (A) who
authored, prepared or provided such information data or disclosures (or, as
the case may be, the section or discussion in which certain information,
data or disclosure is alleged to have been omitted), or (B) the form in
which, or medium through which (e.g., verbally, in writing, etc.), such
information, data, disclosure, section or discussion were provided.
"SHIPBUILDING SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT J
hereto.
"SUBSIDIARY" means, with respect to any Person:
(i) any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of
such corporation, irrespective of whether or not at the time stock of
any other class or classes of such corporation shall have or might have
voting power by reason of the happening of a contingency) is at
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the time, directly or indirectly, owned or controlled by such Person or
by such Person and one or more of its Subsidiaries; or
(ii) any non-corporate entity in which such Person or such Person and
one or more Subsidiaries of such Person either (a) directly or
indirectly, at the date of determination thereof, has at least majority
ownership interest, or (b) at the date of determination is a general
partner or an entity performing similar functions (e.g., manager of a
Limited Liability Company or a trustee of a trust).
"SURVIVING CORPORATION" has the meaning ascribed to such term in the
recitals to this Agreement.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp,
excise, occupation, services, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment or other charge in the nature of or in lieu
of any tax) imposed by any governmental entity or political subdivision
thereof, and any interest, penalties, additions to tax, or additional
amounts in respect of the foregoing.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement by and among
Tenneco, Shipbuilding Company, Industrial Company and Acquiror, which
agreement shall be entered into on or prior to the Distribution Date in the
form attached hereto as EXHIBIT K, except for such changes or modifications
thereto that do not, individually or in the aggregate, adversely affect the
Energy Business other than to a de minimis extent.
"TENNECO" means Tenneco Inc., a Delaware corporation.
"TENNECO COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"TENNECO CORPORATE RECORDS" has the meaning ascribed to such term in
SECTION 6.01(A) hereof.
"TENNECO HOLDERS" means the holders of record of Tenneco Common Stock as
of the Distribution Record Date.
"TENNECO TRADEMARKS AND TRADENAMES" means all trademarks, service marks,
and tradenames containing "TENNECO", "TEN", or "TENN" or variations
thereof, along with their respective applications and registrations
wherever used or registered; provided, however, that the term shall not
include the word "Tennessee" to the extent such word is used in the
business and operations of Tennessee Gas Pipeline Company or otherwise in
the Energy Business.
"TERMINATION DATE" means the date on which this Agreement is terminated
pursuant to and in accordance with the provisions of SECTION 8.11 of this
Agreement.
"THIRD PARTY CLAIM" has the meaning as defined in SECTION 7.05(A) hereof.
"TBS SERVICES AGREEMENT" means the Services Agreement by and among
Industrial Company, Shipbuilding Company and Tenneco Business Services
Inc., which agreement shall be entered into on or prior to the Distribution
Date in substantially the form attached hereto as EXHIBIT L and which
agreement Tenneco and the Energy Business will not become a party to and
not be bound by without the consent of Acquiror, which Acquiror may
withhold in its sole discretion.
"TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement
by and between Tenneco and Tenneco Business Services Inc., which agreement
shall be entered into on or prior to the Distribution Date in the form
attached hereto as EXHIBIT M.
"TRANSITION TRADEMARK LICENSE" has the meaning ascribed to such term in
SECTION 5.02 hereof.
SECTION 1.02. REFERENCES. References to an "EXHIBIT" or to a "SCHEDULE" are,
unless otherwise specified, to one of the Exhibits or Schedules attached to
this Agreement, and references to a "SECTION" are, unless otherwise specified,
to one of the Sections of this Agreement.
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ARTICLE II
PRE-DISTRIBUTION TRANSACTIONS;
CERTAIN COVENANTS
SECTION 2.01. CORPORATE RESTRUCTURING TRANSACTIONS. On or prior to the
Distribution Date (but in all events prior to the Distributions) and otherwise
in accordance with the terms and provisions set forth in EXHIBIT B hereto,
each of Tenneco, Industrial Company and Shipbuilding Company shall, and shall
cause each of their respective Subsidiaries to, as applicable, take such
action or actions as is necessary to cause, effect and consummate the
Corporate Restructuring Transactions. Each of Tenneco, Shipbuilding Company
and Industrial Company hereby agrees that any one or more of the Corporate
Restructuring Transactions may be modified, supplemented or eliminated;
provided such modification, supplement or elimination (a) is determined to be
necessary or appropriate (i) to divide the existing businesses of Tenneco so
that the automotive, packaging and business services businesses shall be
owned, directly and indirectly, by Industrial Company and the shipbuilding
business shall be owned, directly and indirectly, by Shipbuilding Company, or
(ii) to obtain a ruling from the Internal Revenue Service as described in
Section 7.1(g) of the Merger Agreement, and (b) does not, individually or in
the aggregate, adversely affect the Energy Business (other than to a de
minimis extent) or materially delay or prevent the consummation of the Merger.
SECTION 2.02. PRE-DISTRIBUTION STOCK DIVIDENDS TO TENNECO. On or prior to
the Distribution Date (but in all events prior to the Distributions):
(a) INDUSTRIAL COMPANY STOCK DIVIDEND. Industrial Company shall issue to
Tenneco, as a stock dividend, the number of shares of Industrial Common
Stock as is required to effect the Industrial Distribution, as certified by
the Agent. In connection therewith, Tenneco shall deliver to Industrial
Company for cancellation the share certificate (or certificates) currently
held by it representing all Industrial Common Stock, and Industrial Company
shall issue a new certificate (or certificates) to Tenneco representing the
total number of Industrial Common Shares to be owned by Tenneco after
giving effect to such stock dividend.
(b) SHIPBUILDING COMPANY STOCK DIVIDEND. Shipbuilding Company shall issue
to Tenneco, as a stock dividend, the number of shares of Shipbuilding
Common Stock as is required to effect the Shipbuilding Distribution, as
certified by the Agent. In connection therewith, Tenneco shall deliver to
Shipbuilding Company for cancellation the share certificate (or
certificates) currently held by it representing all Shipbuilding Common
Stock, and Shipbuilding Company shall issue a new certificate (or
certificates) representing the total number of Shipbuilding Common Shares
to be owned by Tenneco after giving effect to such stock dividend.
SECTION 2.03. CHARTERS AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION AND BYLAWS OF INDUSTRIAL COMPANY. On or
prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Industrial Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Industrial Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
(b) CERTIFICATE OF INCORPORATION AND BYLAWS OF SHIPBUILDING COMPANY. On
or prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Shipbuilding Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Shipbuilding Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
SECTION 2.04. ELECTION OF DIRECTORS OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. On or prior to the Distribution Date, Tenneco, as the sole
stockholder of each of Industrial Company and Shipbuilding Company, shall take
all necessary action so that as of the Distribution Date the directors of
Industrial Company and of Shipbuilding Company will be as set forth in the
Industrial Information Statement and the Shipbuilding Information Statement,
respectively.
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SECTION 2.05. TRANSFER AND ASSIGNMENT OF CERTAIN LICENSES AND PERMITS.
(a) LICENSES AND PERMITS RELATING TO THE INDUSTRIAL BUSINESS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter,
each of Tenneco and Shipbuilding Company shall (and, if applicable, shall
cause any other Person over which it has legal or effective direct or
indirect control to), severally but not jointly, duly and validly transfer
or cause to be duly and validly transferred to the appropriate member of
the Industrial Group (as directed by Industrial Company) all transferrable
licenses, permits and authorizations issued by any Governmental Authority
that relate to the Industrial Business but which are held in the name of
any member of the Energy Group or the Shipbuilding Group, or any of their
respective employees, officers, directors, stockholders or agents.
(b) LICENSES AND PERMITS RELATING TO THE SHIPBUILDING BUSINESS. On or
prior to the Distribution Date, or as soon as reasonably practicable
thereafter, each of Tenneco and Industrial Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Shipbuilding Group (as directed by Shipbuilding
Company) all transferrable licenses, permits and authorizations issued by
any Governmental Authority that relate to the Shipbuilding Business but
which are held in the name of any member of the Energy Group or the
Industrial Group, or any of their respective employees, officers,
directors, stockholders or agents.
(c) LICENSES AND PERMITS RELATING TO THE ENERGY BUSINESS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter,
each of Industrial Company and Shipbuilding Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Energy Group (as directed by Tenneco) all
transferrable licenses, permits and authorizations issued by any
Governmental Authority that relate to the Energy Business but which are
held in the name of any member of the Industrial Group or the Shipbuilding
Group, or any of their respective employees, officers, directors,
stockholders or agents.
SECTION 2.06. TRANSFER AND ASSIGNMENT OF CERTAIN AGREEMENTS.
(a) TRANSFER AND ASSIGNMENT OF ENERGY BUSINESS AGREEMENTS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Industrial
Company and Shipbuilding Company shall (and, if applicable, shall cause any of
the other members of its Group over which it has legal or effective direct or
indirect control to), severally but not jointly, assign, transfer and convey
to Tenneco (or such other member of the Energy Group as Tenneco shall direct)
all of its (or such other member of its Group's) right, title and interest in
and to any and all agreements that relate exclusively to the Energy Business
or any member of the Energy Group.
(b) TRANSFER AND ASSIGNMENT OF INDUSTRIAL BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Shipbuilding Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Industrial Company (or such other member of the Industrial Group as Industrial
Company shall direct) all of its (or such other member of its Group's) right,
title and interest in and to any and all agreements that relate exclusively to
the Industrial Business or any member of the Industrial Group.
(c) TRANSFER AND ASSIGNMENT OF SHIPBUILDING BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Industrial Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Shipbuilding Company (or such other member of the Shipbuilding Group as
Shipbuilding Company shall direct) all of its (or such other member of its
Group's) right, title and interest in and to any and all agreements that
relate exclusively to the Shipbuilding Business or any member of the
Shipbuilding Group.
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(d) JOINT AGREEMENTS. Subject to the provisions of SECTION 2.06(F) below,
any agreement to which any party hereto (or any other member of such party's
Group) is a party that inures to the benefit of more than one of the Energy
Business, the Industrial Business and the Shipbuilding Business shall be
assigned in part, at the expense and risk of the assignee, on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, so that
each party (or such other member of such party's Group) shall be entitled to
the rights and benefits inuring to its business under such agreement.
(e) OBLIGATIONS OF ASSIGNEES. The assignee of any agreement assigned, in
whole or in part, hereunder (an "ASSIGNEE") shall, as a condition to such
assignment, assume and agree to pay, perform, and fully discharge all
obligations of the assignor under such agreement (whether such obligations
arose or were incurred prior to, on or subsequent to the Distribution Date and
irrespective of whether such obligations have been asserted as of the
Distribution Date) or, in the case of a partial assignment under SECTION
2.06(D) above, such Assignee's related portion of such obligations as
determined in accordance with the terms of the relevant agreement, where
determinable on the face thereof, and otherwise as determined in accordance
with the practice of the parties prior to the Distributions. Furthermore, the
Assignee shall use its commercially reasonable efforts to cause the assignor
of such agreement to be released from its obligations under the assigned
agreements.
(f) NO ASSIGNMENT OF CERTAIN AGREEMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any agreement, in whole or in part, or any rights thereunder if the
agreement to assign or attempt to assign, without the consent of a third
party, would constitute a breach thereof or in any way adversely affect the
rights of the Assignee thereof until such consent is obtained. If an attempted
assignment thereof would be ineffective or would adversely affect the rights
of any party hereto so that the Assignee would not, in fact, receive all such
rights, the parties hereto will cooperate with each other to effect any
arrangement designed reasonably to provide for the Assignee the benefits of,
and to permit the Assignee to assume liabilities under, any such agreement,
subject to the remaining sentences of this SECTION 2.06(F). There are certain
software license agreements held in the name of a member of the Industrial
Group that presently inure to the benefit of the Energy Business, the
Industrial Business and the Shipbuilding Business. Notwithstanding any other
provision of this Agreement, each such license agreement shall continue to be
held by that member of the Industrial Group without any obligation of any
party to cause the assignment or inurement to the benefit of such license
agreement, or to effect any arrangement to provide such benefit, to the Energy
Business or the Shipbuilding Business, except where the license agreement
expressly permits the benefits and obligations to be divided among the
Businesses or as may be negotiated with the licensor by that member of the
Industrial Group and such other parties and the Industrial Business shall use
commercially reasonable efforts to do so.
SECTION 2.07. CONSENTS. The parties hereto shall use their best efforts to
obtain any third-party consents or approvals that are required to consummate
the Corporate Restructuring Transactions, the Distributions and the other
transactions contemplated herein (the "CONSENTS").
SECTION 2.08. OTHER TRANSACTIONS. On or prior to the Distribution Date (but
in all events prior to the Distributions), each of Tenneco, Industrial Company
and Shipbuilding Company shall have consummated those other transactions in
connection with the Corporate Restructuring Transactions and the Distributions
that are contemplated by the Information Statements and the ruling request
submission by Tenneco to the Internal Revenue Service dated June 27, 1996 (as
subsequently supplemented), and not specifically referred to in SECTIONS 2.01
through 2.07 above, subject, however, to the limitations set forth in
SUBPARAGRAPH (B) of SECTION 2.01 above.
SECTION 2.09. ELECTION OF OFFICERS. On or prior to the Distribution Date,
each of Tenneco, Industrial Company and Shipbuilding Company shall, as
applicable, take all actions necessary and desirable so that as of the
Distribution Date the officers of Industrial Company and of Shipbuilding
Company will be as set forth in the Industrial Information Statement and the
Shipbuilding Information Statement, respectively.
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SECTION 2.10. REGISTRATION STATEMENTS. Each of Tenneco, Industrial Company
and Shipbuilding Company shall prepare, and shall file with the Commission,
the Registration Statements in accordance with the terms of this SECTION 2.10.
(a) PREPARATION AND FILING OF INDUSTRIAL REGISTRATION STATEMENT. Tenneco,
Industrial Company and Shipbuilding Company shall prepare or cause to be
prepared, and Industrial Company shall file or cause to be filed with the
Commission, the Industrial Registration Statement. The Industrial
Registration Statement shall include or incorporate by reference the
Industrial Information Statement setting forth appropriate disclosure
concerning Tenneco, Industrial Company, Shipbuilding Company, the
Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Industrial Company shall take all such
actions as may be reasonably necessary or appropriate in order to cause the
Industrial Registration Statement to become effective by order of the
Commission pursuant to the Exchange Act.
(b) PREPARATION AND FILING OF SHIPBUILDING REGISTRATION STATEMENT.
Tenneco, Industrial Company and Shipbuilding Company shall prepare or cause
to be prepared, and Shipbuilding Company shall file or cause to be filed
with the Commission, the Shipbuilding Registration Statement. The
Shipbuilding Registration Statement shall include or incorporate by
reference the Shipbuilding Information Statement setting forth appropriate
disclosure concerning Tenneco, Shipbuilding Company, Industrial Company,
the Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Shipbuilding Company shall take all
such actions as may be reasonably necessary or appropriate in order to
cause the Shipbuilding Registration Statement to become effective by order
of the Commission pursuant to the Exchange Act.
SECTION 2.11. STATE SECURITIES LAWS. Prior to the Distribution Date,
Tenneco, Industrial Company and Shipbuilding Company shall take all such
action as may be necessary or appropriate under the securities or blue sky
laws of states or other political subdivisions of the United States in order
to effect the Distributions.
SECTION 2.12. LISTING APPLICATION. Prior to the Distribution Date, Tenneco,
Industrial Company and Shipbuilding Company shall prepare and file with the
NYSE listing applications and related documents and shall take all such other
actions with respect thereto as shall be necessary or desirable in order to
cause the NYSE to list on or prior to the Distribution Date, subject to
official notice of issuance, the Industrial Common Shares and the Shipbuilding
Common Shares.
SECTION 2.13. CERTAIN FINANCIAL AND OTHER ARRANGEMENTS.
(a) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND ENERGY
GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Energy Group, on the
other hand, shall, as of the close of business on the Distribution Date, be
settled, capitalized or converted into ordinary trade accounts, in each case
as may be agreed in writing prior to the Distribution Date by duly authorized
representatives of Tenneco, Industrial Company and the Acquiror.
(b) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN SHIPBUILDING GROUP AND
ENERGY GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Shipbuilding Group, on the one hand, and any member of the Energy Group, on
the other hand, shall, as of the close of business on the Distribution Date,
be settled, capitalized or converted into ordinary trade accounts, in each
case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Tenneco, Shipbuilding Company and the Acquiror.
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(c) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND
SHIPBUILDING GROUP. All intercompany receivables, payables and loans (other
than receivables, payables and loans otherwise specifically provided for in
any of the Ancillary Agreements or hereunder), including, without limitation,
in respect of any cash balances, any cash balances representing deposited
checks or drafts for which only a provisional credit has been allowed or any
cash held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Shipbuilding Group,
on the other hand, shall, as of the close of business on the Distribution
Date, be settled, capitalized or converted into ordinary trade accounts, in
each case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Industrial Company and Shipbuilding Company.
(d) OPERATIONS IN ORDINARY COURSE. Except as otherwise provided in this
Agreement, the Merger Agreement or any Ancillary Agreement, during the period
from the date of this Agreement through the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall, and shall cause
any entity that is a Subsidiary of such party at any time during such period
to, conduct its business in a manner substantially consistent with current and
past operating practices and in the ordinary course, including, without
limitation, with respect to the payment and administration of accounts payable
and the collection and administration of accounts receivable, the purchase of
capital assets and equipment and the management of inventories.
SECTION 2.14. DIRECTOR, OFFICER AND EMPLOYEE RESIGNATIONS. Subject to the
provisions of SECTION 2.04 and SECTION 2.09 above:
(a) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE ENERGY GROUP. Tenneco
shall cause all of its directors and all employees of the Energy Group to
resign, effective as of the close of business on the Distribution Date,
from all boards of directors or similar governing bodies of each member of
the Industrial Group or the Shipbuilding Group on which they serve, and
from all positions as officers or employees of any member of the Industrial
Group or the Shipbuilding Group, except as otherwise set forth in the
Information Statements or mutually agreed to in writing on or prior to the
Distribution Date by Tenneco, on the one hand, and, as applicable,
Industrial Company and/or Shipbuilding Company, on the other hand.
(b) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE INDUSTRIAL GROUP.
Industrial Company shall cause all of its directors and all employees of
the Industrial Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Shipbuilding Group on
which they serve, and from all positions as officers or employees of any
member of the Energy Group or the Shipbuilding Group, except as otherwise
set forth in the Information Statements or mutually agreed to in writing on
or prior to the Distribution Date by Industrial Company, on the one hand,
and, as applicable, Tenneco and/or Shipbuilding Company, on the other hand.
(c) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE SHIPBUILDING GROUP.
Shipbuilding Company shall cause all of its directors and all employees of
the Shipbuilding Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Industrial Group on which
they serve, and from all positions as officers or employees of any member
of the Energy Group or the Industrial Group, except as otherwise set forth
in the Information Statements or mutually agreed to in writing on or prior
to the Distribution Date by Shipbuilding Company, on the one hand, and, as
applicable, Industrial Company and/or Tenneco, on the other hand.
SECTION 2.15. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTIONS; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers
contemplated by this ARTICLE II shall not have been consummated on or prior to
the Distribution Date, the parties hereto shall cooperate (and shall cause
each of their respective Affiliates and each member of their respective Groups
over which they have legal or effective direct or indirect control to
cooperate) to effect such transfers as promptly following the Distribution
Date as shall be practicable. Nothing herein shall be deemed to require the
transfer of any assets or the assumption of any Liabilities which by their
terms or operation of Law cannot be transferred or assumed; provided, however,
that the parties hereto shall cooperate (and shall cause each of their
respective Affiliates and each member of their respective Groups over which
they have legal or effective direct or indirect control to cooperate) to seek
to
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obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this ARTICLE II. In the
event that any such transfer of assets or Liabilities has not been
consummated, from and after the Distribution Date the party retaining such
asset or Liability (or, as applicable, such other member or members of such
party's Group) shall hold such asset in trust for the use and benefit of the
party entitled thereto (at the expense of the party entitled thereto) or
retain such Liability for the account of the party by whom such Liability is
to be assumed pursuant hereto, as the case may be, and take such other action
as may be reasonably requested by the party to whom such asset is to be
transferred, or by whom such Liability is to be assumed, as the case may be,
in order to place such party, insofar as is reasonably possible, in the same
position as would have existed had such asset or Liability been transferred or
assumed as contemplated hereby. As and when any such asset or Liability
becomes transferable or assumable, such transfer shall be effected forthwith.
As of the Distribution Date, each party hereto (or, if applicable, such other
members of such party's Group) shall be deemed to have acquired (or, as
applicable, retained) complete and sole beneficial ownership over all of the
assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party (or any other member of such party's Group)
is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
SECTION 2.16. ANCILLARY AGREEMENTS. Prior to the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall enter into, and/or
where applicable shall cause such other members of their respective Groups to
enter into, (a) the Ancillary Agreements and (b) any other agreements in
respect of the Corporate Restructuring Transactions and the Distributions as
are reasonably necessary or appropriate in connection with the transactions
contemplated hereby and thereby so long as such agreements do not materially
delay or prevent consummation of the Merger or adversely affect the Energy
Business other than to a de minimis extent.
ARTICLE III
THE DISTRIBUTIONS
SECTION 3.01. TENNECO ACTION PRIOR TO THE DISTRIBUTIONS. Subject to the
terms and conditions set forth herein, Tenneco shall take, or cause to be
taken, the following acts or actions in connection with, and to otherwise
effect in accordance with the terms of this Agreement, the Distributions.
(a) DECLARATION OF DISTRIBUTIONS AND ESTABLISHMENT OF DISTRIBUTION DATE.
The Board of Directors of Tenneco shall, in its sole discretion and subject
to and in accordance with the applicable rules of the NYSE and provisions
of the DGCL, declare the Distributions and establish the Distribution
Record Date, the Distribution Date, the date on which Industrial Common
Shares, Shipbuilding Common Shares and any cash in lieu of fractional
shares shall be mailed to the Tenneco Holders and all appropriate
procedures in connection with the Distributions to the extent not provided
for herein; provided, however, that no such action shall create any
obligation on the part of Tenneco to effect the Distributions or in any way
limit Tenneco's power of termination as set forth in SECTION 8.11 hereof or
alter the consequences of any such termination from those specified in such
Section.
(b) NOTICE TO NYSE. Tenneco shall, to the extent possible, give the NYSE
not less than ten days advance notice of the Distribution Record Date in
compliance with Rule 10b-17 under the Exchange Act.
(c) MAILING OF INDUSTRIAL INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Industrial Registration Statement shall have been
declared effective under the Exchange Act, cause the Industrial Information
Statement to be mailed to the Tenneco Holders.
(d) MAILING OF SHIPBUILDING INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Shipbuilding Registration Statement shall have
been declared effective under the Exchange Act, cause the Shipbuilding
Information Statement to be mailed to the Tenneco Holders.
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SECTION 3.02. THE DISTRIBUTIONS.
(a) DUTIES AND OBLIGATIONS OF TENNECO. Subject to the conditions contained
herein, on the Distribution Date but effective immediately following the close
of business on the Distribution Date Tenneco shall:
(i) deliver to the Agent the share certificates representing the
Industrial Common Shares and Shipbuilding Common Shares issued to
Tenneco by Industrial Company and Shipbuilding Company, respectively,
pursuant to SECTION 2.02 hereof, endorsed by Tenneco in blank, for the
benefit of the Tenneco Holders; and
(ii) instruct the Agent to distribute, as soon as practicable
following consummation of the Distributions, to the Tenneco Holders the
following:
(A) one share of Industrial Common Stock for every one share of
Tenneco Common Stock;
(B) one share of Shipbuilding Common Stock for every five shares
of Tenneco Common Stock; and
(C) cash, if applicable, in lieu of fractional shares obtained in
the manner provided in SECTION 3.03 hereof.
(b) DUTIES AND RESPONSIBILITIES OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. Industrial Company and Shipbuilding Company shall provide, or cause
to be provided, to the Agent sufficient certificates representing Industrial
Common Stock and Shipbuilding Common Stock, respectively, in such
denominations as the Agent may request in order to effect the Distributions.
All shares of Industrial Common Stock issued pursuant to the Industrial
Distribution will be validly issued, fully paid and nonassessable and free of
any preemptive (or similar) rights. All shares of Shipbuilding Common Stock
issued pursuant to the Shipbuilding Distribution will be validly issued, fully
paid and nonassessable and free of any preemptive (or similar) rights.
SECTION 3.03. FRACTIONAL SHARES.
(a) NO FRACTIONAL SHARES. Notwithstanding anything herein to the contrary,
no certificate or scrip evidencing a fractional share of Industrial Common
Stock or Shipbuilding Common Stock shall be issued in connection with the
Distributions, and any such fractional share interests to which a Tenneco
Holder would otherwise be entitled will not entitle such Tenneco Holder to
vote or to any rights of a stockholder of Industrial Company or Shipbuilding
Company, as the case may be. In lieu of any such fractional shares, each
Tenneco Holder who, but for the provisions of this SECTION 3.03, would be
entitled to receive a fractional share interest of Industrial Common Stock or
Shipbuilding Common Stock pursuant to the Distributions shall be paid cash,
without any interest thereon, as hereinafter provided. Tenneco shall instruct
the Agent to determine the number of whole shares and fractional shares of
Industrial Common Stock and Shipbuilding Common Stock allocable to each
Tenneco Holder, to aggregate all such fractional shares into whole shares, to
sell the whole shares obtained thereby in the open market at the then
prevailing prices on behalf of Tenneco Holders who otherwise would be entitled
to receive fractional share interests and to distribute to each such Tenneco
Holder his, her or its ratable share of the total proceeds of such sale, after
making appropriate deductions of the amount required for federal income tax
withholding purposes and after deducting any applicable transfer taxes. All
brokers' fees and commissions incurred in connection with such sales shall be
paid by Tenneco.
(b) UNCLAIMED STOCK OR CASH. Any Industrial Common Stock, Shipbuilding
Common Stock or cash in lieu of fractional shares and dividends or
distributions with respect to Industrial Common Stock or Shipbuilding Common
Stock that remain unclaimed by any Tenneco Holder 180 days after the
Distribution Date shall be returned to Tenneco and any such Tenneco Holders
shall look only to Tenneco for the Industrial Common Stock, Shipbuilding
Common Stock, cash, if any, in lieu of fractional share interests and any such
dividends or distributions to which they are entitled, subject in each case to
applicable escheat or other abandoned property laws.
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(c) BENEFICIAL OWNERS. Solely for purposes of computing fractional share
interests pursuant to SECTION 3.03(A), the beneficial owner of shares of
Tenneco Common Stock held of record in the name of a nominee will be treated
as the holder of record of such shares.
ARTICLE IV
CONDITIONS TO THE DISTRIBUTIONS
SECTION 4.01. CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of
Tenneco to cause the Distributions to be consummated shall be subject, at the
option of Tenneco, to the fulfillment or waiver, on or prior to the
Termination Date, of each of the following conditions.
(a) TAX SHARING AGREEMENT. Tenneco, Industrial Company, Shipbuilding
Company and Acquiror shall have executed and delivered the Tax Sharing
Agreement and such agreement shall be in full force and effect.
(b) BENEFITS AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Benefits Agreement and such
agreement shall be in full force and effect.
(c) TRANSITION SERVICES AGREEMENT. Tenneco and Tenneco Business Services
Inc. shall have executed and delivered the Transition Services Agreement
and such agreement shall be in full force and effect.
(d) INSURANCE AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Insurance Agreement and such
agreement shall be in full force and effect.
(e) DEBT AND CASH ALLOCATION AGREEMENT. Tenneco, Industrial Company and
Shipbuilding Company shall have executed and delivered the Debt and Cash
Allocation Agreement and such agreement shall be in full force and effect.
(f) EFFECTIVE DATE OF REGISTRATION STATEMENT. Each of the Registration
Statements shall have been declared effective by order of the Commission
and no stop order shall have been entered, and no proceeding for that
purpose shall have been initiated or threatened by the Commission with
respect thereto.
(g) NYSE LISTING. The Industrial Common Shares and the Shipbuilding
Common Shares shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(h) TAX RULING. Tenneco shall have received rulings from the Internal
Revenue Service reasonably acceptable to Tenneco and Acquiror, which
rulings shall be in full force and effect as of the Distribution Date, to
the effect that:
(i) The Industrial Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under Section
355(c)(1) of the Code and to the stockholders of Tenneco under
Section 355(a) of the Code;
(ii) The Shipbuilding Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under
Section 355(c)(1) of the Code and to the stockholders of Tenneco
under Section 355(a) of the Code; and
(iii) The following distributions will be tax free to the respective
transferor corporations under Section 355(c)(1) of the Code and
to the respective stockholders of the transferor corporations
under Section 355(a) of the Code: (A) the distribution by the
Shipbuilding Company of the capital stock of Tenneco Packaging
Inc. to Tenneco Corporation contemplated under the Corporate
Restructuring Transactions; (B) the distribution by Tenneco
Corporation of the capital stock of the Shipbuilding Company
and the Industrial Company to Tennessee Gas Pipeline Company as
contemplated under the Corporate Restructuring Transactions;
and (C) the distribution by Tennessee Gas Pipeline Company of
the capital stock of the Shipbuilding Company and the
Industrial Company to Tenneco Inc. as contemplated under the
Corporate Restructuring Transactions.
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(i) PRE-DISTRIBUTION TRANSACTIONS. Each of the transactions and other
matters contemplated by ARTICLE II and SECTION 3.01 hereof (including,
without limitation, each of the distributions, transfers, conveyances,
contributions, assignments or other transactions included in, or otherwise
necessary to consummate, the Corporate Restructuring Transactions) shall
have been fully effected, consummated and accomplished.
(j) COVENANTS. The covenants contained in ARTICLE V of this Agreement
that are required to be performed on or before the Distribution Date shall
have been fully performed.
(k) NO PROHIBITIONS. Consummation of the transactions contemplated hereby
shall not be prohibited by Law and no Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation of the
Distributions, the Merger or any transaction contemplated by this Agreement
or the Merger Agreement, it being understood that the parties hereto hereby
agree to use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted as promptly as
possible.
(l) CONSENTS. Tenneco, Industrial Company, Shipbuilding Company and the
other members of their respective Groups shall have obtained all Consents
the failure of which to obtain would, in the determination of the Board of
Directors of Tenneco, have a material adverse effect on the Energy Group,
the Industrial Group or the Shipbuilding Group, each taken as a whole, and
such Consents shall be in full force and effect.
(m) STOCKHOLDER APPROVAL. The Distributions shall have been approved by
the requisite vote of the holders of the outstanding Tenneco Common Stock
and the holders of the outstanding $7.40 Cumulative Preferred Stock of
Tenneco, voting together as a class, by the requisite vote of the holders
of the outstanding $4.50 Cumulative Preferred Stock of Tenneco and the
holders of the outstanding $7.40 Cumulative Preferred Stock of Tenneco,
voting together as a class, and by any requisite vote of the holders of the
outstanding New Preferred Stock (as defined in the Merger Agreement),
voting separately as a class, in accordance with the DGCL and the
provisions of Tenneco's Certificate of Incorporation.
(n) HSR ACT. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the transactions
contemplated under the Merger Agreement shall have expired or been
terminated.
(o) DEBT REALIGNMENT. Each of the transactions and other matters
contemplated under the Debt Realignment (as defined under the Merger
Agreement) shall have been fully effected, consummated and accomplished.
SECTION 4.02. NO CONSTRAINT. Notwithstanding the provisions of SECTION 4.01
above (but subject to Tenneco's obligations under the Merger Agreement), the
fulfillment or waiver of any or all of the conditions precedent to the
Distributions set forth therein shall not:
(i) create any obligation on the part of Tenneco or any other party
hereto to effect the Distributions;
(ii) in any way limit Tenneco's right and power under SECTION 8.11 hereof
to terminate this Agreement and the process leading to the Distributions
and to abandon the Distributions; or
(iii) alter the consequences of any such termination under SECTION 8.11
hereof from those specified in such Section.
SECTION 4.03. DEFERRAL OF DISTRIBUTION DATE. If the Distribution Date shall
have been established by the Board of Directors of Tenneco but all the
conditions precedent to the Distributions set forth in this Agreement have not
theretofore been fulfilled or waived, or Tenneco does not reasonably
anticipate that they will be fulfilled or waived, on or prior to the date
established as the Distribution Date, Tenneco may, by resolution of its Board
of Directors (or a committee thereof, so authorized), defer the Distribution
Date to a later date.
SECTION 4.04. PUBLIC NOTICE OF DEFERRED DISTRIBUTION DATE. If the Board of
Directors (or a committee thereof, so authorized) of Tenneco shall defer the
Distribution Date in accordance with SECTION 4.03 above and public
announcement of the prior Distribution Date has theretofore been made, Tenneco
shall promptly thereafter
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issue, in accordance with the advice of legal counsel, a public announcement
with respect to such deferment and shall, with the advice of legal counsel,
take such other actions as may be deemed necessary or desirable with respect
to the dissemination of such information.
ARTICLE V
COVENANTS
SECTION 5.01. FURTHER ASSURANCES. Each of Tenneco, Industrial Company and
Shipbuilding Company shall use all reasonable efforts to:
(a) take or cause to be taken all actions, and to do or cause to be done
all things reasonably necessary, proper or advisable under applicable Law
and agreements or otherwise to consummate and make effective the
transactions contemplated hereby, including without limitation using
commercially reasonable efforts to obtain any consents and approvals from,
enter into any amendatory agreements with and make any applications,
registrations or filings with, any third Person or any Governmental
Authority necessary or desirable in order to consummate the transactions
contemplated hereby or to carry out the purposes of this Agreement; and
(b) execute and deliver such further instruments and documents and take
such other actions as the other party may reasonably request in order to
consummate the transactions contemplated hereby and effectuate the purposes
of this Agreement.
SECTION 5.02. TENNECO NAME. Industrial Company shall grant to each of
Tenneco and Shipbuilding Company transition licenses, in the forms of EXHIBIT
P and Q, respectively (the "Transition Trademark License"), to use the Tenneco
Trademarks and Tradenames for the limited use as more fully described below in
this SECTION 5.02 and in SECTION 5.03. Each of Tenneco and Shipbuilding
Company shall, and shall cause each of the other members of its Group over
which it has legal or effective direct or indirect control to, at its own
expense:
(a) Within 30 days following the Distribution Date, change, if necessary,
its corporate name to delete therefrom the word "Tenneco" or any other word
that is confusingly similar to the word "Tenneco" (except the word
"Tennessee"); and
(b) With respect to Tenneco, within two years following the Distribution
Date, and, with respect to Shipbuilding Company, within one year following
the Distribution Date, remove any and all references to the Tenneco
Trademark and Tradenames from any and all signs, displays or other
identification or advertising material (excluding any such material that is
the subject of SECTION 5.03 below). After the conclusion of such period,
each of Tenneco, Shipbuilding Company, and each other member of its
respective Group or over which it has legal or effective direct or indirect
control shall not use or display any of the Tenneco Trademarks and
Tradenames without the prior written consent of Industrial Company, which
consent may be withheld for any reason or no reason whatsoever. After the
Distribution Date, no party hereto shall represent or permit to be
represented to any third Person that it or any member of its Group has a
business affiliation with any other party hereto or any member of such
other party's Group, except as expressly permitted by any of the Ancillary
Agreements.
SECTION 5.03. SUPPLIES AND DOCUMENTS. Notwithstanding the provisions of
SECTION 5.02 above, for a period of six (6) months following the Distribution
Date, the Transition Trademark License shall license (on a nonexclusive basis)
to each of the members of the Energy Group and the Shipbuilding Group the
right to use existing supplies and documents which have imprinted thereon any
of the Tenneco Trademarks and Tradenames to the extent that such supplies and
documents were existing in the inventory of such member of the Energy Group or
Shipbuilding Group, as applicable, as of the Distribution Date.
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SECTION 5.04. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
otherwise specifically set forth in any Ancillary Agreement, from and after
the Distribution Date:
(a) Tenneco shall, and shall cause each of the other members of the
Energy Group over which it has legal or effective direct or indirect
control to, assume, pay, perform and discharge all Energy Liabilities in
accordance with their terms, when determinable, and otherwise as determined
in accordance with the practice of the parties prior to the Distributions;
(b) Industrial Company shall, and shall cause each of the other members
of the Industrial Group over which it has legal or effective direct or
indirect control to, assume, pay, perform and discharge all Industrial
Liabilities in accordance with their terms, when determinable, and
otherwise as determined in accordance with the practice of the parties
prior to the Distributions; and
(c) Shipbuilding Subsidiary shall, and shall cause each of the other
members of the Shipbuilding Group over which it has legal or effective
direct or indirect control to, assume, pay, perform and discharge all
Shipbuilding Liabilities in accordance with their terms, when determinable,
and otherwise as determined in accordance with the practice of the parties
prior to the Distributions.
SECTION 5.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) GENERAL. Each of the parties hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement (including the Ancillary Agreements) or
otherwise, making any representation or warranty whatsoever, including without
limitation, any representation or warranty:
(i) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets of such party; or
(ii) as to the legal sufficiency to convey title to any asset as of the
execution, delivery and filing of this Agreement or any Ancillary
Agreement, including, without limitation, any Conveyancing and Assumption
Instrument.
(b) DISCLAIMER OF MERCHANTABILITY OR FITNESS OF ASSETS. Each party hereto
further understands and agrees that there are no warranties, express or
implied, as to the merchantability or fitness of any of the assets either
transferred to or retained by the Energy Group, the Industrial Group or the
Shipbuilding Group, as the case may be, pursuant to Corporate Restructuring
Transactions and the other terms and provisions of this Agreement, any
Conveyancing and Assumption Agreement or any Ancillary Agreement, and all such
assets which are so transferred will be transferred on an "AS IS, WHERE IS"
basis, and the party to which any such assets are transferred hereunder, or
which retains assets hereunder, shall bear the economic and legal risk that
any conveyances of such assets shall prove to be insufficient or that the
title of such party or any other member of its respective Group to any such
assets shall be other than good and marketable and free from encumbrances.
(c) ACKNOWLEDGEMENT OF DISCLOSURE AND WAIVER. Each of Industrial Company and
Shipbuilding Company acknowledges, for itself and on behalf of each other
member of its respective Group, that:
(i) Tenneco and the other members of the Energy Group have disclosed, and
Industrial Company and Shipbuilding Company have knowledge of, all matters
pertaining to the assets and properties to be conveyed to Industrial
Company, Shipbuilding Company or any member of their respective Group
pursuant to the Corporate Restructuring Transactions or otherwise pursuant
to the other terms of this Agreement to the same extent that Tenneco and
the other members of the Energy Group have knowledge of such matters; and
(ii) such knowledge constitutes notice and disclosure of such matters.
Each of Industrial Company and Shipbuilding Company waives, to the fullest
extent permitted by law, for itself and for each other member of its
respective Group, any and all claims or causes of action which any of them may
have arising out of such matters or the failure of any Conveyancing and
Assumption Instrument to describe or refer to, or provide notice of, any such
matters.
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(d) NO REPRESENTATIONS OR WARRANTIES REGARDING CONSENTS. Each of the parties
hereto understands and agrees that no party hereto is, in this Agreement or
any Ancillary Agreement or in any other agreement or document contemplated by
this Agreement or any Ancillary Agreement or otherwise, representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or
all applicable Law. Each of the parties hereto further agrees and understands
that the party to which any assets are transferred as contemplated by the
Corporate Restructuring Transactions or the other provisions of this Agreement
shall bear the economic and legal risk that any necessary consents or
approvals are not obtained, that any necessary amendatory agreements are not
executed and delivered or that any requirements of Laws are not complied with.
(e) COVENANT TO USE REASONABLE EFFORTS TO OBTAIN CONSENTS. Notwithstanding
the provisions of SECTION 5.05(D) above, each of the parties hereto shall (and
shall cause each other member of its respective Group over which it has direct
or indirect legal or effective control to) use commercially reasonable efforts
to obtain all consents and approvals, to enter into all amendatory agreements
and to make all filings and applications which may be reasonably required for
the consummation of the transactions contemplated by this Agreement and shall
take all such further reasonable actions as shall be reasonably necessary to
preserve for each of the Energy Group, the Industrial Group and the
Shipbuilding Group, to the greatest extent feasible, the economic and
operational benefits of the allocation of assets and Liabilities contemplated
by this Agreement. In case at any time after the Distribution Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take
all such necessary or desirable action.
SECTION 5.06. REMOVAL OF CERTAIN GUARANTEES.
(a) REMOVAL OF ENERGY GROUP AS GUARANTOR OF INDUSTRIAL AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Tenneco and any other member of the
Energy Group removed as a guarantor of, or obligor under or for, any
Industrial Liability or Shipbuilding Liability.
(b) REMOVAL OF INDUSTRIAL GROUP AS GUARANTOR OF ENERGY AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Industrial Company and any other member
of the Industrial Group removed as a guarantor of, or obligor under or for,
any Energy Liability or Shipbuilding Liability.
(c) REMOVAL OF SHIPBUILDING GROUP AS GUARANTOR OF ENERGY AND INDUSTRIAL
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use their
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Shipbuilding Company and any other
member of the Shipbuilding Group removed as a guarantor of, or obligor under
or for, any Energy Liability or Industrial Liability.
SECTION 5.07. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with
each other before issuing any press release or otherwise issuing any other
similar written public statement with respect to this Agreement or the
Distributions and shall not issue any such press release or make any such
public statement without the prior consent of each other party, which shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of any other party, issue such press release or other similar
written public statement as may be required by law or any listing agreement
with a national securities exchange to which any party hereto (or any member
of such party's Group) is a party if it has used all reasonable efforts to
consult with such other party and to obtain such party's consent but has been
unable to do so in a timely manner.
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SECTION 5.08. INTERCOMPANY AGREEMENTS. Effective as of the consummation of
the Distributions, each of Industrial Company, Shipbuilding Company and
Tenneco shall (and shall cause each other member of its respective Group over
which it has legal or effective direct or indirect control) to terminate each
and every agreement between it and any member of any of the other Groups other
than this Agreement, any of the Ancillary Agreements and any of the license
agreements referred to in SECTION 2.06(F) above; provided, however, that such
termination shall not have any effect whatsoever on any of its rights and/or
obligations that accrued or were incurred prior to the Distribution Date
(subject to the terms of SECTION 2.13 above).
SECTION 5.09. TAX MATTERS. Each of Tenneco, the Industrial Company and the
Shipbuilding Company intend the Distributions to be treated as tax-free
distributions under Code Section 355 and each such party shall use its
reasonable best efforts to cause the Distributions to so qualify. Neither
Tenneco, on the one hand, nor the Industrial Company and Shipbuilding Company,
on the other hand, shall take any action (other than the Merger) which might
cause:
(i) the Distributions to fail to qualify as tax-free distributions under
Code Section 355;
(ii) any other transfer described in the Corporate Restructuring
Transactions that is intended (as described in Tenneco's request for
rulings from the Internal Revenue Service) to qualify as a tax free
transfer under Code Sections 332, 351, 355 or 368 to fail to so qualify; or
(iii) Tenneco or any Energy Subsidiary to recognize any gains relating to
deferred intercompany transactions or excess loss accounts between or among
any member of affiliated group of corporations of which Tenneco is the
common parent, other than those defined intercompany gains listed on
EXHIBIT H to the Merger Agreement.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01. PROVISION, TRANSFER AND DELIVERY OF APPLICABLE CORPORATE
RECORDS.
(a) PROVISION, TRANSFER AND DELIVERY OF INDUSTRIAL RECORDS. Each of Tenneco
and Shipbuilding Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Industrial Company's cost) to Industrial Company of the
Books and Records in its possession (i) that relate primarily to the
Industrial Business or are necessary to operate the Industrial Business
(collectively, the "INDUSTRIAL RECORDS"), and (ii) that consist of the
corporate minutes of the Board of Directors (or committees thereof) of Tenneco
or otherwise relate to the business, administrative and management operations
of Tenneco as the parent holding company of the Energy Business, Industrial
Business and Shipbuilding Business (collectively, the "TENNECO CORPORATE
RECORDS") except to the extent such items are already in the possession of any
member of the Industrial Group. The Industrial Records and the Tenneco
Corporate Records shall be the property of Industrial Company, but shall be
available to each of Tenneco and Shipbuilding Company for review and
duplication, at their cost, pursuant to the terms of this Agreement.
(b) PROVISION, TRANSFER AND DELIVERY OF SHIPBUILDING RECORDS. Each of
Tenneco and Industrial Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Shipbuilding Company's cost) to Shipbuilding Company of
the Books and Records in its possession that relate primarily to the
Shipbuilding Business or are necessary to operate the Shipbuilding Business
(collectively, the "SHIPBUILDING RECORDS"), except to the extent such items
are already in the possession of any member of the Shipbuilding Group. The
Shipbuilding Records shall be the property of Shipbuilding Company, but shall
be available to each of Tenneco and Industrial Company for review and
duplication , at their cost, pursuant to the terms of this Agreement.
(c) PROVISION, TRANSFER AND DELIVERY OF ENERGY RECORDS. Each of Industrial
Company and Shipbuilding Company shall (and shall cause each other member of
its respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Tenneco's cost) to Tenneco of the Books and Records in
its possession that relate primarily to the Energy
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Business or are necessary to operate the Energy Business (collectively, the
"ENERGY RECORDS"), except to the extent such items are already in the
possession of any member of the Energy Group. The Energy Records shall be the
property of Tenneco, but shall be available to each of Industrial Company and
Shipbuilding Company for review and duplication, at their cost, pursuant to
the terms of this Agreement.
SECTION 6.02. ACCESS TO INFORMATION.
(a) ACCESS TO BOOKS AND RECORDS. Unless otherwise contemplated by SECTION
6.06 hereof, from and after the Distribution Date, each of Tenneco, Industrial
Company and Shipbuilding Company shall (and shall cause each of the other
members of its respective Group over which it has legal or effective direct or
indirect control to) afford to each other party and its authorized
accountants, counsel and other designated representatives reasonable access
and duplicating rights (all such duplicating costs to be borne by the
requesting party) during normal business hours, subject to appropriate
restrictions for classified, privileged or confidential information, to the
personnel, properties, Books and Records and other data and information of
such party and each other member of such party's Group relating to operations
prior to the Distributions insofar as such access is reasonably required by
the other requesting party for the conduct of the requesting party's business
(but not for competitive purposes).
(b) PROVISION OF POST-DISTRIBUTION COMMISSION FILINGS. For a period of five
years following the Distribution Date, each of Tenneco, Industrial Company and
Shipbuilding Company shall (and shall cause each of the other members of its
respective Group over which it has legal or effective direct or indirect
control to) provide to the other, promptly following such time at which such
documents are filed with the Commission, all documents (other than documents
or portions thereof for which confidential treatment has been granted or a
request for confidential treatment is pending) filed by it and by each other
member of such party's Group with the Commission pursuant to the Securities
Act or the periodic and interim reporting requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder.
SECTION 6.03. REIMBURSEMENT; OTHER MATTERS. Except to the extent otherwise
contemplated hereby or by any Ancillary Agreement, a party providing Books and
Records or access to information to any other party (or such party's
representatives) under this ARTICLE VI shall be entitled to receive from such
other party, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such Books and Records or access to
information.
SECTION 6.04. CONFIDENTIALITY.
(a) GENERAL RESTRICTION ON DISCLOSURE. Each of Tenneco, Industrial Company
and Shipbuilding Company shall not (and shall not permit any other member of
its respective Group over which it has legal or effective direct or indirect
control to) use or permit the use of (without the prior written consent of the
other) and shall hold, and shall cause its consultants, advisors and other
representatives and any other member of its respective Group (over which it
has legal or effective direct or indirect control) to hold, in strict
confidence, all information concerning each other party hereto and the other
members of such other party's Group in its possession, custody or control to
the extent such information either
(i)relates to the period up to the Distribution Date,
(ii)relates to any Ancillary Agreement, or
(iii)is obtained in the course of performing services for the other party
pursuant to any Ancillary Agreement, and each party hereto shall not (and
shall cause each other member of its respective Group over which it has
legal or effective direct or indirect control not to) otherwise release or
disclose such information to any other Person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors,
without the prior written consent of the other affected party or parties,
unless compelled to disclose such information by judicial or administrative
process or unless such disclosure is required by Law and such party has
used commercially reasonable efforts to consult with the other affected
party or parties prior to such disclosure.
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(b) COMPELLED DISCLOSURE. To the extent that a party hereto is compelled by
judicial or administrative process to disclose such information under
circumstances in which any evidentiary privilege would be available, such
party agrees to assert such privilege in good faith prior to making such
disclosure. Each of the parties shall consult with each relevant other party
in connection with any such judicial or administrative process, including,
without limitation, in determining whether any privilege is available, and
shall not object to each such relevant party and its counsel participating in
any hearing or other proceeding (including, without limitation, any appeal of
an initial order to disclose) in respect of such disclosure and assertion of
privilege.
(c) EXCEPTIONS TO CONFIDENTIAL TREATMENT. Anything herein to the contrary
notwithstanding, no party hereto shall be prohibited from using or permitting
the use of, or required to hold in confidence, any information to the extent
that (i) such information has been or is in the public domain through no fault
of such party, (ii) such information is, after the Distribution Date, lawfully
acquired from other sources by such party, or (iii) this Agreement, any
Ancillary Agreement or any other agreement entered into pursuant hereto
permits the use or disclosure of such information by such party.
SECTION 6.05. WITNESS SERVICES. At all times from and after the Distribution
Date, each of Tenneco, Industrial Company and Shipbuilding Company shall use
its reasonable efforts to make available to each other party hereto, upon
reasonable written request, the officers, directors, employees and agents of
each member of its respective Group for fact finding, consultation or
interviews and as witnesses to the extent that:
(a) such persons may reasonably be required in connection with the
prosecution or defense of any Action in which the requesting party or any
member of its respective Group may from time to time be involved; and
(b) there is no conflict in the Action between the requesting party or
any member of its respective Group and the party to which a request is made
pursuant to this SECTION 6.05 or any member of such party's Group. Except
as otherwise agreed by the parties, a party providing witness services to
any other party under this Section shall be entitled to receive from the
recipient of such services, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses (but not salary expenses) and direct and indirect
costs of employees who participate in fact finding, consultation or
interviews or are witnesses, as are actually and reasonably incurred in
providing such fact finding, consulting, interviews or witness services by
the party providing such services.
SECTION 6.06. RETENTION OF RECORDS. Except when a longer period is required
by Law or is specifically provided for herein or in any Ancillary Agreement,
each party hereto shall cause the members of its Group over which it has legal
or effective direct or indirect control, to retain, for a period of at least
seven years following the Distribution Date, all material information
(including without limitation all material Books and Records) relating to such
Group and its operations prior to the Distribution Date. Notwithstanding the
foregoing, any party hereto may offer in writing to deliver to the other
parties all or a portion of such information as it relates to members of the
offering party's Group and, if such offer is accepted in writing within 90
days after receipt thereof, the offering party shall promptly arrange for the
delivery of such information (or copies thereof) to each accepting party (at
the expense of such accepting party). If such offer is not so accepted, the
offered information may be destroyed or otherwise disposed of by the offering
party at any time thereafter.
SECTION 6.07. PRIVILEGED MATTERS.
(a) PRIVILEGED INFORMATION. Each of the parties hereto shall, and shall
cause the members of its Group over which it has legal or effective direct
or indirect control to, use its reasonable efforts to maintain, preserve,
protect and assert all privileges including, without limitation, all
privileges arising under or relating to the attorney-client relationship
(including without limitation the attorney-client and attorney work product
privileges) that relate directly or indirectly to any member of any other
Group for any period prior to the Distribution Date ("PRIVILEGE" or
"PRIVILEGES"). Each of the parties hereto shall use its reasonable efforts
not to waive, or permit any member of its Group over which it has legal or
effective direct or indirect control to waive, any such Privilege that
could be asserted under applicable Law without the prior written consent of
the other parties. With respect to each party, the rights and obligations
created by this SECTION 6.07 shall apply to all information as to which a
member of any Group did assert or, but for the
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Distributions, would have been entitled to assert the protection of a
Privilege ("PRIVILEGED INFORMATION") including, but not limited to, any and
all information that either:
(i) was generated or received prior to the Distribution Date but
which, after the Distributions, is in the possession of a member of
another Group; or
(ii) is generated or received after the Distribution Date but refers
to or relates to Privileged Information that was generated or received
prior to the Distribution Date.
(b) PRODUCTION OF PRIVILEGED INFORMATION. Upon receipt by a party or any
member of its Group of any subpoena, discovery or other request that
arguably calls for the production or disclosure of Privileged Information,
or if a party or any member of its Group obtains knowledge that any current
or former employee of such party or any member of its Group has received
any subpoena, discovery or other request which arguably calls for the
production or disclosure of Privileged Information, such party shall
promptly notify the other parties of the existence of the request and shall
provide the other parties a reasonable opportunity to review the
information and to assert any rights it may have under this SECTION 6.07 or
otherwise to prevent the production or disclosure of Privileged
Information. No party will, or will permit any member of its Group over
which it has direct or indirect legal or effective control to, produce or
disclose any information arguably covered by a Privilege under this SECTION
6.07 unless:
(i) each other party has provided its express written consent to such
production or disclosure; or
(ii) a court of competent jurisdiction has entered an order which is
not then appealable or a final, nonappealable order finding that the
information is not entitled to protection under any applicable
privilege.
(c) NO WAIVER. The parties hereto understand and agree that the transfer
of any Books and Records or other information between any members of the
Energy Group, the Industrial Group, or the Shipbuilding Group shall be made
in reliance on the agreements of Tenneco, Industrial Company and
Shipbuilding Company, as set forth in SECTION 6.04 and SECTION 6.07 hereof,
to maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The Books and Records being transferred
pursuant to SECTION 6.01 hereof, the access to information being granted
pursuant to SECTION 6.02 hereof, the agreement to provide witnesses and
individuals pursuant to SECTION 6.05 hereof and the transfer of Privileged
Information to either party pursuant to this Agreement shall not be deemed
a waiver of any Privilege that has been or may be asserted under this
Section or otherwise.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY TENNECO. Except as otherwise specifically
set forth in any provision of this Agreement or of any Ancillary Agreement,
Tenneco shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless the Industrial Indemnitees and the Shipbuilding Indemnitees from
and against any and all Indemnifiable Losses of the Industrial Indemnitees and
the Shipbuilding Indemnitees, respectively, arising out of, by reason of or
otherwise in connection with either (i) the Energy Liabilities, or (ii) the
breach by Tenneco of any provision of this Agreement or any Ancillary
Agreement.
SECTION 7.02. INDEMNIFICATION BY INDUSTRIAL COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Industrial Company shall, to the fullest extent permitted by law,
indemnify, defend and hold harmless the Energy Indemnitees and the
Shipbuilding Indemnitees from and against any and all Indemnifiable Losses of
the Energy Indemnitees and the Shipbuilding Indemnitees, respectively, arising
out of, by reason of or otherwise in connection with either (i) the Industrial
Liabilities, or (ii) the breach by Industrial Company of any provision of this
Agreement or any Ancillary Agreement.
SECTION 7.03. INDEMNIFICATION BY SHIPBUILDING COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Shipbuilding Company shall, to the fullest
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entent permitted by law, indemnify, defend and hold harmless the Energy
Indemnitees and the Industrial Indemnitees from and against any and all
Indemnifiable Losses of the Energy Indemnitees and the Industrial Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with
either (i) the Shipbuilding Liabilities, or (ii) the breach by Shipbuilding
Company of any provision of this Agreement or any Ancillary Agreement. In
addition, and without limiting the generality of the foregoing indemnification
provisions of this SECTION 7.03, Shipbuilding Company shall, to the fullest
extent permitted by law, indemnify, defend and hold harmless the Industrial
Indemnitees and the Energy Indemnitees from and against any and all
Indemnifiable Losses of the Industrial Indemnitees and the Energy Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with any
matter, of whatever kind or nature, relating in any way to the commercial
ships commonly known as the "Double Eagle" product tankers, including without
limitation, (i) the design, engineering or construction of any of the Double
Eagle product tankers, (ii) the sale or other disposition of any of the Double
Eagle product tankers (or the sale or other disposition of any direct or
indirect equity interest in any of the Double Eagle product tankers), (iii)
the direct or indirect financing of the construction of any of the Double
Eagle product tankers or any other financing relating to any of the Double
Eagle product tankers, (iv) the direct or indirect equity investments in any
of the Double Eagle product tankers, (v) the purchase of raw materials and
other materials and services in connection with the design, construction or
engineering of any of the Double Eagle product tankers, (vi) the negotiation
of any contract for the construction of or financing for the construction of,
any of the Double Eagle product tankers, or (vii) the operation by any Person
whatsoever of any of the Double Eagle product tankers.
SECTION 7.04. LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that
any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other
Person (an "INDEMNITEE") pursuant to SECTION 7.01, SECTION 7.02 or SECTION
7.03 above, as applicable, shall be reduced (retroactively or prospectively)
by any Insurance Proceeds or other amounts actually recovered from third
parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses (except that nothing herein shall be construed as
requiring any Indemnitee in respect of any Shipbuilding Securities Liability
to file any claim for insurance). The existence of a claim by an Indemnitee
for insurance or against a third party in respect of any Indemnifiable Loss
shall not, however, delay any payment pursuant to the indemnification
provisions contained herein and otherwise determined to be due and owing by an
Indemnifying Party. Rather the Indemnifying Party shall make payment in full
of such amount so determined to be due and owing by it against an assignment
by the Indemnitee to the Indemnifying Party of the entire claim of the
Indemnitee for such insurance or against such third party. Notwithstanding any
other provisions of this Agreement, it is the intention of the parties hereto
that no insurer or any other third party shall be (i) entitled to a benefit it
would not be entitled to receive in the absence of the foregoing
indemnification provisions or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of
any Indemnifiable Losses and shall subsequently actually receive Insurance
Proceeds or other amounts in respect of such Indemnifiable Losses, then such
Indemnitee shall hold such Insurance Proceeds in trust for the benefit of such
Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received, up to
the aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
(b) FOREIGN CURRENCY ADJUSTMENTS. In the event that any indemnification
payment required to be made hereunder or under any Ancillary Agreement shall
be denominated in a currency other than U.S. Dollars, the amount of such
payment shall be translated into U.S. Dollars using the foreign exchange rate
for such currency determined in accordance with the following rules:
(i) with respect to any Indemnifiable Losses arising from the payment by
a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the foreign
exchange rate for such currency shall be determined as of the date on which
such financial institution shall have been reimbursed;
(ii) with respect to any Indemnifiable Losses covered by insurance, the
foreign exchange rate for such currency shall be the foreign exchange rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Losses with the Indemnifying Party; and
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(iii) with respect to any Indemnifiable Losses not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall
be determined as of the date that notice of the claim with respect to such
Indemnifiable Losses shall be given to the Indemnitee.
SECTION 7.05. PROCEDURES FOR INDEMNIFICATION. Except as otherwise
specifically provided in any Ancillary Agreement, including, without
limitation, the Tax Sharing Agreement and the Benefits Agreement:
(a) NOTICE OF THIRD PARTY CLAIMS. If a claim or demand is made against an
Indemnitee by any Person who is not a member of the Energy Group, Industrial
Group or Shipbuilding Group (a "THIRD PARTY CLAIM") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim promptly (and in any event within 15 business
days) after receipt by such Indemnitee of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the Indemnitee's right to indemnification hereunder except to the
extent the Indemnifying Party shall have been actually prejudiced as a result
of such failure (except that the Indemnifying Party shall not be liable for
any expenses incurred during the period in which the Indemnitee failed to give
such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within 15 business days) after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(b) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses, to assume the defense thereof
with counsel selected by the Indemnifying Party, which counsel shall be
reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so
elect to assume the defense of a Third Party Claim, the Indemnifying Party
shall not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof. If the
Indemnifying Party assumes such defense, the Indemnitee shall have the right
to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it
being understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Indemnitee for any period during which the
Indemnifying Party has failed to assume the defense of the Third Party Claim
(other than during the period prior to the time the Indemnitee shall have
given notice of the Third Party Claim as provided above). If the Indemnifying
Party so elects to assume the defense of any Third Party Claim, all of the
Indemnitees shall cooperate with the Indemnifying Party in the defense or
prosecution thereof. Notwithstanding the foregoing:
(i) the Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim either (A) seeks
an order, injunction or other equitable relief or relief for other than
money damages against the Indemnitee which the Indemnitee reasonably
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages; provided, however, that if such equitable
relief or other relief portion of the Third Party Claim can be so separated
from that for money damages, the Indemnifying Party shall be entitled to
assume the defense of the portion relating to money damages; or (B) relates
to or arises out of any Shipbuilding Securities Liability.
(ii) an Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the Indemnitee in defending such Third
Party Claim) if, in the Indemnitee's reasonable judgment, a conflict of
interest between such Indemnitee and such Indemnifying Party exists in
respect of such Third Party Claim; and
(iii) if at any time after assuming the defense of a Third Party Claim an
Indemnifying Party shall fail to prosecute or withdraw from the defense of
such Third Party Claim, the Indemnitee shall be entitled to resume the
defense thereof and the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel incurred by the Indemnitee in such
defense.
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(c) SETTLEMENT OF THIRD PARTY CLAIMS. Except as otherwise provided below in
this SECTION 7.05(C), or as otherwise specifically provided in any Ancillary
Agreement, including without limitation, the Tax Sharing Agreement and the
Benefits Agreement, if the Indemnifying Party has assumed the defense of any
Third Party Claim, then
(i) in no event will the Indemnitee admit any liability with respect to,
or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; provided, however, that the
Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
settlement, compromise or discharge would not otherwise adversely affect
the Indemnifying Party, and
(ii) the Indemnitee will agree to any settlement, compromise or discharge
of a Third Party Claim that the Indemnifying Party may recommend and that
by its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and releases the
Indemnitee completely in connection with such Third Party Claim and that
would not otherwise adversely affect the Indemnitee.
provided, however, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third
Party Claim shall not exceed the amount that would be required to be paid by
or on behalf of the Indemnifying Party in connection with such settlement,
compromise or discharge. If the Indemnifying Party has not assumed the defense
of a Third Party Claim then in no event shall the Indemnitee settle,
compromise or discharge such Third Party Claim without providing prior written
notice to the Indemnifying Party, which shall have the option within 15
business days following receipt of such notice to
(i) approve and agree to pay the settlement,
(ii) approve the amount of the settlement, reserving the right to contest
the Indemnitee's right to indemnity pursuant to this Agreement,
(iii) disapprove the settlement and assume in writing all past and future
responsibility for such Third Party Claim (including all of Indemnitee's
prior expenditures in connection therewith), or
(iv) disapprove the settlement and continue to refrain from participation
in the defense of such Third Party Claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness
of the settlement if the Indemnitee elects to proceed therewith.
In the event the Indemnifying Party does not respond to such written notice
from the Indemnitee within such 15 business-day period, the Indemnifying Party
shall be deemed to have elected option (i).
(d) OTHER CLAIMS. Any claim on account of an Indemnifiable Loss which does
not result from a Third Party Claim shall be asserted by written notice given
by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying
Party shall have a period of 15 business days after the receipt of such notice
within which to respond thereto. If such Indemnifying Party does not respond
within such 15 business-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 15 business-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party under applicable Law or under this
Agreement.
SECTION 7.06. INDEMNIFICATION PAYMENTS. Indemnification required by this
ARTICLE VII shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred.
SECTION 7.07. OTHER ADJUSTMENTS.
(a) ADJUSTMENTS FOR TAXES. The amount of any Indemnifiable Loss shall be:
(i) increased to take into account any net Tax cost actually incurred by
the Indemnitee arising from any payments received from the Indemnifying
Party (grossed up for such increase); and
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(ii) reduced to take account of any net Tax benefit actually realized by
the Indemnitee arising from the incurrence or payment of any such
Indemnifiable Loss.
In computing the amount of such Tax cost or Tax benefit, the Indemnitee shall
be deemed to recognize all other items of income, gain, loss, deduction or
credit before recognizing any item arising from the receipt of any payment
with respect to an Indemnifiable Loss or the incurrence or payment of any
Indemnifiable Loss.
(b) REDUCTIONS FOR SUBSEQUENT RECOVERIES OR OTHER EVENTS. In addition to any
adjustments required pursuant to SECTION 7.04 hereof or SECTION 7.07(A) above,
if the amount of any Indemnifiable Losses shall, at any time subsequent to any
indemnification payment made by the Indemnifying Party pursuant to this
ARTICLE VII, be reduced by recovery, settlement or otherwise, the amount of
such reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnifying Party, up to the
aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
SECTION 7.08. OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of
indemnification set forth in this ARTICLE VII shall:
(i) also apply to any and all Third Party Claims that allege that any
Indemnitee is independently, directly, vicariously or jointly and severally
liable to such third party;
(ii) to the extent permitted by applicable law, apply even if the
Indemnitee is partially negligent or otherwise partially culpable or at
fault, whether or not such liability arises under any doctrine of strict
liability; and
(iii) be in addition to any liability or obligation that an Indemnifying
Party may have other than pursuant to this Agreement.
SECTION 7.09. SURVIVAL OF INDEMNITIES. The obligations of Tenneco,
Industrial Company and Shipbuilding Company under this ARTICLE VII shall
survive the sale or other transfer by any of them of any assets or businesses
or the assignment by any of them of any Liabilities, with respect to any
Indemnifiable Loss of any Indemnitee related to such assets, businesses or
Liabilities.
SECTION 7.10. REMEDIES CUMULATIVE. The remedies provided in this ARTICLE VII
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
SECTION 7.11. COOPERATION OF THE PARTIES WITH RESPECT TO ACTIONS AND THIRD
PARTY CLAIMS.
(a) IDENTIFICATION OF PARTY IN INTEREST. Any party to this Agreement that
has responsibility for an Action or Third Party Claim shall identify itself as
the true party in interest with respect to such Action or Third Party Claim
and shall use its commercially reasonable efforts to obtain the dismissal of
any other party to this Agreement from such Action or Third Party Claim.
(b) DISPUTES REGARDING RESPONSIBILITY FOR ACTIONS AND THIRD PARTY CLAIMS. If
there is uncertainty or disagreement concerning which party to this Agreement
has responsibility for any Action or Third Party Claim, the following
procedure shall be followed in an effort to reach agreement concerning
responsibility for such Action or Third Party Claim:
(i) The parties in disagreement over the responsibility for an Action or
Third Party Claim shall exchange brief written statements setting forth
their position concerning which party has responsibility for the Action or
Third Party Claim in accordance with the provisions of this ARTICLE VII.
These statements shall be exchanged within 5 days of a party putting
another party on written notice that the other party is or may be
responsible for the Action or Third Party Claim.
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(ii) If within 5 days of the exchange of the written statement of each
party's position agreement is not reached on responsibility for the Action
or Third Party Claim, the General Counsel for each of the parties in
disagreement over responsibility for the Action or Third Party Claim shall
speak either by telephone or in person to attempt to reach agreement on
responsibility for the Action or Third Party Claim.
(c) EFFECT OF FAILURE TO FOLLOW PROCEDURE. Failure to follow the procedure
set forth in clause (b) above shall not affect the rights and responsibilities
of the parties as established by the other provisions of this ARTICLE VII.
(d) EXCHANGE OF INFORMATION. In connection with the handling of current or
future Actions or Third Party Claims, the parties may determine that it is in
their mutual interest to exchange privileged or confidential information. If
so, the parties agree to discuss whether it is in their mutual interest to
enter into a joint defense agreement or information exchange agreement to
maintain the confidentiality of their communications and to permit them to
maintain the confidentiality of proprietary information or information that is
otherwise confidential or subject to an applicable privilege, including but
not limited to the attorney-client, work product, executive, deliberative
process, or self-evaluation privileges.
SECTION 7.12. CONTRIBUTION. To the extent that any indemnification provided
for under SECTION 7.01, SECTION 7.02 or SECTION 7.03 is unavailable to an
Indemnified Party or is insufficient in respect of any the Indemnifiable
Lossess of such Indemnified Party then the Indemnifying Party under such
Section, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Indemnifiable Losses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Indemnifying Party on the one
hand and the Indemnified Party on the other hand from the transaction or other
matter which resulted in the Indemnifiable Losses or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the action, inaction, statements or omissions that
resulted in such Indemnifiable Losses as well as any other relevant equitable
considerations.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
the Exhibits and Schedules hereto, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. In the event of
any inconsistency between this Agreement and any Schedule or Exhibit hereto,
the Schedule or Exhibit, as the case may be, shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to
the extent that there shall be a conflict between the provisions of this
Agreement and the provisions of any Ancillary Agreement, such Ancillary
Agreement shall control.
SECTION 8.02. ANCILLARY AGREEMENTS. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically
and expressly covered by the Ancillary Agreements.
SECTION 8.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided
herein, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
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SECTION 8.05. RESPONSIBILITY FOR EXPENSES.
(a) EXPENSES INCURRED ON OR PRIOR TO DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, all costs and expenses incurred on or
prior to the Distribution Date (whether or not paid on or prior to the
Distribution Date) in connection with the preparation, execution, delivery and
implementation of this Agreement and any Ancillary Agreement, the Information
Statements and the Distribution, and the consummation of the transactions
contemplated hereby and thereby shall be charged to and paid by Tenneco;
provided, however, that (i) such amounts shall be included in the calculation
of the Actual Energy Debt Amount to the extent expressly provided in the Debt
and Cash Allocation Agreement, and (ii) each of Industrial Company and
Shipbuilding Company shall be solely responsible and liable for any expenses,
fees, or other costs that it separately and directly incurs in connection with
any of the transactions contemplated under this Agreement or any of the
Ancillary Agreements.
(b) EXPENSES INCURRED OR ACCRUED AFTER DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses first incurred or accrued after the Distribution Date.
(c) ENVIRONMENTAL EXPENSES. Notwithstanding the provisions of SECTION
8.05(A) and SECTION 8.05(B) above, expenses and other costs incurred in
connection with compliance with any Environmental Laws applicable to the
transactions contemplated hereby shall be paid by the party that after the
Distribution Date will, or that this Agreement contemplates will, own the
assets or operate the business subject to such Environmental Laws.
SECTION 8.06. NOTICES. All notices and other communications to a party
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to such
party (and will be deemed given on the date on which the notice is received by
such party) at the address for such party set forth below (or at such other
address for the party as the party shall, from time to time, specify by like
notice to the other parties):
If to Tenneco, at:1010 Milam Street
Houston, Texas 77002
Telecopier:
Attention: Corporate Secretary
If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Telecopier:
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Telecopier:
Attention: Corporate Secretary
SECTION 8.07. WAIVERS. The failure of any party hereto to require strict
performance by any other party of any provision in this Agreement will not
waive or diminish that party's right to demand strict performance thereafter
of that or any other provision hereof.
SECTION 8.08. AMENDMENTS. Subject to the terms of SECTION 8.11 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the parties hereto; provided, however, any such amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior consent of Acquiror unless such
modifications or amendments do not, individually or in the aggregate,
adversely affect the Energy Business (other than to a de minimis extent) or
materially delay or prevent the consummation of the Merger.
34
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SECTION 8.09. ASSIGNMENT. This Agreement shall be assignable in whole in
connection with a merger or consolidation or the sale of all or substantially
all the assets of a party hereto so long as the resulting, surviving or
transferee entity assumes all the obligations of the relevant party hereto by
operation of law or pursuant to an agreement in form and substance reasonably
satisfactory to the other parties to this Agreement. Otherwise this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the prior written consent of the others, and any attempt
to assign any rights or obligations arising under this Agreement without such
consent shall be void.
SECTION 8.10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
SECTION 8.11. TERMINATION. This Agreement may be terminated and the
Distributions may be amended, modified or abandoned at any time prior to the
Distributions by and in the sole discretion of Tenneco without the approval of
Industrial Company or Shipbuilding Company or the stockholders of Tenneco;
provided, however, any such termination, abandonment, amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior written consent of Acquiror
unless, in the case of a modification or amendment only, such modification or
amendment does not, individually or in the aggregate, adversely affect the
Energy Business (other than to a de minimis extent) or materially delay or
prevent the consummation of the Merger. In the event of such termination, no
party shall have any liability of any kind to any other party or any other
person. After the Distributions, this Agreement may not be terminated except
by an agreement in writing signed by all of the parties hereto; provided,
however, that ARTICLE VIII shall not be terminated or amended after the
Distributions in respect of the third party beneficiaries thereto without the
consent of such persons. Nothing in this SECTION 8.11 shall relieve Tenneco of
its obligations, under Section 6.13 of the Merger Agreement.
SECTION 8.12. THIRD PARTY BENEFICIARIES. Except as provided in ARTICLE VII
hereof (relating to Indemnitees), this Agreement is solely for the benefit of
the parties hereto, the members of their respective Groups and Affiliates and
the Acquiror, after giving effect to the Distributions, and should not be
deemed to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.13. ATTORNEY FEES. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other parties hereto for and against
all out-of-pocket expenses, including, without limitation, reasonable legal
fees, incurred by such other party by reason of the enforcement and protection
of its rights under this Agreement. The payment of such expenses is in
addition to any other relief to which such other party may be entitled
hereunder or otherwise.
SECTION 8.14. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION 8.15. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
that there is no adequate remedy at law for the failure by such parties to
comply with the provisions of this Agreement and that such failure would cause
immediate harm that would not be adequately compensable in damages.
Accordingly, each of the parties hereto agrees that their agreements contained
herein may be specifically enforced without the requirement of posting a bond
or other security, in addition to all other remedies available to the parties
hereto under this Agreement.
SECTION 8.17. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES
AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW
35
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OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO
THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE
STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH
PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND
(iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL
HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY
WITHIN THE STATE OF DELAWARE.
SECTION 8.18. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions, the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 8.19. SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantee the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
SECTION 8.20. SHIPBUILDING HEDGING TRANSACTIONS. Notwithstanding any other
provisions of this Agreement or any other document or instrument (including
any of the other Ancillary Agreements), any gains or losses relating to
hedging or similar transactions undertaken by Shipbuilding Company or any
other member of the Shipbuilding Group which are in effect on the date hereof
or at any time hereafter through the Distribution Date shall be for the
account of Shipbuilding Company, and, without limiting the generality of the
foregoing, (i) Shipbuilding Company and the other members of the Group shall
finance and fund any such losses through their own finance facilities, and
(ii) no cash or debt relating to any such gains or losses shall be taken into
account in making any of the determinations under the Debt and Cash Allocation
Agreement, including determinations regarding the amount of the Allocated
Shipbuilding Debt and/or the Guaranteed Shipbuilding Cash Amount.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
/s/ Mark A. McCollum
By __________________________________
Name: Mark A. McCollum
Title: Vice President
NEW TENNECO INC.
/s/ Mark A. McCollum
By __________________________________
Name: Mark A. McCollum
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
/s/ David J. Anderson
By __________________________________
Name: David J. Anderson
Title: Senior Vice President
36
<PAGE>
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I DEFINITIONS................................................. 2
ARTICLE II THE MERGER.................................................. 7
2.1 Merger...................................................... 7
2.2 Effects of the Merger....................................... 7
2.3 Certificate of Incorporation and Bylaws..................... 8
2.4 Directors................................................... 8
2.5 Conversion of Shares........................................ 8
2.6 Exchange of Certificates.................................... 9
2.7 New Preferred Stock......................................... 11
ARTICLE III CLOSING AND FILING.......................................... 11
3.1 Closing..................................................... 11
3.2 Effective Time.............................................. 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TENNECO................... 12
4.1 Organization and Existence.................................. 12
4.2 Capitalization.............................................. 12
4.3 Authority and Approval...................................... 12
4.4 Financial Statements........................................ 13
4.5 Consents and Approvals; No Violations....................... 13
4.6 Litigation.................................................. 14
4.7 Tenneco SEC Documents; Accuracy of Information.............. 14
4.8 No Material Adverse Effect.................................. 14
4.9 Advisors.................................................... 14
4.10 Opinion of Financial Advisor................................ 14
4.11 Amendments to Rights Agreement.............................. 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUBSIDIARY... 15
5.1 Organization and Existence.................................. 15
5.2 Capitalization.............................................. 15
5.3 Authority and Approval...................................... 16
5.4 Financial Statements........................................ 16
5.5 Consent and Approvals; No Violation......................... 16
5.6 Litigation.................................................. 17
5.7 Acquiror SEC Documents; Accuracy of Information............. 17
5.8 No Material Adverse Effect.................................. 17
5.9 Advisors.................................................... 17
5.10 Opinion of Financial Advisor................................ 17
5.11 Due Authorization........................................... 17
5.12 No Active Business.......................................... 17
5.13 Ownership of Tenneco Stock.................................. 17
ARTICLE VI COVENANTS OF THE PARTIES.................................... 18
6.1 Conduct of Tenneco and its Subsidiaries..................... 18
6.2 Conduct of the Business of Acquiror and its Subsidiaries.... 21
6.3 Access to Information; Confidentiality...................... 22
6.4 Directors' and Officers' Indemnification and Insurance...... 22
6.5 Notification of Certain Matters............................. 24
6.6 Tax Treatment............................................... 25
6.7 Registration Statement; Joint Proxy Statement; NPS
Materials; Tender and Exchange Materials................... 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
6.8 Stockholders' Meetings..................................... 28
6.9 Further Action; Reasonable Best Efforts.................... 28
6.10 Public Announcements....................................... 29
6.11 Listing of Acquiror Common Stock and Depositary Shares..... 30
6.12 Rights Agreement........................................... 30
6.13 The Spinoffs............................................... 30
6.14 Antitrust Matters.......................................... 30
6.15 Employee Matters........................................... 31
6.16 Debt Realignment........................................... 31
6.17 No Solicitations........................................... 31
6.18 Performance of Agreement and Distribution Agreement........ 31
6.19 Affiliates of Tenneco...................................... 32
6.20 Antitakeover Statutes...................................... 32
6.21 Equity Issuance by Acquiror................................ 32
6.22 Ruhrgas AG................................................. 32
6.23 Additional Covenants of Acquiror........................... 32
ARTICLE VII CONDITIONS PRECEDENT....................................... 34
Conditions to Obligations of Each Party to Effect the
7.1 Merger..................................................... 34
Additional Conditions to Obligations of Acquiror and
7.2 Subsidiary................................................. 35
7.3 Additional Conditions to Obligations of Tenneco............ 36
ARTICLE VIII TERMINATION................................................ 36
8.1 Grounds for Termination.................................... 36
8.2 Effect of Termination...................................... 38
8.3 Waiver..................................................... 38
ARTICLE IX EXTENT AND SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS.................................. 38
9.1 Scope of Representations................................... 38
9.2 Survival................................................... 38
ARTICLE X MISCELLANEOUS.............................................. 39
10.1 Expenses................................................... 39
10.2 Notices.................................................... 40
10.3 Remedies................................................... 40
10.4 Consent to Amendments...................................... 40
10.5 Successors and Assignors................................... 40
10.6 Severability............................................... 40
10.7 Counterparts............................................... 40
10.8 Descriptive Headings....................................... 40
10.9 No Third-Party Beneficiaries............................... 41
10.10 Entire Agreement........................................... 41
10.11 Construction............................................... 41
10.12 Incorporation of Exhibits.................................. 41
10.13 Governing Law.............................................. 41
</TABLE>
ii
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EXHIBITS
EXHIBIT A Distribution Agreement
EXHIBIT B Certificate of Designation Respecting Acquiror Preferred Stock
EXHIBIT C Debt Realignment Plan
EXHIBIT D [Intentionally Omitted]
EXHIBIT E Certificate of Designation Respecting New Preferred Stock
EXHIBIT F Pro Forma Financial Information Concerning the Energy Business
EXHIBIT G Certain Permitted Actions, Transactions and Other Matters
EXHIBIT H Text of Section 14 of Article IV of the By-Laws of the
Surviving Corporation
EXHIBIT I Certain Deferred Intercompany Gains
EXHIBIT J Representations in Connection with IRS Ruling Letter
EXHIBIT K Benefits for Employees of the Energy Business
EXHIBIT LGuarantees
EXHIBIT M Form of Rule 145 Letter
EXHIBIT N Form of Jenner & Block Tax Opinion
EXHIBIT O Form of Depositary Agreement
ANNEX 1 Form of Amendment to Tenneco Certificate of Incorporation
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER is entered into as of
June 19, 1996 (the "AGREEMENT EFFECTIVE DATE"), by and among Tenneco Inc., a
Delaware corporation ("TENNECO"), El Paso Natural Gas Company, a Delaware
corporation ("ACQUIROR"), and El Paso Merger Company, a Delaware corporation
and an indirect wholly-owned subsidiary of Acquiror ("SUBSIDIARY").
W I T N E S S E T H:
WHEREAS, the board of directors of Tenneco has approved a plan of
distribution set forth in the form of agreement attached hereto as EXHIBIT A
(which, together with any exhibits, schedules or attachments thereto, is
hereinafter referred to as the "DISTRIBUTION AGREEMENT") which will be entered
into prior to the Effective Time (as defined below) and pursuant to which,
prior to the Effective Time,
(i) Tenneco and its subsidiaries will, through various intercompany
transfers and distributions, restructure, divide and separate their
existing automotive, packaging and shipbuilding businesses so that all of
the assets, liabilities and operations of
(a) the automotive and packaging businesses will be owned, directly
and indirectly, by a wholly-owned subsidiary of Tenneco (the
"INDUSTRIAL SUBSIDIARY"), and
(b) the shipbuilding business will be owned, directly and indirectly,
by a wholly-owned subsidiary of Tenneco (the "SHIPBUILDING
SUBSIDIARY"), and
(ii) all of the shares of capital stock of each of the Industrial
Subsidiary and the Shipbuilding Subsidiary will be distributed on a pro
rata basis as a dividend to the holders of Tenneco's issued and outstanding
common stock (the "SPINOFFS");
WHEREAS, Acquiror (which is the ultimate parent company of its consolidated
group) desires to acquire Tenneco and its direct and indirect subsidiaries
remaining immediately following the Spinoffs pursuant to the merger of
Subsidiary with and into Tenneco (the "MERGER"), with Tenneco surviving as an
indirect subsidiary of Acquiror (the "SURVIVING CORPORATION");
WHEREAS, the respective boards of directors of Acquiror, Subsidiary and
Tenneco, deeming the Merger to be advisable and in the best interests of their
respective stockholders, have authorized and approved the execution and
delivery of this Agreement and the performance of their respective obligations
hereunder;
WHEREAS, for federal income tax purposes, the parties hereto intend that
(i) the Spinoffs will qualify as tax-free distributions within the
meaning of Section 355 of the Internal Revenue Code of 1986, as amended
(the "CODE"), and
(ii) the Merger will be treated as a reorganization pursuant to the
provisions of Section 368(a)(1)(B) of the Code;
WHEREAS, this Agreement is intended to be, and is adopted as, a plan of
reorganization.
WHEREAS, the parties entered into an Agreement and Plan of Merger (the
"PRIOR AGREEMENT") as of June 19, 1996, and now desire to amend and restate
the Prior Agreement in its entirety effective as of the Agreement Effective
Date.
NOW, THEREFORE, in consideration of the premises and of the mutual and
dependent promises, representations, warranties and covenants herein
contained, the parties agree as follows:
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ARTICLE I
DEFINITIONS
Unless otherwise defined herein or unless the context otherwise requires,
the following terms shall have the meanings set forth below:
"ACQUIROR COMMON STOCK" means the Common Stock, par value $3.00 per
share, of Acquiror.
"ACQUIROR PREFERRED STOCK" means the series of voting preferred stock of
Acquiror to be designated as Adjustable Rate Cumulative Preferred Stock and
described in the form of Certificate of Designation therefor attached
hereto as EXHIBIT B; provided, however, that if either Tenneco or Acquiror
determines, in good faith after consultation with the other party and its
advisors, that there exists a reasonable likelihood that the issuance of
Acquiror Preferred Stock (or Depositary Shares (as defined below) in
respect thereof) in connection with the Merger would cause the Merger to be
taxable to the stockholders of Tenneco, Acquiror shall have the absolute
obligation (at Acquiror's sole cost) to amend, if legally possible, the
terms of the Acquiror Preferred Stock in a manner reasonably acceptable to
Tenneco so that the issuance would not cause the Merger to be so taxable.
In the event that the terms of the Acquiror Preferred Stock are amended
pursuant to the proviso in the immediately preceding sentence, the parties
hereto hereby agree, if required by applicable Law, they shall (i) prepare
and execute an appropriate amendment to this Agreement reflecting said
amendment to the terms of the Acquiror Preferred Stock, (ii) subject to
SECTIONS 6.7(A) and 6.8 hereof, prepare, file and mail an appropriate
supplement to the Joint Proxy Statement reflecting the terms of this
Agreement and of the Merger as so amended, and (iii) if such amendment is
made after the approval of the Merger by the stockholders of Tenneco,
resubmit for the approval of the stockholders of Tenneco this Agreement and
the Merger as so amended.
"ACQUIROR COMMON STOCKHOLDERS' MEETING" has the meaning set forth in
SECTION 6.8 hereof.
"ACQUIROR SEC DOCUMENTS" means all filings made by Acquiror or its
subsidiaries, including Subsidiary, with the SEC from January 1, 1995
through the Agreement Effective Date, including notes, schedules,
amendments and exhibits thereto.
"ACQUIROR STOCK" means the Acquiror Common Stock and the Acquiror
Preferred Stock.
"ACQUIROR STOCK FUND" has the meaning set forth in SECTION 2.6(A) hereof.
"ACQUISITION TRANSACTION" has the meaning set forth in SECTION 6.17
hereof.
"ADJUSTED COMMON EQUITY CONSIDERATION" means the product of (i) the
Average Acquiror Price, and (ii) the quotient determined by dividing the
Common Equity Consideration by the Average Acquiror Common Equity Price.
"AFFILIATE" means, when used with respect to a specified Person, another
Person that directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
"AGREEMENT" means this Amended and Restated Agreement and Plan of Merger,
as the same may be amended from time to time in accordance with the terms
hereof.
"AGREEMENT EFFECTIVE DATE" means June 19, 1996, the date on which the
Prior Agreement was entered into.
"ALLOCATION AGREEMENT" means the Debt and Cash Allocation Agreement
included in the Distribution Agreement as an exhibit.
"APPRAISAL CONSIDERATION" has the meaning set forth in SECTION 2.6(H)
hereof.
"ACQUIROR PRICE" means the closing price of the Acquiror Common Stock on
the NYSE Composite Transactions Reporting System, as reported in The Wall
Street Journal, for the trading day immediately
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preceding the day on which the holders of Tenneco Stock entitled to vote at
the Tenneco Stockholders' Meeting vote with respect to Merger; provided,
however, if there is no closing price for Acquiror Common Stock on such
trading day, the Acquiror Price shall be the closing price for Acquiror
Common Stock on the next preceding trading day on which a trade of Acquiror
Common Stock occurred.
"AVERAGE ACQUIROR PRICE" means the average of the closing prices of the
Acquiror Common Stock on the NYSE Composite Transactions Reporting System,
as reported in The Wall Street Journal, for the Average Period (but subject
to correction for typographical or other manifest errors in such
reporting), rounded to four decimal places.
"AVERAGE ACQUIROR COMMON EQUITY PRICE" means the Average Acquiror Price;
provided that if the Average Acquiror Price is greater than $38.3625, the
Average Acquiror Common Equity Price shall be $38.3625 and if the Average
Acquiror Price is less than $31.3875, the Average Acquiror Common Equity
Price shall be $31.3875; provided further, however, that the aforesaid
dollar amounts shall be subject to appropriate adjustments, reasonably
satisfactory to Tenneco and Acquiror in all respects, to reflect any
recapitalization, reclassification, stock split, combination of shares,
issuance of equity (other than issuances of shares pursuant to the exercise
of employee stock options) or options for less than full market value or
the like of or involving Acquiror.
"AVERAGE PERIOD" means the 20 trading days on the NYSE immediately
preceding the second trading day prior to the Effective Time.
"BENEFITS AGREEMENT" means the Benefits Agreement attached to the
Distribution Agreement as Exhibit A.
"BLACK-OUT PERIOD" means the Average Period and the 20 trading days
preceding the Average Period.
"CERTIFICATES" has the meaning set forth in SECTION 2.6(B) hereof.
"CLAIM" has the meaning set forth in SECTION 6.4(B) hereof.
"CLAIMS ADMINISTRATION" means the handling of claims made under the D&O
Policies, including the management, defense and settlement of claims.
"CLOSING" has the meaning set forth in SECTION 3.1 hereof.
"CLOSING DATE" has the meaning set forth in SECTION 3.1 hereof.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON CONVERSION NUMBER CASE A" means the number of shares (rounded to
the nearest one-thousandth of a share) of Acquiror Common Stock to be
issued upon conversion of a single share of Tenneco Common Stock at the
Effective Time pursuant to SECTION 2.5 hereof and the other terms and
conditions of this Agreement, determined by dividing the Common Equity
Consideration by the Average Acquiror Common Equity Price and dividing the
result by the number of shares of Tenneco Common Stock outstanding
immediately prior to the Effective Time as certified to Acquiror by
Tenneco's principal registrar and transfer agent, which are to be converted
into the right to receive Acquiror Stock pursuant to the provisions of
SECTION 2.5 hereof.
"COMMON CONVERSION NUMBER CASE B" means the number of shares (rounded to
the nearest one-thousandth of a share) of Acquiror Common Stock to be
issued upon conversion of a single share of Tenneco Common Stock at the
Effective Time pursuant to SECTION 2.5 hereof and the other terms and
conditions of this Agreement, determined by dividing (x) the excess of (i)
7,000,000 over (ii) the number of shares of Acquiror Common Stock issued in
exchange for shares of $4.50 Preferred Stock and $7.40 Preferred Stock in
the Merger by (y) the number of shares of Tenneco Common Stock outstanding
immediately prior to the Effective Time as certified to Acquiror by
Tenneco's principal registrar and transfer agent, which are to be converted
into the right to receive Acquiror Stock pursuant to the provisions of
SECTION 2.5 hereof.
"COMMON EQUITY CONSIDERATION" means the Equity Consideration less the
Preferred Stock Amount.
"CORPORATE RESTRUCTURING TRANSACTIONS" has the meaning ascribed to that
term in the Distribution Agreement.
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"DEBT" means any indebtedness representing an obligation for the
repayment of money borrowed by a subject Person (including short-term debt
and current maturities of long-term obligations), and any accrued but
unpaid or accreted interest related to such indebtedness.
"DEBT REALIGNMENT" means the plan for repayment, exchange and/or
modification of the indebtedness of Tenneco, as described in EXHIBIT C
attached hereto.
"DEPOSITARY" means The First National Bank of Boston, N.A.
"DEPOSITARY AGREEMENT" means the Depositary Agreement attached hereto as
EXHIBIT O.
"DEPOSITARY RECEIPT" means a depositary receipt issued by the Depositary
to evidence a Depositary Share.
"DEPOSITARY SHARE" means a unit representing a one twenty-fifth
fractional interest in a whole share of Acquiror Preferred Stock which
shall be evidenced by a Depositary Receipt issued to the Person entitled to
such fractional interest and which shall entitle the holder thereof,
pursuant to the Depositary Agreement, to rights equivalent to those of a
holder of a whole share of Acquiror Preferred Stock (to the extent of such
one twenty-fifth fractional interest therein).
"DISSENTING SHARES" has the meaning set forth in SECTION 2.6(H) hereof.
"DGCL" means the Delaware General Corporation Law, as amended.
"D&O POLICIES" has the meaning set forth in SECTION 6.4(D) hereof.
"EFFECTIVE TIME" has the meaning set forth in SECTION 3.2 hereof.
"ENERGY ASSETS" has the meaning ascribed to that term in the Distribution
Agreement.
"ENERGY BUSINESS" has the meaning ascribed to that term in the
Distribution Agreement.
"ENERGY GROUP" has the meaning ascribed to that term in the Distribution
Agreement.
"ENERGY SUBSIDIARIES" means the direct and indirect consolidated
subsidiaries of Tenneco immediately following the Spinoffs, including the
Major Subsidiaries.
"EQUITY CONSIDERATION" means $750,000,000.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXCHANGE AGENT" means First Chicago Trust Company of New York, or such
other trust company or bank designated by Acquiror and acceptable to
Tenneco, who shall act as agent for the holders of Tenneco Stock in
connection with the Merger to receive the Exchange Fund (as defined in
SECTION 2.6(A) hereof).
"$4.50 PREFERRED STOCK" means the $4.50 Cumulative Preferred Stock of
Tenneco.
"$4.50 PREFERRED CONVERSION NUMBER" means the number of shares (rounded
to the nearest one-thousandth of a share) of Acquiror Common Stock to be
issued upon conversion of a single share of $4.50 Preferred Stock at the
Effective Time pursuant to SECTION 2.5 and the other terms and conditions
of this Agreement, determined by dividing (i) $115, by (ii) the Acquiror
Price.
"GAAP" means United States generally accepted accounting principles and
practices, as in effect on the date of this Agreement, as promulgated by
the Financial Accounting Standards Board and its predecessors.
"GAINS TAX" has the meaning set forth in SECTION 10.1(C) hereof.
"GOVERNMENTAL AUTHORITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
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"HIGHER PROPOSAL" has the meaning set forth in SECTION 6.17 hereof.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTIES" has the meaning set forth in SECTION 6.4(B) hereof.
"INDUSTRIAL BUSINESS" has the meaning ascribed to that term in the
Distribution Agreement.
"INDUSTRIAL GROUP" has the meaning ascribed to that term in the
Distribution Agreement.
"INSURANCE ADMINISTRATION" means, with respect to a D&O Policy, the
accounting for premiums, defense costs, indemnity payments, deductibles and
retentions, as appropriate, under the terms and conditions of such D&O
Policy, and the distribution of Insurance Proceeds.
"INSURANCE PROCEEDS" means, with respect to an insured party, those
monies, net of any applicable premium adjustment, deductible, retention or
similar cost paid or held by or for the benefit of such insured party,
which are either
(i) received by an insured from an insurance carrier, or
(ii) paid by an insurance carrier on behalf of an insured.
"IRS RULING LETTER" has the meaning set forth in SECTION 7.1(G) hereof.
"JOINT PROXY STATEMENT" has the meaning set forth in SECTION 6.7 hereof.
"LAW" means any constitutional provision, statute, law, ordinance, rule,
regulation, permit, decree, injunction, judgment, order, decree, ruling,
determination, finding or writ of any Governmental Authority.
"LAZARD" means Lazard Freres & Co. LLC.
"MAJOR SUBSIDIARIES" means the following subsidiaries of Tenneco after
giving effect to the Spinoffs:
<TABLE>
<CAPTION>
JURISDICTION
NAME OF ORGANIZATION
---- ---------------
<S> <C>
Tennessee Gas Pipeline Company Delaware
Tenneco Energy Resources Corporation Delaware
Tenneco Gas Australia, Inc. Delaware
Tenneco Corporation Delaware
Tenneco Ventures Corporation Delaware
Midwestern Gas Transmission Company Delaware
East Tennessee Natural Gas Company Tennessee
</TABLE>
"MATERIAL ADVERSE EFFECT ON ACQUIROR" means an event, change or effect
that:
(i) is or is reasonably likely to be materially adverse to the
business, operations, properties or financial condition of Acquiror and
its consolidated subsidiaries, taken as a whole; or
(ii) prevents Acquiror or Subsidiary from consummating the
transactions contemplated hereby, including the Merger, prior to the
date specified in SECTION 8.1(II) hereof.
"MATERIAL ADVERSE EFFECT ON TENNECO" means an event, change or effect
that:
(i) is or is reasonably likely to be materially adverse to the
business, operations, properties or financial condition of the Energy
Business, taken as a whole; or
(ii) prevents Tenneco from consummating the transactions contemplated
hereby, including the Spinoffs and the Merger, prior to the date
specified in SECTION 8.1(II) hereof.
"NEW CERTIFICATES" has the meaning set forth in SECTION 2.6(A) hereof.
"NEW PREFERRED STOCK" means the series of junior preferred stock of
Tenneco to be issued prior to the Closing Date as set forth in SECTION
6.1(D) hereof and described in the form of Certificate of Designation
therefor attached hereto as EXHIBIT E.
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"NPS MATERIALS" means any registration statement, private placement
memorandum and/or other documents or filings prepared by or on behalf of
Tenneco or Acquiror (or their Affiliates or representatives) and
(i) distributed to prospective purchasers or other receivers of New
Preferred Stock, or
(ii) filed with the Commission or other Governmental Authority, or
the NYSE or other stock exchange, relating to the issuance of New
Preferred Stock.
"NPS VALUE" means the market value of the New Preferred Stock issued and
outstanding at and as of the Effective Time, as jointly determined by the
financial advisors identified in SECTIONS 4.10 and 5.10 below on the
Closing Date (or, if they are unable to so agree, by Morgan Stanley & Co.
Incorporated later on the Closing Date). If the New Preferred Stock is
issued pursuant to a public issuance or private placement (as opposed to a
stock dividend), the gross proceeds of the issuance or placement shall be
presumptive evidence of the NPS Value (subject only to adjustment for
changes in value, if any, occurring between the date of the issuance or
placement and the Closing Date).
"NYSE" means the New York Stock Exchange.
"1981 STOCK PLAN" means the 1981 Tenneco Inc. Key Employee Stock Option
Plan.
"1994 STOCK PLAN" means the 1994 Tenneco Inc. Stock Ownership Plan.
"OPTION PLANS" means the 1981 Stock Plan and the 1994 Stock Plan.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or
other entity, or any government, or any agency or political subdivision
thereof.
"PREFERRED STOCK AMOUNT" means an amount equal to the Acquiror Price
times the number of shares of Acquiror Common Stock issued to the holders
of the $4.50 Preferred Stock and the $7.40 Preferred Stock pursuant to the
terms of SECTION 2.5 hereof.
"PREFERRED STOCK CONVERSION NUMBER" means the result obtained by (x)
subtracting from the Adjusted Common Equity Consideration the product of
(i) the excess of (A) 7,000,000 over (B) the number of shares of Acquiror
Common Stock issued in exchange for shares of $4.50 Preferred Stock and
$7.40 Preferred Stock in the Merger and (ii) the Average Acquiror Price,
(y) dividing the result obtained pursuant to clause (x) by the "Assigned
Value" (as set forth in EXHIBIT B attached hereto) (being the liquidation
value) of the Acquiror Preferred Stock and (z) dividing the result obtained
pursuant to clause (y) by the number of shares of Tenneco Common Stock
outstanding immediately prior to the Effective Time as certified to
Acquiror by Tenneco's principal registrar and transfer agent.
"RIGHTS" shall mean the preferred stock purchase rights issued pursuant
to the Rights Agreement.
"RIGHTS AGREEMENT" shall mean the Rights Agreement dated as of May 24,
1988, as amended and restated as of October 1, 1989, between Tenneco and
First Chicago Trust Company of New York.
"REGISTRATION STATEMENT" has the meaning set forth in SECTION 6.7 hereof.
"REPLACEMENT D&O POLICY" has the meaning set forth in SECTION 6.4(D)
hereof.
"SECT" means the Stock Employee Compensation Trust currently maintained
by Tenneco.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"$7.40 PREFERRED STOCK" means the $7.40 Cumulative Preferred Stock of
Tenneco.
"$7.40 PREFERRED CONVERSION NUMBER" means the number of shares (rounded
to the nearest one-thousandth of a share) of Acquiror Common Stock to be
issued upon conversion of a single share of $7.40
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Preferred Stock at the Effective Time pursuant to SECTION 2.5 and the other
terms and conditions of this Agreement, determined by dividing (i) $115, by
(ii) the Acquiror Price.
"S/I TRANSACTION" has the meaning set forth in SECTION 6.13 hereof.
"SHIPBUILDING BUSINESS" has the meaning ascribed to that term in the
Distribution Agreement.
"SHIPBUILDING GROUP" has the meaning ascribed to that term in the
Distribution Agreement.
"STOCKHOLDERS' MEETINGS" has the meaning set forth in SECTION 6.8 hereof.
"TAKEOVER STATUTE" means any "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States or any foreign
jurisdiction.
"TENDER AND EXCHANGE MATERIALS" means any registration statement, private
placement memorandum, offer to purchase and/or other documents or filings
prepared by or on behalf of Tenneco or Acquiror (or their Affiliates or
representatives), either separately or jointly, and
(i) distributed to the record and/or beneficial holders of Tenneco
consolidated Debt in connection with the Debt Realignment, and/or
(ii) filed with the Commission or other Governmental Authority, or
the NYSE or other stock exchange, relating to Debt Realignment.
"TENNECO COMMON STOCK" means the Common Stock, par value $5.00 per share,
of Tenneco.
"TENNECO SEC DOCUMENTS" means all filings made by Tenneco or its
subsidiaries with the SEC since January 1, 1995 through the Agreement
Effective Date, including notes, schedules, amendments and exhibits
thereto.
"TENNECO STOCK" means the Tenneco Common Stock, the $7.40 Preferred Stock
and the $4.50 Preferred Stock (but not the New Preferred Stock).
"TENNECO STOCKHOLDERS' MEETING" has the meaning set forth in SECTION 6.8
hereof.
"TRANSFER TAXES" has the meaning set forth in SECTION 10.1(C) hereof.
"$" is a reference to United States dollars. All monetary amounts set
forth in this Agreement are intended to be United States currency amounts.
ARTICLE II
THE MERGER
2.1 MERGER. Upon the terms and subject to the conditions herein set forth,
Subsidiary shall be merged with and into Tenneco at the Effective Time.
2.2 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time the separate existence and corporate
organization of Subsidiary shall cease and Tenneco shall continue as the
Surviving Corporation, and all the identity, purposes, properties, rights,
privileges, powers, assets, franchises, debts and duties of Tenneco and
Subsidiary shall, except as expressly provided herein or in the DGCL, vest in
the Surviving Corporation and become the identity, purposes, properties,
rights, privileges, powers, assets, franchises, debts and duties of the
Surviving Corporation.
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2.3 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) At the Effective Time, the certificate of incorporation of Tenneco in
effect immediately prior to the Effective Time shall be amended as set forth
in ANNEX 1 hereto, and as so amended shall be the certificate of incorporation
of the Surviving Corporation.
(b) From and after the Effective Time, the by-laws of Subsidiary, as in
effect immediately prior to the Effective Time (but, in any event, to be in
form and substance reasonably acceptable to Tenneco), shall, until further
amended as provided by law, constitute the by-laws of the Surviving
Corporation, except that the by-laws of the Surviving Corporation shall
include the provisions specified in SECTION 6.4(A)(I) of this Agreement.
2.4 DIRECTORS. The directors of Subsidiary at the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office from
the Effective Time in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation and until his or her successor is duly
elected and qualified.
2.5 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger and
without any action on the part of any stockholder of either Tenneco or
Subsidiary, as applicable, but subject to SECTION 2.6 hereof, each outstanding
share of Subsidiary's capital stock and Tenneco Stock (but not New Preferred
Stock) shall be cancelled or converted in accordance with the following
provisions of this SECTION 2.5:
(a) CAPITAL STOCK OF SUBSIDIARY. Each share of Subsidiary's capital stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $5.00 per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY AND ACQUIROR-OWNED STOCK. Each share of
Tenneco Stock owned immediately prior to the Effective Time (after giving
effect to the Spinoffs) by Tenneco, directly as treasury stock or
indirectly through one or more of its wholly-owned subsidiaries, or by
Acquiror or any direct or indirect wholly-owned subsidiary of Acquiror,
shall be cancelled and retired and shall cease to exist and no Acquiror
Stock or other consideration shall be delivered in exchange therefor or
with respect thereto.
(c) CONVERSION OF $7.40 PREFERRED STOCK. Each share of $7.40 Preferred
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled in accordance with SECTION 2.5(B) above) shall
be converted into the right to receive that number of fully paid and
nonassessable shares of Acquiror Common Stock that is equal to the $7.40
Preferred Conversion Number.
(d) CONVERSION OF $4.50 PREFERRED STOCK. Each share of $4.50 Preferred
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled in accordance with SECTION 2.5(B) above) shall
be converted into the right to receive that number of fully paid and
nonassessable shares of Acquiror Common Stock that is equal to the $4.50
Preferred Conversion Number.
(e) CONVERSION OF TENNECO COMMON STOCK. Each share of Tenneco Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled in accordance with SECTION 2.5(B) above) shall
be converted into the right to receive (i) that number of fully paid and
nonassessable shares of (i) Acquiror Common Stock that is equal to the
Common Conversion Number Case A if the issuance of Acquiror Common Stock as
contemplated by this SECTION 2.5(E)(I) is approved by the requisite vote of
the holders of the Acquiror Common Stock, or if such vote is not required
by law or the rules of any national securities exchange on which the
Acquiror Common Stock is listed, or (ii) if the issuance of shares of
Acquiror Common Stock as contemplated by SECTION 2.5(E)(I) is not approved
by the requisite vote of the holders of the Acquiror Common Stock and is
not permissible as aforesaid without such vote, (A) that number of fully
paid and nonassessable shares of Acquiror Common Stock that is equal to the
Common Conversion Number Case B and (B) that number of Depositary Shares
representing interests in that fraction of a fully paid and nonassessable
share of Acquiror Preferred Stock that is equal to the Preferred Stock
Conversion Number.
(f) REDEMPTION OF PREFERRED STOCK. Subject to the consent of Acquiror
(which shall not be unreasonably withheld or delayed), Tenneco may at any
time hereafter, prior to the Effective Time, redeem the $4.50 Preferred
Stock and/or the $7.40 Preferred Stock in accordance with their respective
terms.
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2.6 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Promptly after the Effective Time, Acquiror shall
deposit with the Exchange Agent, for the benefit of the holders of shares of
Tenneco Stock, for exchange in accordance with this SECTION 2.6, certificates
and Depositary Receipts, if any (together, the "NEW CERTIFICATES")
representing shares of Acquiror Stock and any Depositary Shares, respectively,
in amounts sufficient to allow the Exchange Agent to make all deliveries of
New Certificates that may be required in exchange for Certificates (as defined
below) pursuant to this SECTION 2.6 (the "ACQUIROR STOCK FUND") (such Acquiror
Stock Fund, together with any dividends or distributions with respect thereto
contemplated by SECTION 2.6(D) hereof and cash in lieu of fractional shares or
any fractional Depositary Shares contemplated by SECTION 2.6(C) hereof, being
hereinafter referred to as the "EXCHANGE FUND").
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Tenneco Stock which were
converted pursuant to SECTION 2.5 hereof into the right to receive shares of
Acquiror Stock and Depositary Shares, if any (the "CERTIFICATES")
(i) a letter of transmittal (which shall be in such form and have such
provisions as Acquiror and Tenneco may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates
in exchange for New Certificates.
Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly completed in accordance with
the instructions thereto and executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a New Certificate or New Certificates
representing that number of whole shares of Acquiror Stock (and any whole
Depositary Shares) which such holder has the right to receive pursuant to the
provisions of SECTION 2.5 hereof (after giving effect to SECTIONS 2.6(C) and
2.6(H) hereof) and any cash paid in lieu of fractional shares (or any
fractional Depositary Shares) and any dividends or distributions with respect
thereto as contemplated by SECTIONS 2.6(C) and 2.6(D) hereof, after giving
effect to any required tax withholdings, and the Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of
Tenneco Stock that is not registered in the transfer records of Tenneco, a New
Certificate representing the proper number of shares of Acquiror Stock (and
any Depositary Shares) may be issued to a transferee if the Certificate
formerly representing such Tenneco Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this SECTION 2.6(B), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender a New Certificate or New Certificates representing
such whole shares of Acquiror Stock (and any whole Depositary Shares), any
dividends or distributions in respect of such shares of Acquiror Stock (and
any Depositary Shares) and cash in lieu of any fractional shares of Acquiror
Stock (or any fractional Depositary Shares), as is contemplated by SECTIONS
2.5 and 2.6 of this Agreement.
(c) FRACTIONAL SHARES. Notwithstanding anything to the contrary contained
herein (but except for the issuance of Depositary Receipts), no scrip or
certificates for fractional shares of Acquiror Stock or for any fractional
Depositary Shares shall be issued, and no Person otherwise entitled to any
such fractional share or fractional Depositary Share shall be entitled to
vote, to receive dividends, or to any other rights of a holder of a share or
Depositary Share with respect to such fractional interest. Instead, the
Exchange Agent shall act as agent for the holders of Tenneco Stock and shall
sell on the NYSE, as promptly as possible, but in any event not later than 30
days after the Closing Date, for the account of the Persons otherwise entitled
to such fractional shares or fractional Depositary Shares, shares of Acquiror
Stock or Depositary Shares equivalent to the aggregate of such fractional
interests. The Exchange Agent shall, until December 31, 1998, pay to such
Persons upon surrender of their Certificate(s) their respective pro rata
shares of the net proceeds of such sale, without interest. On December 31,
1998, any remaining proceeds of the sale shall be paid over to Acquiror, after
which the Persons otherwise entitled to such fractional interests represented
by such proceeds shall look only to Acquiror for payment, subject to the
requirements of escheat laws of the various states that may be applicable.
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(d) DIVIDENDS AND OTHER DISTRIBUTIONS. Any dividend or other distribution
declared or made after the Effective Time with a record date after the
Effective Time in respect of Acquiror Stock issuable hereunder to the holder
of a Certificate not then surrendered pursuant to SECTION 2.6(B) hereof shall
be paid to the Exchange Agent (or, if payable after December 31, 1998, shall
be set aside and retained by Acquiror), and no such dividend or other
distribution payable in respect of such Acquiror Stock shall be paid to the
holder of such outstanding Certificate until such Certificate shall have been
so surrendered to the Exchange Agent (or, if after December 31, 1998, to
Acquiror). Upon surrender of such outstanding Certificate, there shall be paid
by the Exchange Agent (or, if after December 31, 1998, by Acquiror) to or at
the direction of the holder of the New Certificate(s) issued in exchange
therefor the amount (without interest thereon) of all dividends or
distributions which have theretofore been paid to the Exchange Agent (or, if
after December 31, 1998, set aside and retained by Acquiror) with respect to
the number of shares of Acquiror Stock and any Depositary Shares represented
by the New Certificate(s) issued upon such surrender and exchange.
(e) NO FURTHER OWNERSHIP RIGHTS IN TENNECO STOCK. All shares of Acquiror
Stock and any Depositary Shares issued upon the surrender for exchange of
shares of Tenneco Stock in accordance with the terms hereof (including any
cash paid pursuant to SECTION 2.6(C) hereof) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Tenneco
Stock, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Tenneco Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this SECTION
2.6.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund held by
the Exchange Agent that remains undistributed to the stockholders of Tenneco
after December 31, 1998, shall be delivered to Acquiror, and any stockholders
of Tenneco who have not theretofore complied with this SECTION 2.6 shall
thereafter look only to Acquiror for payment of their claims for Acquiror
Stock, any Depositary Shares, any cash in lieu of fractional shares of
Acquiror Stock or in lieu of any fractional Depositary Shares and any
dividends or distributions with respect to Acquiror Stock.
(g) NO LIABILITY. None of Acquiror, Subsidiary, Tenneco, the Industrial
Subsidiary or the Shipbuilding Subsidiary (or any of their respective direct
or indirect subsidiaries or Affiliates) shall be liable to any holder of
shares of Tenneco Stock, Acquiror Stock or any Depositary Shares, as the case
may be, for such shares (or dividends or distributions with respect thereto)
or cash for payment in lieu of fractional shares or in lieu of any fractional
Depositary Shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. The Industrial Subsidiary, the
Shipbuilding Subsidiary and their respective direct and indirect subsidiaries
and Affiliates shall be deemed third party beneficiaries of this SECTION
2.6(G) and all other provisions of this Agreement necessary or appropriate for
purposes of enforcing this SECTION 2.6(G).
(h) DISSENTING HOLDERS OF $4.50 PREFERRED STOCK AND DISSENTING HOLDERS OF
NEW PREFERRED STOCK. Notwithstanding anything in this Agreement to the
contrary, shares of $4.50 Preferred Stock and New Preferred Stock that are
issued and outstanding immediately prior to the Effective Time and are held by
stockholders who are entitled to appraisal rights in respect thereof under
Section 262 of the DGCL and who have
(i) not voted such shares in favor of the adoption of this Agreement or
otherwise waived or lost their right to demand appraisal of such shares and
(ii) properly demanded appraisal of such shares in accordance with
Section 262 of the DGCL (the "DISSENTING SHARES")
shall not be converted as described in SECTION 2.5(D) above or remain
outstanding as described in SECTION 2.7 hereof, as the case may be, but shall
become the right to receive such consideration as may be determined to be due
to such stockholders pursuant to Section 262 of the DGCL ("APPRAISAL
CONSIDERATION"). If, after the Effective Time, any such stockholder withdraws
his demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to the DGCL, his Dissenting Shares shall be
deemed to be converted as of the Effective Time into the right to receive
shares of Acquiror Common Stock (without any interest thereon)
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as provided in SECTION 2.5(D) hereof or shall be deemed to have remained
outstanding as provided in SECTION 2.7 hereof, as the case may be. Promptly
upon receiving any demands for appraisal, withdrawals of demand for appraisal
or any other instrument served pursuant to Section 262 of the DGCL, Tenneco
shall so notify Acquiror and shall give Acquiror the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such appraisal demands. Tenneco shall not, without the prior written consent
of Acquiror, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such appraisal demands. From and after the Effective
Time, the Surviving Corporation shall be solely responsible for the payment of
any and all Appraisal Consideration, and shall indemnify, defend, protect and
hold harmless the Industrial Subsidiary, the Shipbuilding Subsidiary and their
respective direct and indirect subsidiaries from and against any and all
claims, losses, expenses, payments, liabilities and damages (including
attorneys' fees) relating to any Dissenting Shares or claims of stockholders
holding Dissenting Shares. In order to effect the payment of any Appraisal
Consideration, the Surviving Corporation shall establish an escrow with the
Exchange Agent (or other escrow agent reasonably acceptable to the Industrial
Subsidiary) consisting of an adequate amount of cash from the $25,000,000 of
cash required to be on hand at Tenneco as of the Effective Time pursuant to
the Allocation Agreement. The Industrial Subsidiary, the Shipbuilding
Subsidiary and their respective direct and indirect subsidiaries shall be
deemed third party beneficiaries of this SECTION 2.6(H) and all other
provisions of this Agreement necessary or appropriate for purposes of
enforcing this SECTION 2.6(H).
2.7 NEW PREFERRED STOCK. Subject to SECTION 2.6(H) hereof, the shares of New
Preferred Stock outstanding immediately prior to the Effective Time shall not
be converted or otherwise exchanged pursuant to the Merger and shall remain
outstanding immediately after the Effective Time, held by the Persons who were
holders of the New Preferred Stock immediately prior to the Effective Time.
ARTICLE III
CLOSING AND FILING
3.1 CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to SECTION
8.1 hereof, and subject to the satisfaction or, if permissible, waiver of the
conditions set forth in ARTICLE VII hereof, the closing of the Merger (the
"CLOSING") shall take place as promptly as practicable (and in any event
within two business days) after satisfaction or waiver of the conditions set
forth in ARTICLE VII hereof, at the offices of Tenneco Inc., 1010 Milam
Street, Houston, Texas, unless another date, time or place is agreed to in
writing by the parties hereto; provided, however, that if, (i) during the
Black-out Period there occurs an event or series of events that, in the
opinion of either Tenneco or Acquiror, could reasonably be expected to have a
temporary effect on the price of Acquiror Stock, and (ii) but for the
provisions of this proviso the Average Acquiror Price would be greater than
$38.3625 or less than $31.3875 (said dollar amounts to be adjusted on the same
basis as is described in the definition of Average Acquiror Common Equity
Price), then either Tenneco (in the case the Average Acquiror Price would be
greater than $38.3625 as aforesaid) or Acquiror (in the case the Average
Acquiror Price would be less than $31.3875 as aforesaid) may, by written
notice to the other, elect to delay or to restart the commencement of the
Average Period (and thereby the Closing) until such day as such temporary
effect has ended (but in no event shall the Closing be delayed by more than 15
days and in no event beyond the dated specified in SECTION 8.1(II) hereof), as
determined and specified by the notifying party. The date on which the Closing
occurs is referred to in this Agreement as the "CLOSING DATE".
3.2 EFFECTIVE TIME. As promptly as practicable after the satisfaction or, if
permissible, waiver of the conditions set forth in ARTICLE VII hereof, but
subject to the terms of SECTION 3.1 hereof, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger with the Secretary
of State of the State of Delaware in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (the date and time of the
acceptance of such filing, or such later date or time as set forth therein,
being the "EFFECTIVE TIME").
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TENNECO
Tenneco hereby represents and warrants to Acquiror and Subsidiary as
follows:
4.1 ORGANIZATION AND EXISTENCE. Each of Tenneco and the Major Subsidiaries
is a corporation validly existing and in good standing under the laws of the
jurisdiction of its organization with the corporate power and authority to own
its properties and assets and to carry on its business as now being conducted,
except where the failure to be so existing and in good standing or to have
such power and authority would not have a Material Adverse Effect on Tenneco.
4.2 CAPITALIZATION.
(a) As of the dates indicated below, the authorized and outstanding capital
stock of Tenneco was as follows:
<TABLE>
<CAPTION>
AUTHORIZED
AS OF THE
CLASS DATE HEREOF OUTSTANDING AS OF MARCH 31, 1996
----- ----------- --------------------------------
<S> <C> <C>
Common Stock 350,000,000 191,354,932 shares (including 17,358,445
shares held in treasury or by subsidiaries
of Tenneco)
Preferred Stock 15,000,000 803,723 shares of $4.50 Preferred Stock;
391,519 shares of $7.40 Preferred Stock
Junior Preferred 50,000,000 none
Stock
</TABLE>
(b) Between March 31, 1996 and the Agreement Effective Date, Tenneco has
issued no shares of its capital stock except for shares of Tenneco Common
Stock issued upon the exercise of options granted pursuant to the Option Plans
or to executives of Tenneco outside the Option Plans.
(c) As of March 31, 1996, except for
(i) Rights issued pursuant to the Rights Agreement and
(ii) options to acquire an aggregate of 5,207,655 shares of Tenneco
Common Stock,
there were no outstanding options, warrants, rights, puts, calls, commitments
or other contracts, arrangements, or understandings issued by or binding upon
Tenneco requiring or providing for, and there were no outstanding securities
of Tenneco or its subsidiaries which upon the conversion, exchange or exercise
thereof would require or provide for, the issuance by Tenneco of any new or
additional equity interests in Tenneco or any other securities of Tenneco
which, with notice, lapse of time and/or payment of monies, are or would be
convertible into or exercisable or exchangeable for equity interests in
Tenneco (each, a "TENNECO EQUITY RIGHT"). Between March 31, 1996 and the
Agreement Effective Date, Tenneco has not issued or granted any Tenneco Equity
Right except for
(i) Rights issued in connection with the issuance of Tenneco Common Stock
as described in SECTION 4.2(B) hereof and
(ii) options to purchase 11,000 shares of Tenneco Common Stock granted
pursuant to the 1994 Stock Plan.
(d) As of the Agreement Effective Date all outstanding shares of Tenneco
Stock are, and immediately prior to the Effective Time all outstanding shares
of Tenneco Stock and New Preferred Stock will be, validly issued, fully paid
and nonassessable and free of any preemptive (or similar) right.
4.3 AUTHORITY AND APPROVAL. Tenneco has the corporate power and authority,
and no other corporate proceedings on the part of Tenneco are necessary, to
execute and deliver this Agreement and the Distribution Agreement and to
consummate the transactions contemplated hereby and thereby (subject to
securing the
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approval of the stockholders of Tenneco as contemplated by SECTION 6.8 hereof,
and formal declaration of the dividends necessary to effectuate the Spinoffs
and the issuance of the New Preferred Stock). This Agreement has been duly
executed and delivered by Tenneco and, assuming this Agreement constitutes a
valid and binding obligation of each of Acquiror and Subsidiary, this
Agreement constitutes a valid and binding obligation of Tenneco, enforceable
against Tenneco in accordance with its terms.
4.4 FINANCIAL STATEMENTS. The audited financial statements of Tenneco and
consolidated subsidiaries as of December 31, 1995 and 1994 and for the three
years ended December 31, 1995, included in Tenneco's 1995 Annual Report on
Form 10-K, as filed with the Commission, (i) were prepared in accordance with
GAAP applied on a consistent basis (except as indicated therein or in the
notes thereto) and (ii) fairly present the financial position of Tenneco and
consolidated subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended. The unaudited financial
statements of Tenneco and consolidated subsidiaries as of March 31, 1996 and
1995 and for the three-month periods ended on each of such dates, included in
Tenneco's March 31, 1996 Quarterly Report on Form 10-Q as filed with the
Commission, (A) comply in all material respects with the published rules and
regulations of the Commission with respect thereto, (B) were prepared in
accordance with GAAP, except as otherwise permitted under the Exchange Act and
the rules and regulations thereunder, on a consistent basis (except as
indicated therein or in the notes thereto) and (C) fairly present the
financial position of Tenneco and consolidated subsidiaries as of the dates
thereof and the results of their operations and cash flows for the periods
then ended, subject to normal year-end adjustments and any other adjustments
described herein or in the notes or schedules thereto.
The unaudited pro forma financial information of the Energy Business
(including related notes thereto) as of December 31, 1995 included in EXHIBIT
F-1 attached to this Agreement (which were prepared without cash flow
statements and treating the Energy Business as if it were a separate entity
for the purpose of estimates and judgments of materiality) appropriately
reflects all significant pro forma adjustments necessary to and does fairly
present the financial position of the Energy Business as of December 31, 1995
and for the year then ended, except that such financial information was
prepared on the assumption that the Energy Business had no long-term debt as
of December 31, 1995. The historical financial balances included in the
unaudited pro forma financial balances included in EXHIBIT F-1 have been
derived from amounts included in the consolidated balances presented in the
audited financial statements of Tenneco and consolidated subsidiaries included
in Tenneco's December 31, 1995 Annual Report on Form 10-K as filed with the
Commission.
The unaudited pro forma financial information of the Energy Business
(including related notes thereto) as of March 31, 1996 included in EXHIBIT F-2
attached to this Agreement (which were prepared without cash flow statements
and treating the Energy Business as if it were a separate entity for the
purpose of estimates and judgments of materiality) appropriately reflects all
significant pro forma adjustments necessary to and does fairly present the
financial position of the Energy Business as of March 31, 1996, except that
such financial information was prepared on the assumption that the Energy
Business had no long-term debt as of March 31, 1996. The historical financial
balances included in the unaudited pro forma financial balances included in
EXHIBIT F-2 have been derived from amounts included in the consolidated
balances presented in the audited financial statements of Tenneco and
consolidated subsidiaries included in Tenneco's March 31, 1996 Quarterly
Report on Form 10-Q as filed with the Commission.
The financial statements of Tennessee Gas Pipeline Company, Midwestern Gas
Transmission Company and East Tennessee Natural Gas Company as of and for the
years ended December 31, 1995 and 1994 included on pages 110 through 123 of
each company's respective Federal Energy Regulatory Commission Form 2 were
prepared in all material respects in accordance with the accounting
requirements of the Federal Energy Regulatory Commission as set forth in its
applicable Uniform System of Accounts and published accounting releases.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and,
subject to securing the approval of the stockholders of Tenneco as
contemplated by SECTION 6.8 hereof, formal declaration of the dividends
necessary to effectuate the Spinoffs and the issuance of the New Preferred
Stock, performance by Tenneco of
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this Agreement and the Distribution Agreement and the consummation by Tenneco
of the transactions contemplated hereby or thereby do not or will not:
(i) conflict with or result in any breach of any provisions of the
certificate of incorporation or bylaws of Tenneco;
(ii) except as contemplated by this Agreement or the Distribution
Agreement, require any filing by Tenneco or any Energy Subsidiary with any
Governmental Authority, or require Tenneco or any Energy Subsidiary to
obtain any permit, authorization, consent or approval from any Governmental
Authority;
(iii) after giving effect to the Debt Realignment, result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, franchise, permit, concession or other instrument,
obligation, understanding, commitment or other arrangement to which Tenneco
or any Energy Subsidiary is a party or by which any of them or any of their
respective material properties or assets may be bound or affected; or
(iv) violate any Law applicable to Tenneco or any Energy Subsidiary;
except, in the case of each of clauses (ii) through (iv) above, for failures
to make filings or obtain permits, authorizations, consents or approvals,
violations, breaches or defaults that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Tenneco.
4.6 LITIGATION. Except as previously disclosed in writing to Acquiror, as of
the Agreement Effective Date there are no actions, suits, proceedings or, to
the knowledge of Tenneco, governmental investigations or inquiries pending
against Tenneco or any of its subsidiaries or their respective properties,
assets, operations or businesses which could reasonably be expected to delay,
prevent or hinder the consummation of the transactions contemplated hereby or
by the Distribution Agreement, and to the knowledge of Tenneco as of the
Agreement Effective Date, no such actions, suits, proceedings or governmental
investigations or inquiries are threatened.
4.7 TENNECO SEC DOCUMENTS; ACCURACY OF INFORMATION. The information relating
to the Energy Business contained in the Tenneco SEC Documents (A) complied, as
of the date of filing thereof (or, in the case of any registration statement,
on the date it was declared effective), in all material respects with the
applicable requirements of the Exchange Act or Securities Act and (B) did not
contain, as of the date of filing thereof (or, in the case of any registration
statement, on the date it was declared effective), any untrue statement of a
material fact or omit to state any material fact necessary in order to have
the statements made therein, in light of the circumstances under which they
were made, not misleading.
4.8 NO MATERIAL ADVERSE EFFECT. Except as previously disclosed to Acquiror
in writing prior to the date of this Agreement, between December 31, 1995 and
the Agreement Effective Date, there has occurred no Material Adverse Effect on
Tenneco.
4.9 ADVISORS. Except for Lazard, Morgan Stanley & Co. Incorporated, and J.P.
Morgan Securities Incorporated, which have been retained by Tenneco to assist
and advise Tenneco in connection with the transactions contemplated by this
Agreement and the Distribution Agreement, Tenneco has not employed any broker,
finder or intermediary in connection with such transactions who might be
entitled to a fee or commission upon the consummation of this Agreement, the
Distribution Agreement or the transactions contemplated hereby or thereby. A
copy of the engagement letter between Tenneco and each such advisor has been
provided to Acquiror.
4.10 OPINION OF FINANCIAL ADVISOR. Tenneco has received the opinion of
Lazard, dated as of the Agreement Efffective Date, to the effect that, as of
such date, the consideration to be received in the Merger by Tenneco's
stockholders is fair to Tenneco's stockholders from a financial point of view
(and Tenneco has the right to refer
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<PAGE>
to that opinion, so long as such reference is in form and substance
satisfactory to Lazard, in the Joint Proxy Statement and other appropriate
filings with the Commission and mailings to its stockholders).
4.11 AMENDMENTS TO RIGHTS AGREEMENT. Tenneco has caused the Rights Agreement
to be amended such that
(i) neither a "Triggering Event" nor a "Distribution Date" (in each case
as defined in the Rights Agreement) will occur solely by reason of the
execution of this Agreement and the consummation of the transactions
contemplated hereby, and
(ii) the Rights will expire at the Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUBSIDIARY
Acquiror and Subsidiary hereby represent and warrant, jointly and severally,
to Tenneco as follows:
5.1 ORGANIZATION AND EXISTENCE. Each of Acquiror and Subsidiary is a
corporation validly existing and in good standing under the laws of the
jurisdiction of its organization with the corporate power and authority to own
its properties and assets and to carry on its business as now being conducted,
except where the failure to be so existing and in good standing or to have
such power and authority would not have a Material Adverse Effect on Acquiror.
5.2 CAPITALIZATION.
(a) ACQUIROR.
(i) As of the Agreement Effective Date, the authorized capital stock of
Acquiror consists of:
(A) 100,000,000 shares of Acquiror Common Stock of which, at June 18,
1996, 35,582,074 shares were issued and outstanding and 1,769,151 shares
were held in treasury (including shares held in Acquiror's Benefits
Protection Trust); and
(B) 25,000,000 shares of Preferred Stock , $.01 par value, none of which
are issued and outstanding.
(ii) As of the Agreement Effective Date, except for rights issued pursuant
to the Shareholders Rights Agreement, dated as of July 7, 1992, between
Acquiror and The First National Bank of Boston and options to acquire an
aggregate of 4,066,487 shares of Acquiror Common Stock, there were no
outstanding options, warrants, rights, puts, calls, commitments or other
contracts, arrangements, or understandings issued by or binding upon Acquiror
requiring or providing for, and there were no outstanding securities of
Acquiror or its subsidiaries which upon the conversion, exchange or exercise
thereof would require or provide for, the issuance by Acquiror of any new or
additional equity interests in Acquiror or any other securities of Acquiror
which, with notice, lapse of time and/or payment of monies, are or would be
convertible into or exercisable or exchangeable for equity interests in
Acquiror (each, an "ACQUIROR EQUITY RIGHT").
(iii) As of the Agreement Effective Date all outstanding shares of the
capital stock of Acquiror are, and immediately prior to the Effective Time all
outstanding shares of the capital stock of Acquiror will be, validly issued,
fully paid and nonassessable and free of any preemptive (or similar) right.
(b) SUBSIDIARY.
(i) The authorized capital stock of Subsidiary consists of 1,000 shares of
common stock, $1.00 par value, all of which are issued and outstanding.
(ii) There are no outstanding options, warrants, rights, puts, calls,
commitments or other contracts, arrangements, or understandings issued by or
binding upon Subsidiary requiring or providing for, and there were
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<PAGE>
no outstanding securities of Subsidiary which upon the conversion, exchange or
exercise thereof would require or provide for, the issuance by Subsidiary of
any new or additional equity interests in Subsidiary or any other securities
of Subsidiary which, with notice, lapse of time and/or payment of monies, are
or would be convertible into or exercisable or exchangeable for equity
interests in Subsidiary.
(iii) All outstanding shares of the capital stock of Subsidiary are, and
immediately prior to the Effective Time all outstanding shares of the capital
stock of Subsidiary will be, validly issued, fully paid and nonassessable and
free of any preemptive (or similar) right.
5.3 AUTHORITY AND APPROVAL. Each of Acquiror and Subsidiary has the
corporate power and authority, and no other corporate proceedings on the part
of Acquiror or Subsidiary are necessary, to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Acquiror and Subsidiary and,
assuming this Agreement constitutes a valid and binding obligation of Tenneco,
this Agreement constitutes the valid and binding obligation of Acquiror and
Subsidiary, enforceable against each of them in accordance with its terms.
5.4 FINANCIAL STATEMENTS. Acquiror has heretofore delivered to Tenneco
complete and correct copies of all filings made by Acquiror pursuant to the
Exchange Act since January 1, 1995. The audited consolidated financial
statements of Acquiror included in such filings (i) were prepared in
accordance with GAAP applied on a consistent basis (except as indicated
therein or in the notes thereto) during the periods presented and (ii) fairly
present the financial position of Acquiror and its consolidated subsidiaries
as of the dates thereof and the results of their operations and cash flows for
the periods then ended. The unaudited financial statements included in such
filings
(i) comply in all material respects with the published rules and
regulations of the Commission with respect thereto,
(ii) were prepared in accordance with GAAP, except as otherwise permitted
under the Exchange Act and the rules and regulations thereunder, on a
consistent basis (except as may be indicated therein or in the notes or
schedules thereto) during the periods presented and
(iii) fairly present the financial position of Acquiror and its
consolidated subsidiaries as at the dates thereof and the results of their
operations and cash flows for the periods then ended, subject to normal
year-end adjustments and any other adjustments described therein or in the
notes or schedules thereto.
5.5 CONSENT AND APPROVALS; NO VIOLATION. The execution, delivery and
performance by Acquiror and Subsidiary of this Agreement and the consummation
by Acquiror and Subsidiary of the transactions contemplated hereby do not and
will not:
(i) conflict with or result in any breach of any provisions of the
certificate of incorporation, bylaws or other governing documents of
Acquiror or Subsidiary,
(ii) except as contemplated by this Agreement, require any filing by
Acquiror or any of its subsidiaries (including Subsidiary) with any
Governmental Authority or require Acquiror or any of its subsidiaries
(including Subsidiary) to obtain any permit, authorization, consent or
approval of any Governmental Authority;
(iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right
of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement, franchise, permit, concession or other
instrument, obligation, understanding, commitment or other arrangement to
which Acquiror or any of its subsidiaries (including Subsidiary) is a party
or by which any of them or any of their respective material properties or
assets may be bound or affected; or
(iv) violate any Law applicable to Acquiror or any of its subsidiaries
(including Subsidiary);
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except, in the case of each of clauses (ii) through (iv) above, for failures
to make filings or obtain permits, authorizations, consents or approvals,
violations, breaches or defaults which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Acquiror.
5.6 LITIGATION. Except as previously disclosed in writing to Tenneco, as of
the Agreement Effective Date, there are no actions, suits, proceedings or, to
Acquiror's knowledge, governmental investigations or inquiries pending against
Acquiror or any of its subsidiaries (including Subsidiary) or their respective
properties, assets, operations or businesses which could reasonably be
expected to delay, prevent or hinder the consummation of the transactions
contemplated hereby and, to the knowledge of Acquiror, no such actions, suits,
proceedings or governmental investigations or inquiries are threatened.
5.7 ACQUIROR SEC DOCUMENTS; ACCURACY OF INFORMATION. The information
regarding Acquiror and its consolidated subsidiaries contained in the Acquiror
SEC Documents (A) complied, as of the date of filing thereof (or, in the case
of any registration statement, on the date it was declared effective), in all
material respects with the applicable requirements of the Exchange Act or
Securities Act and (B) did not contain, as of the date of filing thereof (or,
in the case of any registration statement, on the date it was declared
effective), any untrue statement of a material fact or omit to state any
material fact necessary in order to have the statements made therein, in light
of the circumstances under which they were made, not misleading.
5.8 NO MATERIAL ADVERSE EFFECT. Except as previously disclosed to Tenneco in
writing prior to the date of this Agreement, between December 31, 1995 and the
Agreement Effective Date, there has occurred no Material Adverse Effect on
Acquiror.
5.9 ADVISORS. Except for Donaldson, Lufkin & Jenrette ("DLJ"), which has
been retained by Acquiror to assist and advise Acquiror in connection with the
transactions contemplated by this Agreement, Acquiror has not employed any
broker, finder or intermediary in connection with such transactions who might
be entitled to a fee or commission upon the consummation of this Agreement or
the transactions contemplated hereby.
5.10 OPINION OF FINANCIAL ADVISOR. Acquiror has received the opinion of DLJ,
dated as of the Agreement Effective Date, to the effect that, as of such date,
the consideration to be paid in the Merger by Acquiror is fair to Acquiror's
stockholders from a financial point of view (and Acquiror has the right to
refer to that opinion, so long as such reference is in form and substance
satisfactory to DLJ, in the Joint Proxy Statement and other appropriate
filings with the Commission and mailings to its stockholders).
5.11 DUE AUTHORIZATION. The shares of Acquiror Stock and any Depositary
Shares issued in connection with the Merger as contemplated by this Agreement
will be duly authorized and will be validly issued, fully paid and
nonassessable.
5.12 NO ACTIVE BUSINESS. Subsidiary has not engaged in any business and does
not have any contractual liabilities, commitments, or obligations (other than
pursuant to this Agreement) or any assets (other than cash representing its
initial capitalization). Subsidiary has been formed solely for purposes of
effectuating the transactions contemplated by this Agreement and having such
transactions treated for federal income tax purposes as an acquisition of the
outstanding Tenneco Stock by Acquiror in exchange for Acquiror Stock through
the Merger of Subsidiary with and into Tenneco pursuant to this Agreement.
5.13 OWNERSHIP OF TENNECO STOCK. Neither Acquiror nor Subsidiary is
(i) an "Interested Stockholder" of Tenneco as defined in Article NINTH of
the Certificate of Incorporation of Tenneco or
(ii) an "interested stockholder" of Tenneco as defined in Section 203 of
the DGCL.
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As of the Agreement Effective Date, Acquiror and its Affiliates own
(directly or indirectly, beneficially or of record) no shares of Tenneco Stock
and neither Acquiror nor any of its Affiliates own any rights to acquire any
shares of Tenneco Stock, except pursuant to this Agreement.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 CONDUCT OF TENNECO AND ITS SUBSIDIARIES.
(a) Between the Agreement Effective Date and the Effective Time, unless
Acquiror shall have consented in writing (such consent not to be unreasonably
withheld), and except for
(i) actions taken that either affect solely the Industrial Business or
the Shipbuilding Business or only adversely affect the Energy Business to a
de minimis extent and do not materially delay or prevent consummation of
the transactions contemplated hereby,
(ii) actions taken by Tenneco and its Affiliates and subsidiaries
(including the Energy Subsidiaries) in order to consummate any of the
Merger, the Spinoffs and the other transactions contemplated by this
Agreement or the Distribution Agreement, which actions are taken in good
faith and either are contemplated by this Agreement or the Distribution
Agreement (including the Corporate Restructuring Transactions described
therein) or do not have more than a de minimis effect on Tenneco or do not
materially delay or prevent consummation of the transactions contemplated
hereby, or
(iii) actions or matters set forth in EXHIBIT G attached hereto,
Tenneco shall, and shall cause each of the Energy Subsidiaries to:
(A) use its reasonable best efforts to
(I) operate the Energy Business in good faith and in the ordinary
course, consistent with past practices, including, without limitation,
with respect to the payment and administration of accounts payable and
the collection and administration of accounts receivable, inventory
management and control policies and implementation of capital programs
for the Energy Business in a timely manner,
(II) preserve substantially intact the present business organization
of the Energy Business,
(III) keep available, consistent with the past practices of the
Energy Business, the services of the present officers, employees and
consultants of Tenneco and each of the Energy Subsidiaries (to the
extent they customarily provide services to the Energy Business), and
(IV) preserve the relationships with customers, suppliers and others
having business dealings with the Energy Business,
it being understood that
(x) certain employees of Tenneco and the Energy Subsidiaries will
also be engaged in activities for the Industrial Business and the
Shipbuilding Business, and
(y) the failure of any officer, employee or consultant of the Energy
Business to remain an officer, employee or consultant of the Energy
Business or to become an officer, employee or consultant of Acquiror or
any subsidiary of Acquiror shall not constitute a breach of this
covenant;
(B) not amend or otherwise change the certificate of incorporation or
bylaws of Tenneco (except as may be necessary or appropriate to effect the
transactions contemplated hereby or by the Distribution Agreement);
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(C) not issue or authorize the issuance of (except, as to Tenneco, in the
ordinary course of business consistent with past practices or as
contemplated in this Agreement) or the Distribution Agreement, any shares
of any class of the capital stock of Tenneco or any Energy Subsidiary
(other than New Preferred Stock) or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of Tenneco or any of the Energy
Subsidiaries (other than the issuance of Rights and shares of Tenneco
Common Stock either
(I) in connection with any dividend reinvestment plan,
(II) upon the exercise of options granted prior to the Agreement
Effective Date,
(III) pursuant to the terms of any other Tenneco employee benefit
plan with an employee stock fund or employee stock ownership plan
feature,
(IV) in accordance with the Rights Agreement, or
(V) as is otherwise permitted pursuant to this Agreement or the
Distribution Agreement);
(D) not reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any class of the capital stock
of Tenneco or of any of the Energy Subsidiaries other than acquisitions by
a dividend reinvestment plan or by any Tenneco employee benefit plan with
an employee stock fund or employee stock ownership plan feature, consistent
with the terms thereof and applicable securities laws;
(E) not declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any class of the capital stock of Tenneco or any of the Energy
Subsidiaries, except:
(I) in the case of Tenneco, regular dividends (including the regular
dividend for the dividend period in which the Effective Time occurs)
with respect to the $4.50 Preferred Stock, the $7.40 Preferred Stock
and the New Preferred Stock and regular quarterly dividends on the
Tenneco Common Stock at such times and in such amounts as the Board of
Directors of Tenneco in its sole discretion determines;
(II) the Spinoffs;
(III) the issuance of New Preferred Stock; and
(IV) cash dividends declared and paid by any of the Energy
Subsidiaries;
(F) with respect to the individuals who will be executive officers or
employees of the Energy Business after the Effective Time, not:
(I) increase the compensation payable or to become payable to any of
such executive officers or employees except for increases in the
ordinary course of business in accordance with past practices;
(II) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any executive officer of the
Energy Subsidiaries; or
(III) except as contemplated in this Agreement or in the Distribution
Agreement, establish, adopt, enter into or amend or take action to
accelerate any rights or benefits under, any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any such director, executive officer or
employee;
provided, however, that Tenneco may continue to provide benefits under
employee benefit plans and incentive compensation plans that are in effect
on the Agreement Effective Date;
(G) not take, or permit any of its subsidiaries in respect of which it
has the direct or indirect voting power to control to take, any action that
would reasonably likely result in any of the conditions to the
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Merger set forth in ARTICLE VII of this Agreement not being satisfied or
that would materially impair the ability of Tenneco to consummate the
Spinoffs in accordance with the terms of the Distribution Agreement or the
Merger in accordance with the terms hereof or would materially delay such
consummation or that would disqualify either of the Spinoffs as a tax free
distribution within the meaning of Section 355 of the Code;
(H) not implement any change in its accounting principles, practices or
methods, other than as (X) may be required by GAAP, the Financial
Accounting Standards Board, the Commission or any other Governmental
Authority or oversight agency and (Y) relating solely to the Shipbuilding
Group and/or the Industrial Group;
(I) except in the ordinary course of business, consistent with past
practices, with respect to inventory or services or except where the effect
on the Energy Business would be de minimis, not, with respect to the Energy
Business, transfer, lease, license, sell, mortgage, pledge or dispose of
any property or assets included in the Energy Assets or otherwise encumber
any property or assets included in the Energy Assets;
(J) not release any third party from, or amend, modify or waive any
provisions of, any confidentiality or standstill agreement to which Tenneco
is a party (except any that relate solely to the Industrial Business or the
Shipbuilding Business);
(K) file on or before the due date therefor all tax returns required to
be filed by Tenneco or any Energy Subsidiary, which tax returns shall, to
the extent such tax returns relate to the Energy Business, be (i) complete
and correct in all material respects and (ii) prepared in accordance and on
a basis consistent with the elections, accounting methods, conventions and
principles of tax returns used for the most recent taxable periods for
which tax returns involving similar tax items have been filed; and
(L) not make, change or revoke any tax election relating to the Energy
Business to the extent such election may have more than a de minimis effect
on the Energy Business or Acquiror, or enter into any material agreement or
settlement regarding taxes relating to the Energy Business with any tax
authority to the extent such settlement or agreement may have a more than
de minimis effect on the Energy Business or Acquiror.
(b) Prior to the Effective Time, Tenneco shall cause all stock options
issued under the Option Plans (or to executives outside the Option Plans) to
be
(i) converted to options to acquire the stock of the Industrial Company
or the Shipbuilding Company;
(ii) exercised; and/or
(iii) cancelled.
Tenneco shall also cause all such options not held by employees of the Energy
Business to be so converted if not exercised or cancelled prior to the
Effective Time in accordance with their terms. All such options held by
employees of the Energy Business shall become exercisable prior to the
Effective Time and, if not exercised by the Effective Time, shall be
cancelled.
(c) Between the Agreement Effective Date and the Effective Time, Tenneco
shall cause the Industrial Subsidiary to succeed to sponsorship of the SECT.
To the extent the SECT continues to own Tenneco Stock, the SECT will
participate in the Merger, the Spinoffs and the conversion of shares pursuant
to SECTION 2.5 hereof (and the other transactions contemplated by this
Agreement and/or the Distribution Agreement) as any other stockholder of
Tenneco.
(d) Tenneco shall have the right, and shall use its reasonable best efforts
to, issue shares of New Preferred Stock prior to the Effective Time on the
following basis:
(i) the issuance may be effected through public sale or private placement
(either United States or foreign, but with a placement agent mutually and
reasonably acceptable to both Tenneco and Acquiror), or
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if such sale or placement is not reasonably practicable under the
circumstances, through a dividend-in-kind to the holders of Tenneco Common
Stock, but shall in any event be in accordance with all applicable
securities and other Laws (and, if publicly issued or issued as a dividend-
in-kind, shall be listed on the NYSE);
(ii) the NPS Value shall be approximately 25% (but in no event 20% or
less) of the sum of:
(x) the NPS Value, plus
(y) the market value of all outstanding Tenneco Common Stock (as
determined as of the Effective Time pursuant to the same procedure as
applies to determining the NPS Value).
(e) Prior to the Effective Time, Tenneco shall cause the elimination of all
intercompany accounts (including accounts and notes receivable and payable)
between members of the Energy Group, the Shipbuilding Group and the Industrial
Group, as the case may be (except trade accounts incurred in the ordinary
course of business), as set forth in the Distribution Agreement.
(f) From and after the Agreement Effective Date, Tenneco shall afford
Acquiror and its officers, employees, representatives and agents the
opportunity to participate with Tenneco in the process of obtaining the
rulings set forth in the IRS Ruling Request, including the right to
participate in the submission of written materials by Tenneco to the Internal
Revenue Service, and in-person and telephonic conferences between Tenneco and
the Internal Revenue Service, to the extent such communications relate to the
IRS Ruling Request. Notwithstanding the foregoing, Tenneco shall have the
right, subject to prior consultation with Acquiror, to determine, in its
reasonable discretion, that Acquiror's participation in certain communications
with the Internal Revenue Service (or any other aspects of the rulings
process) may hinder or delay Tenneco's ability to obtain the rulings requested
in the IRS Ruling Request, in which case Acquiror will be precluded from such
participation; provided, that Tenneco shall promptly inform Acquiror of the
substance of any matter in which Acquiror does not participate.
(g) In the event that, between the Agreement Effective Date and the Closing
Date, the General Counsel or an Executive Vice President of Tenneco becomes
aware that the Energy Business has the realistic opportunity to exercise its
right of first refusal with respect to the acquisition of additional interests
in the Oasis pipeline or otherwise to acquire additional interests in the
Oasis pipeline, Tenneco shall notify Acquiror thereof and shall consult and
cooperate with Acquiror prior to exercising its right of first refusal or
making any acquisition proposal. Any exercise of such right of first refusal
or other acquisition of interests in the Oasis pipeline by the Energy Business
shall be subject to the consent of Acquiror, which consent shall not be
unreasonably withheld or delayed.
6.2 CONDUCT OF THE BUSINESS OF ACQUIROR AND ITS SUBSIDIARIES.
(a) Between the Agreement Effective Date and the Effective Time, neither
Acquiror nor Subsidiary nor any of their Affiliates shall:
(i) take any action that would be reasonably likely to result in any of
the conditions to the Merger set forth in ARTICLE VII of this Agreement not
being satisfied or that would impair the ability of Acquiror or Subsidiary
to consummate the Merger in accordance with the terms hereof or delay such
consummation;
(ii) acquire (directly or indirectly, beneficially or of record), any
shares of Tenneco Stock (or any rights to acquire any such shares, except
pursuant to this Agreement); or
(iii) amend or otherwise change its certificate of incorporation (except
as is contemplated by this Agreement in respect of the designation of the
Acquiror Preferred Stock), bylaws or other organizational documents;
provided, however, that the provisions of this clause (iii) shall not apply
to any Affiliate of Acquiror or Subsidiary if the amendment or other change
would not adversely effect any of the rights or benefits hereunder or under
any of the Ancillary Agreements of Tenneco or the holders of Tenneco Stock
(other than to a de minimis extent) or otherwise materially delay or
prevent the consummation of the transactions contemplated hereby.
(b) Acquiror shall not, and shall not permit any of its subsidiaries
(including Subsidiary) to, take or cause or permit to be taken any action that
would disqualify either of the Spinoffs as a tax-free distribution within the
meaning of Section 355 of the Code.
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(c) Between the Agreement Effective Date and the Effective Time, Subsidiary
shall not engage in any activities of any nature except as provided in, or in
connection with the transactions contemplated by, this Agreement.
6.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Between the date of this Agreement and the Effective Time, and except as
may otherwise be required by applicable law, each of Tenneco and Acquiror
shall (and shall cause its subsidiaries and officers, directors, employees,
auditors and agents to) afford the officers, employees and agents of the other
party (the "RESPECTIVE REPRESENTATIVES") reasonable access at all reasonable
times to its officers, employees, agents, properties, offices, plants and
other facilities, books and records, and shall furnish such Respective
Representatives with all financial, operating and other data and information
as may be reasonably requested, in each case to the extent that such access
and disclosure would not:
(i) violate the terms of any agreement to which the disclosing party or
any of its Affiliates is bound or any applicable law or regulation; or
(ii) impair any attorney-client privilege of the disclosing party.
Notwithstanding the foregoing, Tenneco shall not be required (and shall not
be required to cause its subsidiaries and officers, directors, employees,
auditors and agents) to provide the access, data and information described in
the preceding sentence with respect to the Industrial Business or the
Shipbuilding Business unless Acquiror has a reasonable interest in obtaining
such access, data or information in connection with the Merger.
(b) All information obtained by Tenneco, Acquiror or their Respective
Representatives pursuant to SECTION 6.3(A) hereof shall be kept confidential
in accordance with the confidentiality agreement, dated March 28, 1996,
executed by Acquiror and the confidentiality agreement, dated June 12, 1996,
executed by Tenneco.
(c) The Industrial Subsidiary and the Shipbuilding Subsidiary (and their
respective direct and indirect subsidiaries and Affiliates) shall be deemed
third party beneficiaries of this SECTION 6.3 and all other provisions of this
Agreement necessary or appropriate for purposes of enforcing this SECTION 6.3.
6.4 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) For a period of six years after the Effective Time, Acquiror shall not
cause or permit any amendment, repeal or other modification of the provisions
of
(i) Article IV, Section 14 of the by-laws of the Surviving Corporation,
as set forth in EXHIBIT H attached hereto, or
(ii) Article Eighth of the certificate of incorporation of the Surviving
Corporation,
in either case in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors,
officers or employees of Tenneco or any of its subsidiaries or Affiliates or
who are otherwise entitled to indemnification pursuant to such provisions in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement and the Distribution Agreement), unless such modification is
required by the DGCL or applicable federal law, and then only to the extent of
such applicable requirements of the DGCL or federal law. To the extent the
Surviving Corporation is unable for any reason to fulfill its obligations
under the bylaw provisions set forth in EXHIBIT H attached hereto, Acquiror
agrees to pay, perform and discharge all such obligations.
(b) Prior to the Effective Time, Tenneco shall, and from and after the
Effective Time the Acquiror and the Surviving Corporation jointly and
severally shall, indemnify, defend and hold harmless each Person who is now,
has been at any time prior to the date of this Agreement or who becomes prior
to Effective Time an officer, director or employee of Tenneco or any of its
subsidiaries (collectively, the "INDEMNIFIED PARTIES") against all losses,
expenses, claims, damages, liabilities or amounts that are paid in settlement
of, with the approval of the
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indemnifying party (which approval shall not unreasonably be withheld), or
otherwise in connection with any claim, action, suit, proceeding or
investigation (a "CLAIM"), based in whole or in part on the fact that such
Person is or was a director, officer or employee of Tenneco or any of its
subsidiaries and arising out of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions
contemplated by this Agreement and the Distribution Agreement), whether or not
such Claim was asserted prior to, at or after the Effective Time, in each case
to the fullest extent permitted under the DGCL or other applicable law (and
shall pay expenses in advance of the final disposition of any such Claim to
each Indemnified Party to the fullest extent permitted under the DGCL or other
applicable law, upon receipt from the Indemnified Party to whom expenses are
advanced of any undertaking to repay such advances required by Section 145(e)
of the DGCL or other applicable law). Notwithstanding anything contained
herein, Tenneco's obligation to indemnify any such person pursuant to this
SECTION 6.4 shall not affect the allocation of liability among the Energy
Group, the Industrial Group and Shipbuilding Group pursuant to the
Distribution Agreement and any corresponding indemnification rights
thereunder.
(c) Without limiting the generality of the foregoing, in the event any Claim
is brought against any Indemnified Party (whether arising before or after the
Effective Time):
(i) the Indemnified Party may retain counsel satisfactory to him with the
consent of Tenneco (or the consent of Acquiror and the Surviving
Corporation after the Effective Time) which consent of Tenneco (or, after
the Effective Time, Acquiror and the Surviving Corporation) with respect to
such counsel retained by the Indemnified Party may not be unreasonably
withheld or delayed;
(ii) Tenneco (or, after the Effective Time, Acquiror and the Surviving
Corporation) shall pay all reasonable fees and expenses of such counsel for
the Indemnified Party promptly as statements therefor are received; and
(iii) Tenneco (or, after the Effective Time, Acquiror and the Surviving
Corporation) will use all reasonable efforts to assist in the vigorous
defense of any such matter, provided that none of Tenneco, Acquiror or the
Surviving Corporation shall be liable for any settlement of any Claim
effected without its written consent, which consent, however, shall not be
unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under this SECTION 6.4,
upon learning of any such Claim, shall notify Tenneco (or, after the Effective
Time, Acquiror and the Surviving Corporation) (but any failure so to notify
shall not relieve Tenneco, Acquiror or the Surviving Corporation from any
liability which it may have under this SECTION 6.4, except to the extent such
failure materially prejudices such party), and shall deliver to Tenneco (or,
after the Effective Time, Acquiror and the Surviving Corporation) any
undertaking required by Section 145(e) of the DGCL or other applicable law.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to each such Claim unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(d) (i) MAINTENANCE OF D&O POLICIES. On or prior to the Closing Date,
Tenneco shall provide Acquiror with copies and a schedule of those Directors'
and Officers' Liability Insurance Policies which Tenneco shall enter into
effective as of the Closing Date (the "D&O POLICIES"). For a period of seven
years after the Effective Time, Acquiror and the Surviving Corporation shall
cause to be maintained in full force and effect the D&O Policies. Acquiror and
the Surviving Corporation shall be jointly and severally responsible for
payment of all premiums due as respects the D&O Policies and shall take all
other actions necessary or appropriate to maintain the D&O Policies in full
force and effect (other than to the extent the available limit of liability of
any such D&O Policy may be reduced or exhausted solely as the result of the
payment of claims thereunder) for the agreed term of seven years after the
Effective Time. If at any time an insurance carrier under any of the D&O
Policies becomes unable or unwilling, or it becomes probable that such
insurance carrier will be unable or unwilling (which determination shall be
made in the reasonable discretion of the Industrial Subsidiary), to fulfill
any of its obligations under any D&O Policy, whether due to such insurance
carrier's dissolution, bankruptcy, insolvency or otherwise, then Acquiror and
the Surviving Corporation shall obtain a directors' and officers' liability
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insurance policy in substitution (with an insurance carrier acceptable to the
Industrial Subsidiary) of each D&O Policy under which such insurance carrier
was to provide coverage (a "REPLACEMENT D&O POLICY"), which shall provide at
least the same coverage and amounts, and contain terms and provisions which
are no less favorable to the insured parties, as existed under the D&O Policy
so replaced. Acquiror and the Surviving Corporation shall pay any costs
associated with the obtaining and maintenance of any Replacement D&O Policy as
contemplated hereby.
(ii) OWNERSHIP AND ADMINISTRATION OF POLICIES. The parties hereto agree that
the D&O Policies and any Replacement D&O Policy shall be owned by the
Industrial Subsidiary. From and after the Effective Time, the Industrial
Subsidiary shall be solely responsible for all aspects of service and
administration of such policies (other than the payment of any premiums due),
including the notification to insurers, and the management, negotiation and
settlement, of any claims made under the D&O Policies and any Replacement D&O
Policy. From and after the Effective Time, Acquiror and the Surviving
Corporation shall have the right to participate in the negotiation and
participate in and consent to settlement (such consent not to be unreasonably
withheld or delayed) of any claim under the D&O Policies and any Replacement
D&O Policy for which, and then only to the extent, that either is obligated to
indemnify any of the present or former directors or officers of Tenneco or any
of its present or past subsidiaries ("DIRECTORS OR OFFICERS") for liabilities
associated with such claim. The Industrial Subsidiary's responsibilities for
administering and servicing the D&O Policies and any Replacement D&O Policy
shall in no manner restrict, reduce, limit or impair any of the Directors' or
Officers' rights to indemnification from Acquiror, the Surviving Corporation
or their respective successors or assigns in accordance with any applicable
Law, statute, charter or bylaw provision.
(iii) COOPERATION. Acquiror and the Surviving Corporation shall cooperate
with the Directors and Officers in the defense and settlement of any claim
made against them based upon or arising out of any actual or alleged wrongful
act (as such term may be defined in the applicable D&O Policies or Replacement
D&O Policy) occurring at or prior to the Effective Time. Acquiror and the
Surviving Corporation shall provide any reasonable assistance or information
that may be required by a Director or Officer in connection with any such
claim. Neither Acquiror, the Surviving Corporation nor any of their respective
representatives shall cause any action or inaction that could reasonably be
expected to jeopardize or otherwise impair the rights or ability of the
Directors or Officers to recover loss amounts due under the D&O Policies or
any Replacement D&O Policy.
(e) Neither Acquiror nor the Surviving Corporation shall take any action
that could reasonably be expected to jeopardize or otherwise interfere with
the ability of any of the Indemnified Parties to collect any proceeds payable
under any of the D&O Policies.
(f) Each of Tenneco, Acquiror and Subsidiary acknowledges and agrees that
the Industrial Subsidiary's responsibilities hereunder for Claims
Administration and Insurance Administration shall not relieve any Person
submitting an insured claim under any of the D&O Policies of
(i) the primary responsibility for giving notice of such insured claim
accurately, completely and in a timely manner, or
(ii) any other right or responsibility which such Person may have
pursuant to the terms of any of the D&O Policies.
(g) This SECTION 6.4 (and all other provisions of this Agreement necessary
or appropriate for purposes of enforcing this SECTION 6.4) is intended to be
for the benefit of, and shall be enforceable by, the Industrial Subsidiary and
the Indemnified Parties, their heirs and personal representatives and shall be
binding on Tenneco, the Surviving Corporation and Acquiror and each of their
respective successors and assigns.
6.5 NOTIFICATION OF CERTAIN MATTERS. Between the Agreement Effective Date
and the Effective Time, Tenneco and Acquiror shall give prompt notice to the
other of :
(i) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would likely cause
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(A) any of its representations or warranties contained in this
Agreement to be untrue or inaccurate, or
(B) any of its covenants, conditions or agreements contained in this
Agreement not to be complied with or satisfied; and
(ii) its (or in the case of Acquiror, Acquiror's or Subsidiary's) failure
to comply with or satisfy any of its covenants, conditions or agreements to
be complied with or satisfied by it (or, in the case of Acquiror, Acquiror
or Subsidiary) at or prior to the Effective Time;
provided, however, that the delivery of any notice pursuant to this SECTION
6.5 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.6 TAX TREATMENT.
(a) Each of Tenneco, on the one hand, and Acquiror and Subsidiary, on the
other hand, intend the Merger to qualify as a reorganization under Code
Section 368(a)(1)(B) and the Spinoffs to be treated as tax-free distributions
under Code Section 355, and each such party shall use its reasonable best
efforts to cause the Merger and Spinoffs to so qualify. Neither Tenneco, on
the one hand, nor Acquiror or Subsidiary, on the other hand, shall take any
action which might cause
(i) the Merger to fail to qualify as a reorganization under Code Section
368(a)(1)(B),
(ii) the Spinoffs to fail to qualify as tax free distributions under Code
Section 355,
(iii) any other transfer described in the Corporate Restructuring
Transactions that is intended (as described in Tenneco's request for
rulings from the Internal Revenue Service) to qualify as a tax free
transfer under Code Sections 332, 351, 355 or 368 to fail to so qualify, or
(iv) Tenneco or any Energy Subsidiary to recognize any gains relating to
deferred intercompany transactions or excess loss accounts between or among
any members of the affiliated group of corporations of which Tenneco is the
common parent (other than those deferred intercompany gains listed on
EXHIBIT I attached hereto).
(b) In furtherance of SECTION 6.6(A) above, Tenneco shall make the
representations set forth in EXHIBIT J attached hereto, and such other
representations as are reasonably necessary to ensure the tax-free treatment
of the Merger, Spinoffs and related transactions described in SECTION 6.6(A)
above, and shall assure the continuing accuracy of such representations.
(c) In furtherance of SECTION 6.6(A) above, Acquiror and Subsidiary shall
each make the representations set forth in EXHIBIT J attached hereto, and such
other representations as are reasonably necessary to ensure the tax-free
treatment of the Merger, Spinoffs and related transactions described in
SECTION 6.6(A) above, and shall assure the continuing accuracy of such
representations.
(d) The Industrial Subsidiary and the Shipbuilding Subsidiary (and their
respective direct and indirect subsidiaries and Affiliates) shall be deemed
third party beneficiaries of this SECTION 6.6 and all other provisions of this
Agreement necessary or appropriate for purposes of enforcing this SECTION 6.6.
6.7 REGISTRATION STATEMENT; JOINT PROXY STATEMENT; NPS MATERIALS; TENDER AND
EXCHANGE MATERIALS.
(a) As promptly as practicable after the Agreement Effective Date, Tenneco
and Acquiror shall prepare and file, or cause to be prepared and filed, with
the Commission a joint proxy statement (the "JOINT PROXY STATEMENT") and other
proxy solicitation materials relating to the Stockholders' Meeting (as defined
in SECTION 6.8 hereof), and Acquiror shall prepare and file, or cause to be
prepared and filed, with the Commission a registration statement on Form S-4
in which the Joint Proxy Statement shall be included as a prospectus (the
"REGISTRATION STATEMENT"), in connection with the registration under the
Securities Act of the shares of Acquiror Stock (and any Depositary Shares) to
be issued to the stockholders of Tenneco pursuant to the Merger.
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Each of Acquiror and Tenneco shall furnish or cause to be furnished to the
other party all information concerning itself and its subsidiaries as the
other party may reasonably request in connection with such actions and the
preparation of the Registration Statement and the Joint Proxy Statement (and
in connection with the preparation of the NPS Materials and the Tender and
Exchange Materials). Each of Acquiror and Tenneco hereby agree to take, and to
cause their respective subsidiaries to take,
(i) such actions as may be required to have the Registration Statement
and, to the extent applicable, the NPS Materials and the Tender and
Exchange Materials declared effective under the Securities Act and to have
the Joint Proxy Statement cleared by the Commission, in each case as
promptly as practicable, including by consulting with each other as to, and
responding promptly to, any Commission comments with respect thereto, and
(ii) such actions as may be required to be taken under applicable state
securities or "blue sky" laws in connection with the issuance of shares of
Acquiror Stock (and any Depositary Shares) pursuant to the Merger.
As promptly as practicable after the Registration Statement shall have become
effective, each of Tenneco and Acquiror shall mail the Joint Proxy Statement
to its respective stockholders (and Tenneco and Acquiror shall attempt to
effect their respective mailings on the same date), and the Joint Proxy
Statement shall include the recommendation of the board of directors of
Tenneco in favor of adoption and approval of this Agreement and the Merger and
the Spinoffs, and of the board of directors of Acquiror in favor of approval
of the Stock Issuance (as defined in SECTION 6.8 hereof); provided, however,
that no obligation of Tenneco pursuant to this SECTION 6.7(A) shall be
required to be performed if there is a substantial risk that the performance
thereof would constitute a breach of the fiduciary duties of the board of
directors of Tenneco as determined by the board of directors of Tenneco in
good faith after consultation with and based upon the advice of its
independent legal counsel (who may be its regularly engaged independent legal
counsel).
(b) Acquiror covenants that the information supplied by or on behalf of
Acquiror for inclusion in the Registration Statement and the Joint Proxy
Statement shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading, at any of:
(i) the time the Registration Statement (or any amendment or supplement
thereto) is declared effective;
(ii) the time the Joint Proxy Statement (or any amendment or supplement
thereto) is first mailed to the stockholders of Tenneco and Acquiror;
(iii) the time of each of the Stockholders' Meetings; and
(iv) the Effective Time.
Likewise, Acquiror covenants that the information and data supplied by or on
behalf of Acquiror for inclusion in the NPS Materials and Tender and Exchange
Materials (including, without limitation, all information and financial data
(pro forma or otherwise) relating to the business and operations of Tenneco
following consummation of the Merger supplied by or on behalf of Acquiror)
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, at all times through the completion of (A)
in the case of the NPS Materials, the offering and sale of the New Preferred
Stock, and (B) in the case of the Tender and Exchange Materials, the tender
and exchange offers pursuant to the Debt Realignment.
(c) Tenneco covenants that the financial information (including pro forma
financial data and information) supplied or to be supplied by Tenneco or its
representatives for inclusion or incorporation by reference in the
Registration Statement or the Joint Proxy Statement (or the NPS Materials
and/or Tender and Exchange Materials) shall comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, shall be prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto
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or, in the case of unaudited financial information, as permitted by the rules
of the Commission) and shall fairly present (subject, in the case of unaudited
financial information, to normal, recurring audit adjustments) the financial
information reflected therein as of the dates thereof or for the periods then
ended. The Joint Proxy Statement shall, as it relates to the Tenneco
Stockholders' Meeting, comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder,
except that no representation is herein made by Tenneco with respect to
statements made in the Joint Proxy Statement based on information supplied by
Acquiror or any of its representatives for inclusion in the Joint Proxy
Statement or with respect to information concerning Acquiror or any of its
subsidiaries (including Subsidiary) incorporated by reference in the Joint
Proxy Statement. If at any time prior to the Effective Time any event or
circumstance relating to Acquiror or any of its subsidiaries (including
Subsidiary), their respective officers or directors, or Acquiror's plans and
intentions regarding its operation of the Surviving Corporation after the
Merger should be discovered by Acquiror or any of its subsidiaries (including
Subsidiary) that should be set forth in an amendment or a supplement to the
Registration Statement or Joint Proxy Statement (or in any of the NPS
Materials or Tender and Exchange Materials), Acquiror shall promptly inform
Tenneco in writing.
(d) Tenneco covenants that the information supplied by or on behalf of
Tenneco for inclusion in the Registration Statement and the Joint Proxy
Statement shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading, at
(i) the time the Registration Statement (or any amendment or supplement
thereto) is declared effective,
(ii) the time the Joint Proxy Statement (or any amendment or supplement
thereto) is first mailed to the stockholders of Tenneco and Acquiror,
(iii) the time of each of the Stockholders' Meetings, and
(iv) the Effective Time.
Likewise, Tenneco covenants that the NPS Materials and Tender and Exchange
Materials shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading, at all times through the
completion of (A) in the case of the NPS Materials, the offering and sale of
the New Preferred Stock, and (B) in the case of the Tender and Exchange
Materials, the tender and exchange offers pursuant to the Debt Realignment;
provided, that the foregoing provisions of this sentence shall not apply to
any information or financial data (including pro forma financial information
and data) supplied by or on behalf of Acquiror, including information and data
relating to the business and operations of Tenneco following consummation of
the Merger.
(e) Acquiror covenants that the financial information (including pro forma
financial data and information regarding Acquiror or Tenneco) supplied or to
be supplied by Acquiror or its representatives for inclusion or incorporation
by reference in the Registration Statement or the Joint Proxy Statement (or
the NPS Materials or Tender and Exchange Materials) shall comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, shall
be prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited financial information, as permitted by the rules of the
Commission) and shall fairly present (subject, in the case of unaudited
financial information, to normal, recurring audit adjustments) the financial
information reflected therein as of the dates thereof or for the periods then
ended. Each of the Joint Proxy Statement, as it relates to the Acquiror Common
Stockholders' Meeting, and the Registration Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder or the Securities Act and the rules and regulations
thereunder, as applicable, except that no representation is herein made by
Acquiror with respect to statements made in the Joint Proxy Statement or
Registration Statement based on information supplied by Tenneco or any of its
representatives for inclusion in the Joint Proxy Statement or Registration
Statement or with respect to information concerning Tenneco or any of its
subsidiaries incorporated by reference in the Joint Proxy Statement or
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Registration Statement. If at any time prior to the Effective Time any event
or circumstance relating to Tenneco or any of its subsidiaries, or their
respective officers or directors, should be discovered by Tenneco or any of
its subsidiaries which should be set forth in an amendment or a supplement to
the Registration Statement or Joint Proxy Statement (or in any of the NPS
Materials or Tender and Exchange Materials), Tenneco shall promptly inform
Acquiror in writing.
(f) None of the Joint Proxy Statement, the Registration Statement, the NPS
Materials or the Tender and Exchange Materials shall be filed or distributed,
and, prior to the termination of this Agreement, no amendment or supplement to
the Joint Proxy Statement or the Registration Statement shall be filed or
distributed, by or on behalf of Tenneco or Acquiror, without consultation with
the other party and its counsel.
6.8 STOCKHOLDERS' MEETINGS. Tenneco shall call and hold a meeting of its
stockholders (the "Tenneco Stockholders' Meeting") for the purpose of voting
upon the adoption and approval of this Agreement, the Merger and the Spinoffs.
Acquiror shall call and hold a meeting of its stockholders (the "Acquiror
Common Stockholders' Meeting") for the purpose of voting upon the approval of
the issuance of Acquiror Common Stock in connection with the Merger as
contemplated by this Agreement (the "Stock Issuance") (the Acquiror Common
Stockholders' Meeting and the Tenneco Stockholders' Meeting being collectively
referred to herein as the "Stockholders' Meetings"). Each of Tenneco and
Acquiror shall use its reasonable best efforts to schedule and hold their
respective Stockholders' Meetings so that the Acquiror Common Stockholders'
Meeting occurs at least one business day prior to the Tenneco Stockholders'
Meeting, and otherwise so as not to delay the transactions contemplated hereby
(it being intended that the Joint Proxy Statement shall be mailed and the
Stockholders' Meetings shall be scheduled to occur as soon as practicable
after the receipt of the IRS Ruling Letter). Each of Tenneco and Acquiror
shall use its reasonable best efforts to solicit from its stockholders proxies
in favor of the approval and adoption of this Agreement, the Merger and the
Spinoffs or the Stock Issuance, as applicable, and shall take all other action
necessary or advisable to secure the vote or consent of stockholders required
therefor by applicable Law and/or its certificate of incorporation or other
governing instrument or document. The stockholders of Tenneco will vote on the
Spinoffs and the Merger as a single transaction. Notwithstanding the
foregoing, Tenneco shall not be required to take any action if there is a
substantial risk that the subject action would constitute a breach of the
fiduciary duties of the board of directors of Tenneco as determined by the
board of directors of Tenneco in good faith after consultation with and based
upon the advice of independent legal counsel (who may be its regularly engaged
independent legal counsel).
6.9 FURTHER ACTION; REASONABLE BEST EFFORTS.
(a) Upon the terms and subject to the provisions of this Agreement, each of
the parties hereto shall use its reasonable best efforts to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations promptly
to consummate and make effective the transactions contemplated hereby and by
the Distribution Agreement (subject, however, to the vote of the stockholders
of Tenneco and, to the extent required, Acquiror as provided herein),
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities and parties to contracts with Tenneco and,
to the extent required, Acquiror and their respective subsidiaries as are
necessary for the consummation of the transactions contemplated by this
Agreement. Each party hereto shall promptly consult with each other party with
respect to, and provide to each other party all such information or
documentation which shall be reasonably requested with respect to, all filings
made by such party with any Governmental Authority in connection with this
Agreement and the transactions contemplated hereby. In case at any time after
the Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall use their reasonable best efforts to take all
such action.
(b) Between the Agreement Effective Date and the Closing Date,
(i) Tenneco and Acquiror shall, and shall cause their respective
Affiliates and representatives to, consult, cooperate and work together in
good faith and with reasonable best efforts and all deliberate speed to
attempt jointly to obtain a favorable resolution prior to the Effective
Time with respect to pending
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regulatory proceedings affecting the Energy Business, including sharing
ideas and information concerning alternative approaches to resolving such
regulatory proceedings and coordinating the timing and content of
communications with customers of the Energy Business, affecting the Energy
Business, and regulatory authorities having jurisdiction over the
operations of the Energy Business; provided, that any settlement (or
proposed settlement) of any such regulatory proceedings shall require the
consent of both Tenneco and Acquiror, such consent not to be arbitrarily
withheld; and
(ii) Tenneco shall, and shall cause its Affiliates and representatives
to, consult and work with Acquiror and its Affiliates and representatives
to attempt to obtain favorable resolutions of material litigation affecting
the Energy Business; provided that, except as otherwise set forth on
EXHIBIT G attached hereto, any settlement (or proposed settlement) of any
such litigation shall require the consent of Acquiror, such consent not to
be arbitrarily withheld.
(c) Except as set forth on EXHIBIT G attached hereto, between the Agreement
Effective Date and the Closing Date, the Energy Business shall not incur any
additional off balance sheet indebtedness for the purpose of monetization of
any Energy Assets. Subject to the terms of the previous sentence, Acquiror and
Tenneco shall consult and cooperate with each other with respect to off-
balance sheet financing opportunities for the Australian assets of the Energy
Business, the Orange Cogeneration Project and the South Sulawesi Project and
any such off-balance sheet financing may be incurred by mutual agreement
between Acquiror and Tenneco.
Between the Agreement Effective Date and the Closing Date, Tenneco shall
attempt to cooperate with Acquiror to the extent reasonably requested by
Acquiror in connection with sales by the Energy Business after the Closing
Date of material Energy Assets; provided that any such transactions shall be
subject to the covenants, restrictions and limitations set forth in SECTION
6.6 hereof.
(d) Between the Agreement Effective Date and the Closing Date, Tenneco
shall, to the extent permitted by law, consult and work in good faith with
Acquiror with respect to the payment and administration of accounts payable,
inventory levels and policies and the collection and administration of
accounts receivable of the Energy Business and the making of capital
expenditures by the Energy Business to preserve the value of the Energy
Business and not to artificially delay payment of accounts payable, accelerate
collections of accounts receivable, alter inventory levels or unreasonably
delay capital expenditures; provided, however, that Tenneco shall have the
right to effect the actions and transactions identified on EXHIBIT G attached
hereto. To the extent permitted by Law, Tenneco shall consult with Acquiror
with respect to other matters pertaining to the operation of the Energy
Business. Each of Tenneco and Acquiror shall designate one or more members of
management to act as coordinators with respect to the matters covered by this
SECTION 6.9.
(e) Each party shall use its reasonable best efforts to not take any action,
or enter into any transaction, that would cause any of its representations or
warranties contained in this Agreement to be untrue or result in a breach of
any covenant made by it in this Agreement.
(f) The Industrial Subsidiary shall be a deemed third party beneficiary of
this SECTION 6.9 and all other provisions of this Agreement necessary or
appropriate for purposes of enforcing this SECTION 6.9.
6.10 PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with each other
before issuing any press release or otherwise issuing any other similar
written public statement with respect to this Agreement or the Merger and
shall not issue any such press release or make any such public statement
without the prior consent of each other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of
any other party, issue such press release or other similar written public
statement as may be required by law or any listing agreement with a national
securities exchange to which Tenneco or Acquiror is a party if it has used all
reasonable efforts to consult with such other party and to obtain such party's
consent but has been unable to do so in a timely manner. Further, the parties
shall use their respective reasonable best efforts to coordinate and jointly
schedule and interface with the various Governmental Authorities and ratings
agencies and other applicable bodies and groups involved or otherwise
interested in the transactions contemplated by this Agreement.
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6.11 LISTING OF ACQUIROR COMMON STOCK AND DEPOSITARY SHARES. Acquiror shall
use its reasonable best efforts to cause the shares of Acquiror Common Stock
and any Depositary Shares to be issued in or in connection with the Merger to
be approved for listing on the NYSE and any other national securities exchange
on which shares of Acquiror Common Stock may at such time be listed, subject
to official notice of issuance prior to the Effective Time.
6.12 RIGHTS AGREEMENT. Except as contemplated by this Agreement, prior to
the Effective Time the Board of Directors of Tenneco shall not, without the
prior written approval of Acquiror,
(i) amend or supplement the Rights Agreement in any manner that would
cause either a "Triggering Event" or a "Distribution Date" (in each case as
defined in the Rights Agreement) to occur or to be deemed to have occurred
solely by reason of the execution of this Agreement and the consummation of
the transactions contemplated hereby, or
(ii) redeem the Rights.
6.13 THE SPINOFFS. Prior to the Closing, Tenneco shall enter into the
Distribution Agreement (with only such amendments or modifications as are not
prejudicial, other than to a de minimis extent, to the Energy Business or do
not materially delay or prevent consummation of the Merger) and shall cause
the Industrial Subsidiary and the Shipbuilding Subsidiary to enter into the
Distribution Agreement (with only such amendments), and Tenneco shall take, or
cause to be taken, all actions and do, or cause to be done, all things
necessary to effect the Spinoffs pursuant to the terms of the Distribution
Agreement (with only such amendments). Notwithstanding the foregoing, after
prior notice to Acquiror, Tenneco may furnish information or enter into
negotiations regarding, or enter into an agreement for, any sale, merger or
other disposition transaction(s) involving either or both of the Shipbuilding
Business and/or the Industrial Business, or any portion of either (an "S/I
TRANSACTION"), which may render either or both of the Spinoffs (or any portion
thereof) impossible or impracticable; provided, that Tenneco shall not solicit
any S/I Transaction involving the Industrial Subsidiary, the Shipbuilding
Subsidiary, the Industrial Business as a whole, the Shipbuilding Business as a
whole or any other S/I Transaction which could be reasonably predicted to
render the Merger impossible or impracticable or materially delay or prevent
consummation thereof. Tenneco may enter into any such S/I Transaction in its
sole discretion if the subject S/I Transaction would not be adverse, other
than to a de minimis extent, to Acquiror or the Energy Business (including
with respect to any covenants or obligations of a party under this Agreement
or the Distribution Agreement) and would not render the Merger impossible or
impracticable or materially delay or prevent consummation thereof. If the S/I
Transaction would be so adverse to Acquiror or the Energy Business, or would
render the Merger impossible or impracticable or materially delay or prevent
consummation thereof, then S/I Transaction may be pursued and/or entered into
only (a) prior to the approval of this Agreement, the Merger and the Spinoffs
by the Tenneco stockholders and (b) if Tenneco's board of directors determines
in good faith, after consultation with and based upon the advice of
independent legal counsel (which may be Tenneco's regularly engaged
independent legal counsel), that there is a substantial risk that the failure
to do so would constitute a breach of its fiduciary duties under applicable
Law.
6.14 ANTITRUST MATTERS.
(a) Tenneco and Acquiror shall file with the Federal Trade Commission and
the Department of Justice, as promptly as practicable but in any event within
20 business days of the Agreement Effective Date, the notification and report
form required for the transactions contemplated hereby and shall promptly
provide any supplemental information which may be reasonably requested in
connection therewith pursuant to the HSR Act, which notification, report and
supplemental information shall comply in all material respects with the
requirements of the HSR Act.
(b) Although the parties do not believe that the Merger has any antitrust
implications, Acquiror shall use all reasonable efforts to resolve antitrust
objections, if any, that may be asserted with respect to the transactions
contemplated hereby by the Federal Trade Commission, the Antitrust Division of
the Department of Justice or any other federal or state agency. Acquiror shall
make such divestitures, or enter into such hold-separate
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agreements, as may be necessary to prevent the entry of, or effect the
dissolution of, any injunction, temporary restraining order or other order
that has the effect of preventing for any period of time the consummation of
the Merger in any respect. Acquiror shall reimburse Tenneco for reasonable
attorneys' fees and costs incurred by Tenneco in connection with defending any
antitrust investigation or other proceeding brought by any of the above
identified entities.
6.15 EMPLOYEE MATTERS.
(a) Prior to the Effective Time, Tenneco shall enter into the Benefits
Agreement and shall take the actions with respect to compensation and benefits
described elsewhere in this Agreement or in the Distribution Agreement.
(b) Acquiror shall provide, or shall cause the Surviving Corporation (or any
of its subsidiaries, as appropriate) to provide, to the employees and former
employees of the Energy Business and the dependents of either, as applicable,
the benefits described in EXHIBIT K attached hereto.
6.16 DEBT REALIGNMENT. Each of Tenneco and Acquiror shall use its reasonable
best efforts so that, immediately prior to the Spinoffs, the Debt Realignment
has been effected (with only such modifications as are not adverse, except to
a de minimis extent, to Acquiror, the Energy Business, the Industrial
Subsidiary or the Shipbuilding Subsidiary).
6.17 NO SOLICITATIONS. Tenneco shall immediately cease any existing
discussions or negotiations with any third parties conducted prior to the date
hereof with respect to any merger, consolidation, business combination, sale
of the Energy Business, sale of a Major Subsidiary, tender or exchange offer
or similar transaction involving the Energy Business as a whole or any Major
Subsidiary as a whole, other than the transactions contemplated by this
Agreement or the Distribution Agreement (an "ACQUISITION TRANSACTION").
Neither Tenneco nor any of its subsidiaries nor any of their respective
directors and officers shall, and Tenneco shall use its best efforts to ensure
that none of its or its subsidiaries' Affiliates, representatives or agents
shall, directly or indirectly, solicit any person, entity or group concerning
any Acquisition Transaction; provided, however, that, after prior notice to
Acquiror and prior to the approval of this Agreement, the Merger and the
Spinoffs by the Tenneco stockholders, Tenneco may furnish information or enter
into negotiations regarding, or enter into an agreement for, an Acquisition
Transaction if Tenneco's board of directors determines in good faith, after
consultation with and based upon the advice of independent legal counsel
(which may be Tenneco's regularly engaged independent legal counsel), that
there is a substantial risk that the failure to do so would be found to
constitute a breach of its fiduciary duties under applicable Law, but only in
response to a proposal (which may be subject to due diligence) for an
Acquisition Transaction received by Tenneco which the board of directors of
Tenneco determines in good faith after consultation with its financial
advisors is reasonably likely to result in consummation of an Acquisition
Transaction more favorable, from a financial point of view, to the
stockholders of Tenneco than the transactions contemplated hereby, taking into
account the financial responsibility of the party making such proposal, as
then reasonably determinable by Tenneco, and such party's ability, as then
reasonably determinable by Tenneco, to obtain regulatory approvals for such
Acquisition Transaction (a "HIGHER PROPOSAL"). Tenneco shall advise Acquiror
immediately if any proposal of or other indication of interest in a Higher
Proposal is received by Tenneco and the terms and conditions thereof and keep
Acquiror promptly informed of the status thereof.
6.18 PERFORMANCE OF AGREEMENT AND DISTRIBUTION AGREEMENT. After the
Effective Time, Acquiror shall, and shall cause the Surviving Corporation and
the Energy Subsidiaries to, perform their respective obligations under this
Agreement and the Distribution Agreement and their respective obligations
under each and every other agreement to be entered into pursuant to the
Distribution Agreement and/or the Spinoffs, and Acquiror hereby guarantees the
full and timely payment and performance of all of the respective obligations
and covenants of Tenneco, the Surviving Corporation and the Energy
Subsidiaries under this Agreement and the Distribution Agreement and their
respective obligations under each and every other agreement to be entered into
pursuant to the Distribution Agreement and/or the Spinoffs, which are to be
performed from and after the Effective Time. Without limiting the generality
of the foregoing sentence, the foregoing covenant and guarantee of Acquiror
shall
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specifically be deemed to apply to the obligations of the Surviving
Corporation to make any payments due to the Industrial Subsidiary pursuant to
Section 6 of the Tax Sharing Agreement attached to the Distribution Agreement
in respect of any Tax Benefit attributable to any Debt Discharge Item (as
those terms are defined in the Tax Sharing Agreement). The Industrial
Subsidiary and the Shipbuilding Subsidiary are hereby designated as, and
deemed to be, third party beneficiaries of this SECTION 6.18 (and all other
provisions of this Agreement necessary or appropriate for purposes of
enforcing the terms of this SECTION 6.18). The covenants and guarantees of
Acquiror set forth in this SECTION 6.18 are not in limitation of or
substitution for, but are in addition to, the Guarantees attached hereto as
EXHIBIT L, which shall be executed by Acquiror and delivered to the Industrial
Subsidiary and the Shipbuilding Subsidiary on the Closing Date.
6.19 AFFILIATES OF TENNECO. Tenneco shall promptly deliver to Acquiror a
letter
(i) identifying all Persons who may be deemed affiliates of Tenneco under
Rule 145 of the Securities Act, including, without limitation, all
directors and executive officers of Tenneco, and
(ii) representing to Acquiror that Tenneco has advised the Persons
identified in such letter of the resale restrictions with respect to shares
of Acquiror Common Stock and any Depositary Shares received in connection
with the Merger imposed by applicable securities laws. Tenneco shall use
its reasonable best efforts to obtain from each Person identified in such
letter a written agreement, substantially in the form of EXHIBIT M.
Tenneco shall use its reasonable best efforts to obtain as soon as practicable
from any Person who may be deemed to have become an Affiliate of Tenneco after
Tenneco's delivery of the letter referred to above and prior to the Effective
Time, a written agreement substantially in the form of EXHIBIT M.
6.20 ANTITAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, each of the parties hereto
and the members of its board of directors shall grant such approvals and take
such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on any of the transactions contemplated by this
Agreement; provided however, that no party hereto shall be required to take
any action if there is a substantial risk that the subject action would be
held to constitute a breach of the fiduciary duties of the board of directors
of the subject party, as determined by the subject board of directors in good
faith after consultation with and based upon the advice of independent legal
counsel (who may be the subject party's regularly engaged independent
counsel).
6.21 EQUITY ISSUANCE BY ACQUIROR. Acquiror intends, subject to market
conditions, to issue, after the Closing Date, $150,000,000 to $250,000,000 of
equity securities. The initial press release with respect to the transactions
contemplated hereby will include disclosure of Acquiror's intention to effect
such issuances of additional equity securities.
6.22 RUHRGAS AG. Between the Agreement Effective Date and the Closing Date,
Tenneco shall use its reasonable best efforts to repurchase for cash the
equity interest of Ruhrgas AG in Tenneco Energy Resources Corporation,
provided that the terms of any such repurchase shall be acceptable to
Acquiror. Acquiror shall have the right to participate in any discussions or
negotiations with Ruhrgas AG with respect to the foregoing.
6.23 ADDITIONAL COVENANTS OF ACQUIROR.
(a) From the Agreement Effective Date through the Effective Time, Acquiror
shall not take, enter into or propose, or allow any of its subsidiaries to
take, enter into or propose, any action or transaction (other than actions or
transactions expressly permitted under this Agreement) which is primarily for
the purpose of reducing the value of the transactions contemplated by this
Agreement and the Distribution Agreement to the stockholders of Tenneco.
(b) From the Agreement Effective Date through the Effective Time, Acquiror
shall not enter into any internal corporate restructuring involving Acquiror
and one or more of its direct or indirect subsidiaries.
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(c) During the Black-out Period, except as expressly contemplated by this
Agreement or the Distribution Agreement in order to effect the transactions
described herein or therein:
(i) Acquiror and its subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and use all reasonable efforts to
preserve intact their present business organizations, and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their goodwill and ongoing businesses shall not
be impaired in any material respect at the Effective Time.
(ii) Acquiror shall not, nor shall Acquiror permit any of its
subsidiaries to, nor shall Acquiror or any of its subsidiaries propose to,
(A) declare or pay any dividends on or make other distributions in respect
of any of its capital stock (other than intercompany dividends and regular
quarterly dividends on Acquiror Common Stock), (B) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) repurchase or otherwise
acquire any shares of capital stock.
(iii) Except for the issuance of shares of Acquiror Common Stock upon the
exercise of outstanding stock options disclosed in Section 5.2 hereof,
Acquiror shall not issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any
class, any debt or securities convertible into, or any rights, warrants or
options to acquire, any such shares or convertible securities or debt.
(iv) Acquiror shall not amend or propose to amend its Certificate of
Incorporation or By-laws or other organizational documents.
(v) Acquiror shall not, nor shall it permit any of its subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets, in each case which are
material, individually or in the aggregate, to Acquiror and its
subsidiaries taken as a whole.
(vi) Except for sales of inventory and services in the ordinary course of
business, Acquiror shall not, nor shall it permit any of its subsidiaries
to, sell, lease, encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets, which are material,
individually or in the aggregate, to Acquiror and its subsidiaries taken as
a whole.
(d) If the Stock Issuance is not approved by the requisite vote of the
holders of Acquiror Common Stock at the Acquiror Common Stockholders' Meeting,
Acquiror, prior to or as of the Effective Time, shall: (i) enter into the
Depositary Agreement with the Depositary so that the holders of Tenneco Common
Stock are issued Depositary Shares in connection with the Merger and such
holders of Depositary Shares will have rights equivalent to those of holders
of whole shares of Acquiror Preferred Stock (to the extent of their fractional
interest therein); and (ii) issue to the Depositary, and deliver to the
Depositary certificates for, the number of shares of Acquiror Preferred Stock
provided for in the SECTION 2.5 (E) (II) (B) hereof.
(e) From and after the Agreement Effective Date, Acquiror shall use its
reasonable best efforts, and shall cause its subsidiaries and Affiliates to
use their respective reasonable best efforts, to cause each of the "EPNGC
Facilities" (as defined in that certain $3 Billion Revolving Credit and
Competitive Advance Facility Agreement (the "$3 Billion Credit Agreement")
among Tenneco Inc., the several banks and other financial institutions (the
"Bank Group") from time to time parties to the $3 Billion Credit Agreement and
The Chase Manhattan Bank, as agent ("Chase"), to become in full force and
effect no later than the "Effective Date" under Section 3.1 of the $3 Billion
Credit Agreement, and to remain in full force and effect from said Effective
Date through the "Closing Date" under Section 3.2 of the $3 Billion Credit
Agreement. From and after the Agreement Effective Date, Tenneco shall use its
reasonable best efforts, and shall cause its subsidiaries and Affiliates to
use their respective reasonable best efforts, to cause the $3 Billion Credit
Agreement to become in full force and effect in order to effect the
transactions contemplated by the Debt Realignment.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party hereto to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction, at or
prior to the Closing, of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the Commission under the
Securities Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceedings for that purpose shall have been initiated or, to the knowledge
of Tenneco or Acquiror, threatened by the Commission.
(b) STOCKHOLDER APPROVAL. This Agreement, the Merger and the Spinoffs
(and/or any S/I Transaction, if requiring such approval) shall have been
approved and adopted by the requisite vote of the stockholders of Tenneco
in accordance with the certificate of incorporation of Tenneco and the
DGCL.
(c) HSR ACT. The waiting period under the HSR Act applicable to the
transactions contemplated hereby shall have expired or been terminated.
(d) OTHER APPROVALS. All authorizations, consents, orders and approvals
of, and declarations or filings with, and expirations of waiting periods
imposed by, any Governmental Authority or other Person which if not
obtained or filed would have a Material Adverse Effect on Acquiror or a
Material Adverse Effect on Tenneco shall have been obtained or filed, as
applicable, and shall be in full force and effect.
(e) NO ORDER. No Governmental Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Merger or
any transaction contemplated by this Agreement; it being understood that
the parties hereto hereby agree to use their reasonable best efforts to
cause any such decree, judgment, injunction or other order to be vacated or
lifted as promptly as possible.
(f) NYSE LISTING. The Acquiror Common Stock and any Depositary Shares
issuable to stockholders of Tenneco in accordance with SECTION 2.5 hereof
shall have been authorized for listing on the NYSE upon official notice of
issuance.
(g) TAX RULING. Tenneco shall have received rulings from the Internal
Revenue Service (the "IRS RULING LETTER"), reasonably acceptable to Tenneco
and Acquiror, to the effect that:
(i) the distribution of the capital stock of the Industrial
Subsidiary on a pro rata basis to the stockholders of Tenneco as
contemplated under the Distribution Agreement will be tax-free for
federal income tax purposes to Tenneco under Section 355(c)(1) of the
Code and to the stockholders of Tenneco under Section 355(a) of the
Code;
(ii) the distribution of the capital stock of the Shipbuilding
Subsidiary on a pro rata basis to the stockholders of Tenneco as
contemplated under the Distribution Agreement will be tax-free for
federal income tax purposes to Tenneco under Section 355(c)(1) of the
Code and to the stockholders of Tenneco under Section 355(a) of the
Code;
(iii) The following distributions will be tax free to the respective
transferor corporations under Section 355(c)(1) or 361a) of the Code
and to the respective stockholders of the transferor corporation under
Section 355(a) of the Code: (A) the distribution by the Shipbuilding
Subsidiary of the capital stock of Tenneco Packaging Inc. to Tenneco
Corporation as contemplated under the Distribution Agreement, (B) the
distribution by Tenneco Corporation of the capital stock of the
Shipbuilding Subsidiary and the Industrial Subsidiary to Tennessee Gas
Pipeline Company as contemplated under
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the Distribution Agreement and (C) the distribution by Tennessee Gas
Pipeline Company of the capital stock of the Shipbuilding Subsidiary
and the Industrial Subsidiary to Tenneco Inc. as contemplated under the
Distribution Agreement.
(h) SPINOFFS CONSUMMATED. The Distribution Agreement, in substantially the
form attached hereto with such changes as do not adversely affect, other than
to a de minimis extent, the Energy Business, shall have been duly executed and
delivered by each of Tenneco, the Industrial Subsidiary and the Shipbuilding
Subsidiary, and the transactions contemplated thereby, including the Spinoffs
(and/or any S/I Transaction) and the Debt Realignment, shall have been
consummated (with only such changes).
(i) TAX OPINION. Tenneco shall have received an opinion of Jenner & Block,
in form and substance substantially as set forth in EXHIBIT N attached hereto,
dated the Closing Date, which opinion may be based on appropriate
representations of Tenneco and Acquiror that are in form and substance
reasonably satisfactory to Jenner & Block. The condition set forth in this
SECTION 7.1(I) shall be deemed satisfied to the extent the matters referred to
as to be covered by the tax opinion are instead covered by the IRS Ruling
Letter.
(j) NEW PREFERRED STOCK. The New Preferred Stock shall have been issued by
Tenneco and shall be outstanding as set forth in SECTION 6.1(D) hereof and, if
publicly issued or issued as a dividend-in-kind to the stockholders of
Tenneco, shall have been authorized for listing on the NYSE upon official
notice of issuance.
(k) DEBT REALIGNMENT. The Debt Realignment shall have been effected in
accordance with EXHIBIT C attached hereto.
(l) CHARTER AMENDMENT. The Charter Amendment shall have become effective.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND SUBSIDIARY. The
obligations of Acquiror and Subsidiary to consummate the Merger and the other
transactions contemplated herein are also subject to the satisfaction, at the
Closing, of all of the following conditions, any one or more of which may be
waived, in whole or in part, by Acquiror and Subsidiary:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Tenneco contained in this Agreement, without giving effect to
any notification to Acquiror delivered pursuant to SECTION 6.5 hereof,
shall be true and correct as of the Closing Date as though made on and as
of the Closing Date, except
(i) for changes specifically permitted by this Agreement, and
(ii) that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such
date,
except in any case for such failures to be true and correct which would
not, individually or in the aggregate, have a Material Adverse Effect on
Tenneco.
(b) AGREEMENTS AND COVENANTS. Tenneco shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Closing.
(c) OFFICERS' CERTIFICATES. Acquiror shall have received certificates,
dated the Closing Date, of
(i) the President or any Vice President of Tenneco certifying as to
the matters specified in SECTIONS 7.2(A) and (B) hereof and
(ii) the Secretary of Tenneco certifying as to (A) the content and
continuing effectiveness as of the Closing Date of the resolutions of
the board of directors of Tenneco approving this Agreement and the
transactions contemplated hereby, and (B) the fact that this Agreement
and the transactions contemplated hereby have been duly approved by the
requisite vote of the stockholders of Tenneco in accordance with the
certificate of incorporation of Tenneco and the DGCL and that such
approval is in full force and effect.
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(d) CERTAIN LEGISLATION. There shall not have occurred any announcement
or introduction of legislation by an Appropriate Person as a result of
which Acquiror reasonably determines, in good faith after consultation with
Tenneco and its advisors, that there exists a reasonable likelihood that
the Spinoffs or the Merger would not be tax free for federal income tax
purposes to Tenneco and Acquiror. For purposes of this SECTION 7.2(D), an
"Appropriate Person" is a member of the House Ways and Means Committee or
the Senate Finance Committee, the President or a President-elect, a
cabinet-level member of the Executive Branch, an Assistant Secretary of the
Treasury, the Reporting Assistant Secretary of the Treasury for Tax Policy,
the Tax Legislation Counsel, the Chief of Staff of the Joint Committee of
Taxation or a current or presumptive Majority or Minority Leader of the
House or Senate.
7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TENNECO. The obligations of
Tenneco to consummate the transactions contemplated hereby are also subject to
the satisfaction, at the Closing, of all of the following conditions, any one
or more of which may be waived, in whole or in part, by Tenneco:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Acquiror and Subsidiary contained in this Agreement, without
giving effect to any notification made by Acquiror to Tenneco pursuant to
SECTION 6.5 hereof, shall be true and correct as of the Closing Date, as
though made on and as of the Closing Date, except
(i) for changes specifically permitted by this Agreement, and
(ii) that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such
date,
except in any case for such failures to be true and correct which would not,
individually or in the aggregate, have a Material Adverse Effect on Acquiror.
(b) AGREEMENTS AND COVENANTS. Each of Acquiror and Subsidiary shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
at or prior to the Closing.
(c) OFFICERS' CERTIFICATES. Tenneco shall have received certificates,
dated the Closing Date, of
(i) the President or any Vice President of each of Acquiror and
Subsidiary certifying as to the matters specified in SECTIONS 7.3(A)
and (B) hereof and
(ii) the Secretaries or Assistant Secretaries of Acquiror and
Subsidiary certifying as to (A) the content and continuing
effectiveness as of the Closing Date of the resolutions of the sole
stockholder of Subsidiary and of the boards of directors of Acquiror
and Subsidiary approving this Agreement and the transactions
contemplated hereby, and (B) the fact that the Stock Issuance has been
duly approved, if required, by the requisite vote of the stockholders
of Acquiror in accordance with the rules and regulations of the NYSE,
any other applicable Law and the certificate of incorporation and/or
other governing document or instrument of Acquiror, and that such
approval is in full force and effect, or, alternatively, that no such
vote of the stockholders is so required.
ARTICLE VIII
TERMINATION
8.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after adoption and approval of
this Agreement, the Merger and the Spinoffs by the stockholders of Tenneco and
approval of the Stock Issuance by the stockholders of Acquiror:
(i) by the mutual written agreement of Tenneco and Acquiror authorized by
their respective boards of directors;
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(ii) by Tenneco or by Acquiror if the Merger shall not have been
consummated prior to June 30, 1997 unless such eventuality shall be due to
the failure of the party seeking to terminate this Agreement to perform or
observe any of the covenants, agreements and conditions hereof to be
performed or observed by such party on or prior to the Closing Date;
(iii) by Tenneco or by Acquiror if Tenneco enters into an S/I Transaction
pursuant to the last sentence of SECTION 6.13 above;
(iv) by Acquiror if
(A) there has been a material breach on the part of Tenneco in the
representations, warranties or covenants of Tenneco set forth herein,
or any failure on the part of Tenneco to comply with its obligations
hereunder or any other events or circumstances shall have occurred such
that, in any such case, any of the conditions to the consummation of
the Merger set forth in SECTIONS 7.1 or 7.2 hereof could not be
satisfied on or prior to the termination date contemplated by paragraph
(ii) of this SECTION 8.1,
(B) Tenneco's stockholders entitled to vote thereat do not adopt and
approve this Agreement, and the Merger and the Spinoffs as contemplated
by Section 7.1(B) hereof at the Tenneco Stockholders' Meeting,
(C) the board of directors of Tenneco withdraws, amends, or modifies
in a manner materially adverse to Acquiror its favorable recommendation
of this Agreement or the Merger, or approves an agreement for or
recommends to the stockholders of Tenneco an Acquisition Transaction,
provided that any action taken by Tenneco pursuant to PARAGRAPH (V)(A)
of this SECTION 8.1 or any public announcement by Tenneco relating
thereto shall not give rise to any right of termination by Acquiror, or
(D) there has occurred since the Agreement Effective Date of any
event, change or effect which, in the aggregate with all other events,
changes or effects (giving effect to both positive and negative events,
changes and events), reduces the value of the Energy Business as of the
Agreement Effective Date by more than $75,000,000, but excluding any
negative events, changes or effects which result from (A) any action by
Acquiror or any of its subsidiaries, Affiliates, officers, employees,
agents or representatives, (B) changes in general economic, financial
(including, without limitation, equity and debt) markets or industrial
conditions, and (C) any ruling by the Federal Energy Regulatory
Commission Administrative Law Judge in the proceedings regarding the
Energy Business pending as of the Agreement Effective Date before the
Federal Energy Regulatory Commission Administrative Law Judge, or
(v) by Tenneco if
(A) there has been a material breach on the part of Acquiror or
Subsidiary in the representations, warranties or covenants of Acquiror
or Subsidiary set forth herein, or any failure on the part of Acquiror
or Subsidiary to comply in any material respect with its obligations
hereunder or any other events or circumstances shall have occurred such
that, in any such case, any of the conditions to the consummation of
the Merger set forth in SECTIONS 7.1 or 7.3 hereof could not be
satisfied on or prior to the termination date contemplated by paragraph
(ii) of this SECTION 8.1,
(B) Tenneco's stockholders entitled to vote thereat do not adopt and
approve this Agreement,the Merger and the Spinoffs as contemplated by
SECTION 7.1(B) hereof at the Tenneco Stockholders' Meeting,
(C) the board of directors of Acquiror withdraws, amends, or modifies
in a manner materially adverse to Tenneco its favorable recommendation
of this Agreement, the Merger or the Stock Issuance, or approves an
agreement for or recommends to the stockholders of Acquiror an
Acquisition Transaction, provided that any action taken by Acquiror
pursuant to PARAGRAPH (IV)(A) of this SECTION 8.1 or any public
announcement by Acquiror relating thereto shall not give rise to any
right of termination by Tenneco, or
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(D) there has occurred since the Agreement Effective Date any event,
change or effect which, in the aggregate with all other events, changes
or effects (giving effect to both positive and negative events, changes
and events), reduces the value of Acquiror as of the Agreement
Effective Date by more than $75,000,000, but excluding any negative
events, changes or effects which result from (i) any action by Tenneco
or any of its subsidiaries, Affiliates, officers, employees, agents or
representatives, and (ii) changes in general economic, financial
(including, without limitation, equity and debt) market or industrial
conditions; or
(vi) by Tenneco or by Acquiror (but only prior to the approval of this
Agreement by Tenneco's stockholders) if
(1) Tenneco receives a Higher Proposal that it advises Acquiror in
writing Tenneco wishes to accept and
(2) Acquiror does not make, within five business days of receipt of
written notice of Tenneco's desire to accept such Higher Proposal, an
offer that the board of directors of Tenneco believes, in good faith
after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of
Tenneco as the Higher Proposal.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated by Tenneco or by
Acquiror as permitted under SECTION 8.1 hereof, except as provided in SECTION
10.1(B) such termination shall be without liability to the terminating party,
or any stockholder, director, officer, employee, agent, consultant or
representative of such party, but such termination shall not relieve any other
party of any damages or other amounts for which it would otherwise be liable.
8.3 WAIVER. Any time prior to the Effective Time any party hereto, by action
taken or authorized by its board of directors, may, to the extent legally
allowed:
(i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the
other parties contained herein or in any document delivered pursuant
hereto, and
(iii) waive compliance by any of the other parties hereto with any of the
agreements or conditions contained herein. Any waiver of rights by any
party hereto shall be valid only if set forth in a written instrument
signed on behalf of such party.
ARTICLE IX
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS
9.1 SCOPE OF REPRESENTATIONS. Except as set forth in ARTICLES IV and V
hereof, the parties make no representations or warranties whatsoever, and each
party disclaims all liability and responsibility for any other representation,
warranty, statement or information made or communicated (orally or in writing)
to another party (including, but not limited to, any opinion, information or
advice which may have been provided to Acquiror or Subsidiary by any officer,
stockholder, director, employee, agent or consultant of Tenneco, Lazard or any
other agent or representative of Tenneco). Acquiror acknowledges and affirms
that it has made its own independent investigation, analysis and evaluation of
Tenneco and its subsidiaries, their properties and assets, operations,
business and prospects, and that it is relying exclusively upon such
investigation, analysis and evaluation in entering into this Agreement.
9.2 SURVIVAL. The representations, warranties, covenants and agreements set
forth in this Agreement and in any certificate delivered in connection
herewith shall survive until the Effective Time and, except for SECTIONS 2.3,
2.6, 6.2(B), 6.3(B), 6.4, 6.6, 6.9(A) AND (F), 6.10, 6.14(B), 6.15, 6.18, 9.1
AND 9.2 and ARTICLE X hereof and
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EXHIBIT J attached hereto, shall terminate and expire at the Effective Time
and shall be of no force or effect thereafter. If the Merger is consummated,
no party to this Agreement (or any of its present or former Affiliates) shall
have any liability to any other party (or any of its present or former
Affiliates) for any breaches of this Agreement that occurred prior to the
Effective Time, whether or not known at the Effective Time.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES.
(a) All legal and other costs and expenses shall be paid by Acquiror,
Subsidiary or Tenneco, as the case may be, depending upon which party incurred
such expenses. Subsequent to the Merger, Acquiror shall cause the Surviving
Corporation promptly to pay any and all such costs and expenses (including,
without limitation, the fees and expenses of the Exchange Agent and Tenneco's
financial advisors, and all legal, accounting and actuarial fees and expenses
incurred by Tenneco in connection with this Agreement and the transactions
contemplated hereby) incurred by Tenneco prior to the Effective Time which
have not been paid as of such time.
(b) In the event that this Agreement shall be terminated pursuant to SECTION
8.1(III), 8.1(IV)(B), 8.1(V)(B) or 8.1(VI), Tenneco shall pay to Acquiror, as
liquidated damages, in exchange for a complete release of any liabilities of
Tenneco hereunder, the amount of $25,000,000 plus actual out of pocket
expenses (up to $10,000,000) incurred by Acquiror to third parties in
connection with the transactions contemplated hereby, payable to an account
specified by Acquiror in writing by wire transfer of immediately available
funds within 5 business days after the effective date of the subject
termination (except that (i) no such amounts shall be payable unless
concurrently therewith, Tenneco receives the aforesaid complete release (other
than with respect to the items referred to in clause (ii), as to which
Acquiror shall deliver a complete release concurrently with the receipt of
payment therefor) and (ii) the aforesaid payment for Acquiror's out of pocket
expenses shall not be payable unless and until 5 business days after receipt
of reasonably satisfactory documentation of the subject expenses).
Notwithstanding the foregoing, Tenneco shall have no obligations under this
SECTION 10.1(B) due to any termination of this Agreement pursuant to either
SECTION 8.1(IV)(B) or 8.1(V)(B) unless Tenneco's Board of Directors has
withdrawn, amended or modified in a manner materially adverse to Acquiror
(other than by reason of a matter referred to in SECTION 8.1(V)(A) hereof) its
recommendation concerning the Merger or the Spinoffs prior to the vote of
Tenneco's stockholders which is the subject of SECTION 8.1(IV)(B) or
8.1(V)(B), as the case may be.
(c) Acquiror shall cause the Surviving Corporation to pay any New York State
Tax on Gains Derived from Certain Real Property Transfers (the "Gains Tax"),
New York State Real Estate Transfer Tax and New York City Real Property
Transfer Tax (the "Transfer Taxes") and any similar taxes in any other
jurisdiction (and any penalties and interest with respect to such taxes) that
become payable in connection with the Merger, on behalf of the stockholders of
Tenneco. Tenneco and Acquiror shall cooperate in the preparation, execution
and filing of any required returns with respect to such taxes (including
returns on behalf of the stockholders of Tenneco) and in the determination of
the portion of the consideration allocable to the real property of Tenneco and
the Tenneco subsidiaries in New York State and City (or in any other
jurisdiction, if applicable). In order to effect the payment of any transfer
taxes subject to this SECTION 10.1(C), Tenneco shall establish a separately
maintained escrow account consisting of an adequate amount of cash from the
$25,000,000 of cash required to be on hand at Tenneco as of the Effective Time
pursuant to the Allocation Agreement. The terms of the Joint Proxy Statement
shall provide that the stockholders of Tenneco shall be deemed to have agreed
to be bound by the allocation established pursuant to this SECTION 10.1(C) in
the preparation of any return with respect to the Gains Tax and the Transfer
Taxes and any similar taxes, if applicable.
(d) This SECTION 10.1 (and all other provisions of this Agreement necessary
or appropriate for purposes of enforcing this SECTION 10.1) shall be
enforceable by the Industrial Subsidiary, which is hereby deemed a third party
beneficiary hereof.
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10.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail, return receipt requested, to the parties at the
following addresses:
(A) If to Tenneco, to:
Tenneco Inc.
1275 King Street
Greenwich, Connecticut 06831
Attention: Corporate Secretary
(B) If to the Acquiror or Subsidiary, to:
El Paso Natural Gas Company
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
Attention: William A. Wise
Chairman and Chief Executive Officer
10.3 REMEDIES. Any party having any rights under any provision of this
Agreement will have all rights and remedies set forth in this Agreement and
all rights and remedies which such party may have been granted at any time
under any other agreement or contract and all of the rights which such party
may have under any law. Any party having any rights or remedies under this
Agreement will be entitled to enforce such rights specifically, without
posting a bond or other security, to recover damages by reason of any breach
of any provision of this Agreement and to exercise all other rights granted by
law.
10.4 CONSENT TO AMENDMENTS. Prior to the Effective Time, whether before or
after approval and adoption of this Agreement by the stockholders of Tenneco,
the provisions of this Agreement may be amended by a written agreement
executed and delivered by the parties hereto, subject to applicable law (and
shall be so amended if expressly required by the terms of this Agreement).
After the Effective Time, the provisions of this Agreement may be amended only
by a written agreement executed and delivered by Acquiror, the Surviving
Corporation and the Industrial Subsidiary. Any purported amendment to this
Agreement that does not strictly comply with the foregoing provisions of this
SECTION 10.4 shall be null and void ab initio. This SECTION 10.4 (and all
other provisions of this Agreement necessary or appropriate for purposes of
enforcing this SECTION 10.4) shall be enforceable by the Industrial
Subsidiary, which is hereby deemed a third party beneficiary hereof.
10.5 SUCCESSORS AND ASSIGNORS. No party hereto may assign or delegate any of
such party's rights or obligations under or in connection with this Agreement
without the written consent of the other parties hereto, and any attempted
assignment without such consent shall be null and void ab initio. All
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto will be binding upon and enforceable against the respective
successors and assigns of such party and will be enforceable by and will inure
to the benefit of the respective successors and permitted assigns of such
party.
10.6 SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
10.7 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one
and the same Agreement.
10.8 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
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10.9 NO THIRD-PARTY BENEFICIARIES. Except as expressly provided in SECTIONS
2.6(G), 2.6(H), 6.3, 6.4, 6.6, 6.9, 6.18, 10.1 and 10.4 hereof, this Agreement
will not confer any rights or remedies upon any person other than the parties
hereto and their respective successors and permitted assigns.
10.10 ENTIRE AGREEMENT. Except for the Confidentiality Agreements identified
in SECTION 6.3(B) hereof, this Agreement constitutes the entire agreement
among the parties and supersedes any prior understandings, agreements or
representations by or among the parties, written or oral, that may have
related in any way to the subject matter hereof.
10.11 CONSTRUCTION. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rule
of strict construction will be applied against any party. The use of the word
"including" in this Agreement means "including without limitation" and is
intended by the parties to be by way of example rather than limitation.
10.12 INCORPORATION OF EXHIBITS. The Exhibits identified in this Agreement
are incorporated herein by reference and made a part hereof.
10.13 GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS
AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF
THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement, as of the
date first written above.
TENNECO INC.
/s/ Mark A. McCollum
By __________________________________
Title: Vice President
EL PASO NATURAL GAS COMPANY
/s/ Britton White, Jr.
By __________________________________
Title: Senior Vice President and
General Counsel
EL PASO MERGER COMPANY
/s/ Britton White, Jr.
By __________________________________
Title: Vice President
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DEBT AND CASH ALLOCATION AGREEMENT
THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and
entered into as of this 11th day of December, 1996 by and among Tenneco Inc.,
a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc. (formerly
known as Tenneco InterAmerica Inc.), a Delaware corporation ("Shipbuilding
Company"), and New Tenneco Inc., a Delaware corporation ("Industrial
Company").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by and
among the parties hereto and dated as of November 1, 1996 (the "Distribution
Agreement"), the parties have entered into this Agreement regarding the
allocation of the Cash and Cash Equivalents and Consolidated Debt of Tenneco
and its consolidated subsidiaries as of the Effective Time. For purposes of
this Agreement only, the "Effective Time" means 12:01 AM, Houston time, on the
date on which the Merger Effective Time occurs.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each of the other members of its
Group over which it has direct or indirect legal or effective control, hereby
agrees as follows:
1. Certain Definitions. Capitalized terms which are used herein but which
are not defined below in this SECTION 1 or in any of the other provisions or
Sections of this Agreement or in the Distribution Agreement, shall have the
meaning ascribed to such terms in the Debt Realignment Plan attached as
Exhibit C to the Merger Agreement.
(a) "Actual Energy Debt Amount" means the aggregate amount, as of the
Effective Time, of the following, without duplication:
(i) the then outstanding amount of the Tenneco Revolving Debt plus
accrued and accreted interest and fees and expenses in respect thereof
(as reflected on the Energy Adjusted Closing Balance Sheet) ; plus
(ii) the Consolidated Public Debt Value; plus
(iii) the then outstanding principal amount of Consolidated Debt of
Tenneco and the Energy Subsidiaries other than that which is described
in clauses (i) and (ii) above (for this purpose undrawn letters of
credit and guarantees shall not be treated as outstanding) plus accrued
and accreted interest and fees and expenses in respect thereof as
reflected on the Energy Adjusted Closing Balance Sheet; plus
(iv) except as otherwise expressly provided in the Merger Agreement
or the Distribution Agreement, the unpaid amount of all direct and out
of pocket fees, costs and expenses (as reflected on the Energy Adjusted
Closing Balance Sheet) incurred on or prior to the Effective Time by
Tenneco and its subsidiaries in respect of the transactions
contemplated under the Debt Realignment, with respect to the Merger
Agreement, the NPS Issuance and with respect to the Distribution
Agreement, including, without limitation, the Corporate Restructuring
Transactions, the Distributions, the Merger and the other related
transactions, including by way of example items specifically set forth
on Schedule 1 to the extent incurred in respect of the aforesaid
transactions (collectively, the "Tenneco Transaction Expenses");
(v) any sales and use, gross receipts or other transfer Taxes
(including Gains Taxes and Transfer Taxes, as defined in the Merger
Agreement) imposed as a result of the Corporate Restructuring
Transactions or otherwise occurring pursuant to the Distribution
Agreement or the Merger Agreement, excluding, however, any stamp duty
imposed by the Stamp Act 1894 (Queensland) as a result of the Merger;
plus
(vi) Restructuring Taxes (as defined in the Tax Sharing Agreement),
except (A) for Taxes resulting from the deferred intercompany items on
Schedule 2, and (B) to the extent the IRS ruling provides the
Transactions (as defined in the Tax Sharing Agreement) are tax-free;
plus
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(vii) the then outstanding amount of any off-balance sheet
indebtedness incurred after June 19, 1996 and before the Effective Time
to finance the acquisition of any additional interest in the Oasis
Pipeline;
(viii) dividends declared by Tenneco on its common stock, $4.50
Preferred Stock and $7.40 Preferred Stock which have not been paid
prior to the Effective Time but as to which the record date is before
the Effective Time; plus
(ix) the total amount of dividends accrued on the shares of New
Preferred Stock issued pursuant the NPS Issuance that remain unpaid as
of the Effective Time.
The parties hereto hereby acknowledge and agree that the Actual Energy Debt
Amount shall include any amounts (including interest, fees and other charges)
that may be due and owing ASCC under or as a result of the factoring
arrangement between ASCC and Tenneco (and/or any of its Subsidiaries) other
than the amount of Factored Proceeds (the "ASCC Amount").
(b) "Actual Energy Expenditures Amount" means the actual amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) made and paid for by the Energy Business from and
after January 1, 1996 to and including the Effective Time, including,
without limitation any capital expenditures in respect of the 70 MW
Dunaferr power project in Hungary; provided, however, that any amount paid
for the acquisition of any additional interest in either Tenneco Energy
Resources Inc. or the Oasis Pipeline or to repair any gas pipeline shall
not be capital expenditures for any purpose under this Agreement and shall
not be included in the Actual Energy Expenditures Amount.
(c) "Allocated Energy Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
as of the Effective Time under each of the Tenneco Revolving Debt, the
Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and
the Energy Subsidiaries and the Tenneco Transaction Expenses, and any and
all such indebtedness outstanding or other obligations and liabilities
incurred or accrued under any of the foregoing from time to time and at any
time after the Effective Time.
(d) "Allocated Industrial Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Industrial Debt Securities as of the Effective Time, any and all
such indebtedness outstanding from time to time thereafter and all other
obligations and liabilities incurred or accrued at any time under the
Industrial Debt Securities.
(e) "Allocated Shipbuilding Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Shipbuilding Credit Facility as of the Effective Time, any and
all such indebtedness outstanding from time to time at any time thereafter
and all other obligations and liabilities incurred or accrued at any time
under the Shipbuilding Credit Facility.
(f) "Auditors" has the meaning ascribed to such term in SECTION 6 below.
(g) "Base Amount" means an amount equal to $2,650,000,000, (i) plus,
without duplication, the sum of (A) with respect to Tenneco gas purchase
contracts, the amount of all cash payments made by Tenneco and/or any of
its Subsidiaries during the period commencing on the date of Merger
Agreement and ending as of the Effective Time as a result or in respect of
any settlement, judgment or satisfaction of a bond in excess of the market
price for gas received by Tenneco and/or any of its Subsidiaries reduced by
the amount of any cash payments received from customers, insurers or other
third parties with respect thereto (other than ones refunded prior to the
Effective Time) or with respect to any gas supply realignment costs which
are so recovered (and not refunded) on or prior to the Effective Time, (B)
the purchase price paid by Tenneco and/or any of its subsidiaries to
acquire any additional interest in the Oasis Pipeline, (C) the amount of
all cash payments made by Tenneco and/or any of the Energy Subsidiaries
during the period commencing on the date of the Merger Agreement and ending
on the Closing Date in settlement of any significant claim, action, suit or
proceeding to the extent such matter would be an Energy Liability and with
the consent of Acquiror, which shall not be arbitrarily withheld
(including, without limitation, cash
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payments in settlement of claims against Tenneco and/or any of its
affiliates arising from the Stock Purchase Agreement dated as of July 31,
1986 by and between Tenneco Inc. and I.C.H. Corporation) reduced by the
amount of any cash payments received by Tenneco or any of the Energy
Subsidiaries during such period from customers, insurers or other third
parties with respect thereto, and (D) the total amount of the specific
additions or increases to the Base Amount set forth on SCHEDULE 4 attached
hereto, (ii) less, without duplication, the sum of (A) the gross amount of
cash proceeds from the NPS Issuance (as defined in the Merger Agreement)
less the amount of any expenses, fees or other out-of-pocket costs related
thereto which are included in the Actual Energy Debt Amount), and (B) the
total amount of the specific subtractions and reductions to the Base Amount
set forth on SCHEDULE 4 attached hereto.
(h) "Cash and Cash Equivalents" has the meaning ascribed to such term
under United States generally accepted accounting principles; provided,
that in all events checks issued by Tenneco and the Energy Subsidiaries
which remain unpaid as of the Effective Time shall be deducted from Cash
and Cash Equivalents, and checks received by Tenneco and the Energy
Subsidiaries which remain uncollected prior to the Effective Time (other
than checks that have been dishonored) shall be included in Cash and Cash
Equivalents.
(i) "Consolidated Public Debt Value" means the value (including any
accrued and unpaid interest thereon) of publicly-held Consolidated Debt of
Tenneco and the Energy Subsidiaries outstanding as of the Effective Time
(as reflected on the Energy Adjusted Closing Balance Sheet), calculated and
determined by Tenneco and Acquiror or if, they are unable to agree, by a
nationally recognized investment banking firm selected by mutual agreement
between Tenneco and Acquiror, as of the close of business on the fifth
(5th) business day preceding the Effective Time based on the applicable
spreads to treasuries and the applicable benchmark treasury securities
listed on Schedule 3.
(j) "Closing Calendar Month" means the calendar month in which the
Effective Time occurs.
(k) "Debt Realignment" has the meaning ascribed to such term in the
Merger Agreement.
(l) "Dispute" has the meaning ascribed to such term in SECTION 6 below.
(m) "Energy Adjusted Closing Balance Sheet" has the meaning ascribed to
such term in SECTION 6 below.
(n) "Energy Closing Balance Sheet" has the meaning ascribed to such term
in SECTION 6 below.
(o) "Energy Receivables" means any and all accounts receivable of the
Energy Business (after giving effect to the Corporate Restructuring
Transactions and the Distributions and, therefore, specifically excluding
receivables relating to the business of Case Corporation and the Industrial
Business).
(p) "Factored Proceeds" means the total amount of outstanding cash
proceeds received by Tenneco from ASCC, as of the last business day of the
month preceding the Closing Calendar Month, through the factoring of Energy
Receivables, which amount shall not exceed $100,000,000.
(q) "Guaranteed Energy Cash Amount" has the meaning ascribed to such term
in SECTION 5 below.
(r) "Guaranteed Shipbuilding Cash Amount" has the meaning ascribed to
such term in SECTION 5 below.
(s) "Independent Auditors" has the meaning ascribed to such term in
SECTION 6 below.
(t) "Industrial Debt Securities" means, collectively, the notes,
debentures and other debt securities issued by Industrial Company in
exchange for certain issues of the Consolidated Debt pursuant to and in
accordance with the debt exchange by Industrial Company contemplated under
the Debt Realignment.
(u) "Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger, dated as of June 19, 1996, among Tenneco, El Paso Natural Gas
Company and El Paso Merger Company, as amended from time to time.
(v) "Merger Closing Date" means the date on which the Merger is
consummated.
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(w) "Required Energy Expenditures Amount" means an aggregate amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) by the Energy Business for 1996 equal to
$333,200,000, plus an amount of capital expenditures by the Energy Business
for 1997 equal to $27,750,000 per month for each month (or pro rata portion
thereof) from January 1, 1997 to the Effective Time.
(x) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning
ascribed to such term in SECTION 6 below.
(y) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such
term in SECTION 6 below.
(z) "Shipbuilding Credit Facility" has the meaning ascribed to such term
in SECTION 3 below.
(aa) "Tenneco Allocation Percentage" means a fraction, the numerator of
which is the total number of business days remaining in the Closing
Calendar Month from and after the Effective Time (including the day on
which the Effective Time occurs), and the denominator of which is the total
number of business days in the Closing Calendar Month.
(bb) "Tenneco Revolving Debt" has the meaning ascribed to such term in
SECTION 2 below.
2. Tenneco Credit Facility and Tenneco Revolving Debt. Tenneco shall, at its
expense, have the sole right and authority to, and will use its commercially
reasonable efforts to, have in place prior to the Distribution Date a credit
facility for itself (with such guarantees of its obligations thereunder by the
Energy Subsidiaries as it deems necessary) in an aggregate principal amount
sufficient (together with other available funds to Tenneco) to fund the
tenders, redemptions, prepayments, defeasances and maturities contemplated
under the Debt Realignment; to pay all the fees, costs and expenses incurred
by Tenneco and its subsidiaries in preparing for, negotiating and effecting
the Distributions, the Merger and the Debt Realignment and any financings in
connection therewith; and for other general corporate purposes (including,
without limitation, working capital, the repayment or refinancing of
Consolidated Debt and the payments of dividends). This facility shall be in
effect at, and shall have a remaining stated maturity of at least 180 days
following, the closing of the Merger and the Distributions. The aggregate
amount of debt (including accrued and accreted interest and fees and expenses)
outstanding as of the Effective Time under this facility is hereinafter called
the "Tenneco Revolving Debt".
Notwithstanding anything contained herein, (a) contemporaneously with the
Distributions, Tenneco and the Energy Subsidiaries shall be removed as obligor
under (and released from liability with respect to) any indebtedness for
borrowed money for which Tenneco or its subsidiaries are liable and which are
assumed by the Industrial Company or the Shipbuilding Company pursuant to the
terms hereof and the Distribution Agreement, (b) any Tenneco Revolving Debt
shall be prepayable without penalty, subject to customary notice provisions,
(c) in respect of publicly-traded Consolidated Debt, between the date of the
Merger Agreement and the Effective Time there shall be no (i) extension of
maturity or average life, (ii) increase in interest rates or (iii) adverse
change in defeasance or redemption provisions with respect to any indebtedness
for borrowed money for which Tenneco or the Energy Subsidiaries will be liable
on or after the Effective Time and (d) except for the Tenneco Revolving Debt,
no indebtedness for borrowed money of Tenneco or the Energy Subsidiaries at
the Effective Time shall contain any affirmative or negative financial or
operational covenants other than ones that are (x) mutually acceptable to
Tenneco and Acquiror or (y) no more restrictive in the aggregate and
substantially equivalent to those set forth in the Indenture dated as of
January 1, 1992 of El Paso Natural Gas Company as in effect as of the date of
the Merger Agreement (other than Section 10.05 of the Indenture).
3. Shipbuilding Credit Facility and Shipbuilding Revolving Debt. Prior to
the Distributions (and at such time as Tenneco shall request), Shipbuilding
Company shall, at its expense, obtain and have in place a credit facility (the
"Shipbuilding Credit Facility") for itself (with such guarantees of its
obligations thereunder by the Shipbuilding Subsidiaries as is necessary to
obtain the Shipbuilding Credit Facility) in an aggregate principal amount of
at least $600 million (the "Minimum Debt Amount") and shall borrow the Minimum
Debt Amount thereunder and distribute the proceeds of such borrowing to
Tenneco (or such subsidiary of Tenneco as Tenneco shall designate) at such
time on or prior to the consummation of the Distributions as Tenneco shall
request.
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4. Allocation and Assumption of Debt.
(a) Allocated Energy Debt. On the Distribution Date, Tenneco shall assume,
and shall thereafter be solely liable and responsible for, the Allocated
Energy Debt. Tenneco hereby acknowledges and agrees that the Allocated Energy
Debt shall constitute an Energy Group Liability as defined in the Distribution
Agreement.
(b) Allocated Industrial Debt. On the Distribution Date, Industrial Company
shall assume, and shall thereafter be solely liable and responsible for, the
Allocated Industrial Debt. Industrial Company hereby acknowledges and agrees
that the Allocated Industrial Debt shall constitute an Industrial Group
Liability as defined in the Distribution Agreement.
(c) Allocated Shipbuilding Debt. On the Distribution Date, Shipbuilding
Company shall assume, and shall thereafter be solely liable and responsible
for, the Allocated Shipbuilding Debt. Shipbuilding Company hereby acknowledges
and agrees that the Allocated Shipbuilding Debt shall constitute a
Shipbuilding Group Liability as defined in the Distribution Agreement.
5. Allocation of Cash and Cash Equivalents. Prior to or contemporaneously
with the consummation of the Distributions, each of the parties hereto shall
make such transfers of the Cash and Cash Equivalents of Tenneco and its
consolidated subsidiaries (prior to giving effect to the Distributions) so
that to the extent possible, based on estimates of the aggregate amount of
Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries then on
hand, (a) Tenneco and the Energy Subsidiaries, on a consolidated basis, shall,
as of the Effective Time, have an aggregate amount of Cash and Cash
Equivalents equal to the sum of the following:
(i) $25.0 million,
(ii) the product of (A) the Tenneco Allocation Percentage, and (B) the
lesser of (I) $100 million and (II) the total amount of the Factored
Proceeds (the lesser of such amounts being referred to as the "Section 5
Amount") and
(iii) should the Effective Time occur after the day of the month on which
Tenneco generally collects receivables from customers of its regulated
pipeline business (typically, the 25th day of a month), the lesser of the
amount of (A) the Section 5 Amount owing to ASCC as of the Effective Time,
and (B) the total amount of such receivables actually collected by Tenneco
or any of its Subsidiaries during the period beginning on the day such
receivables are first collected and ending at the Effective Time (the
"Actual Collection Amount"), so long as that amount is owing to ASCC as of
the Effective Time. It is expressly understood that as of the Effective
Time all payables and receivables are for the account of Acquiror.
(the sum of the amounts described in the immediately preceding clause (i),
(ii) and (iii) is hereinafter, referred to as the "Guaranteed Energy Cash
Amount"), and (b) Shipbuilding Company and the Shipbuilding Subsidiaries, on a
consolidated basis, shall, as of the close of business on the Merger Closing
Date, have an aggregate of $5 million of Cash and Cash Equivalents (the
"Guaranteed Shipbuilding Cash Amount"). All remaining Cash and Cash
Equivalents of Tenneco and its consolidated subsidiaries shall be allocated to
Industrial Company and the Industrial Subsidiaries.
6. Post Distribution Audit.
(a) Preparation of Closing Balance Sheets. As soon as practicable after the
Merger Closing Date, but in any event within 60 days following the Merger
Closing Date, Industrial Company shall cause Arthur Andersen LLP (the
"Auditors") to:
(i) conduct an audit of Tenneco and the Energy Subsidiaries to determine
the aggregate amount, as of the Effective Time, of each of the Factored
Proceeds, the Section 5 Amount, the Actual Collection Amount, the Tenneco
Revolving Debt, the Consolidated Debt (other than the Tenneco Revolving
Debt) of Tenneco and the Energy Subsidiaries, the Tenneco Transaction
Expenses, the Cash and Cash Equivalents of Tenneco
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and the Energy Subsidiaries and the Actual Energy Expenditures Amount, and
to prepare and deliver to each of Industrial Company and Tenneco a
consolidated balance sheet for Tenneco and the Energy Subsidiaries as of
the Effective Time reflecting (x) the amount of each of the foregoing
(other than the aggregate amount of the Factored Proceeds, the Section 5
Amount, the Actual Collection Amount (which shall be set forth in a
footnote to such consolidated balance sheet) and the Consolidated Debt
valued as part of the Consolidated Public Debt Value) and (y) the
Consolidated Public Debt Value (the "Energy Closing Balance Sheet"); and
(ii) conduct an audit of Shipbuilding Company and the Shipbuilding
Subsidiaries to determine the aggregate amount of the Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as of
the Effective Time, and to prepare and deliver to each of Industrial
Company and Shipbuilding Company a consolidated balance sheet for
Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective
Time reflecting the aggregate amount of such Cash and Cash Equivalents (the
"Shipbuilding Closing Balance Sheet").
The Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet
shall each be prepared on the basis of an audit conducted by the Auditors in
accordance with generally accepted auditing standards and prepared in
accordance with generally accepted accounting principles consistently applied
and without giving effect to any change in accounting principles required on
account of the consummation of the Merger or the Distributions, except that,
to the extent that any definition contained herein contemplates inclusion or
exclusion of an item that would not be included or excluded under generally
accepted accounting principles, the Auditors shall compute such item in
accordance with such definition. During the course of the preparation of the
Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet by the
Auditors, and during any period in which there is a dispute regarding either
the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet,
each of Tenneco, Industrial Company and Shipbuilding Company, as the case may
be, shall cooperate with the Auditors and each other and shall have access to
all work papers of the Auditors and all pertinent accounting and other records
of Tenneco and the Energy Subsidiaries and Shipbuilding Company and the
Shipbuilding Subsidiaries, as applicable. Tenneco shall pay the fees and
expenses of the Auditors. Notwithstanding any provision of this Agreement or
the Distribution Agreement, the Claims Deposit (as defined in Insurance
Agreement) shall not be included as Cash and Cash Equivalents of Tenneco and
the Energy Subsidiaries.
(b) Disputes Regarding Closing Balance Sheet. Unless (i) in the case of the
Energy Closing Balance Sheet, Tenneco delivers written notice to Industrial
Company on or prior to the 30th day after its receipt of the Energy Closing
Balance Sheet that it disputes any of the amounts set forth on the Energy
Closing Balance Sheet (hereinafter, an "Energy Dispute"), or (ii) in the case
of the Shipbuilding Closing Balance Sheet, Shipbuilding Company delivers
written notice to Industrial Company on or prior to the 30th day after its
receipt of the Shipbuilding Closing Balance Sheet that it disputes the amount
of Cash and Cash Equivalents set forth on the Shipbuilding Closing Balance
Sheet (hereinafter, a "Shipbuilding Dispute") then, as applicable, Tenneco
and/or Shipbuilding Company shall be deemed to have accepted and agreed to the
Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, as
applicable, in the form in which it was delivered to it by the Auditors. If
such a notice of an Energy Dispute is given by Tenneco or a notice of a
Shipbuilding Dispute is given by Shipbuilding Company (in either case such
party being hereinafter referred to as the "Disputing Party") within such 30-
day period, then Industrial Company and the Disputing Party shall, within 15
days after the giving of any such notice, attempt to resolve such Energy
Dispute or Shipbuilding Dispute, as the case may be, and agree in writing upon
the final content of the Energy Closing Balance Sheet or Shipbuilding Closing
Balance Sheet, as the case may be. In the event that the Disputing Party and
Industrial Company are unable to resolve any Energy Dispute or Shipbuilding
Dispute, as the case may be, within such 15-day period, then the certified
public accounting firm of Ernst & Young or another mutually acceptable
independent accounting firm (the "Independent Auditors") shall be employed as
arbitrator hereunder to settle such Energy Dispute and/or Shipbuilding
Dispute, as the case may be, as soon as practicable. The Independent Auditors
shall have access to all documents and facilities necessary to perform its
function as arbitrator. The determination of the Independent Auditors with
respect to any Energy Dispute and/or Shipbuilding Dispute, as the case may be,
shall be final and binding on the applicable parties hereto. Industrial
Company and the Disputing Party shall each pay one-half ( 1/2) of the fees and
expenses of the Independent Auditors for such services. Industrial Company and
the
6
<PAGE>
Disputing Party each agree to execute, if requested by the Independent
Auditors, a reasonable engagement letter. The term "Energy Adjusted Closing
Balance Sheet," as used herein, shall mean the definitive Energy Closing
Balance Sheet agreed to by Tenneco and Industrial Company or, as the case may
be, the definitive Energy Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
Section 6(b) (in addition to the matters theretofore agreed to by Tenneco and
Industrial Company). The term "Shipbuilding Closing Balance Sheet," as used
herein, shall mean the definitive Shipbuilding Closing Balance Sheet agreed to
by Shipbuilding Company and Industrial Company or, as the case may be, the
definitive Shipbuilding Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
SECTION 6(B) (in addition to the matters theretofore agreed to by Shipbuilding
Company and Industrial Company). The date on which the Energy Adjusted Closing
Balance Sheet is determined and provided to each of Industrial Company and
Tenneco pursuant to this SECTION 6(B) is hereinafter referred to as the
"Energy Determination Date". The date on which the Shipbuilding Adjusted
Closing Balance Sheet is determined and provided to each of Industrial Company
and Shipbuilding Company pursuant to this SECTION 6(B) is hereinafter referred
to as the "Shipbuilding Determination Date".
7. Post Distribution Adjustments and Cash Payments.
(a) Adjustments and Payments Relating to Consolidated Debt. If the Actual
Energy Debt Amount exceeds the Base Amount, Industrial Company shall pay
Tenneco the amount of such excess in cash within 10 days after the Energy
Determination Date. If, on the other hand, the Actual Energy Debt Amount is
less than the Base Amount, Tenneco shall pay Industrial Company the amount of
such deficiency in cash within 10 days after the Energy Determination Date.
(b) Adjustments and Payments Relating to Cash and Cash Equivalents.
(i) Adjustments and Payments Relating to Shipbuilding Company. If the
amount of Cash and Cash Equivalents of Shipbuilding Company and the
Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted
Closing Balance Sheet is less than the Guaranteed Shipbuilding Cash
Amount, Industrial Company shall pay Shipbuilding Company the amount of
such deficiency in cash within 10 days after the Shipbuilding
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries
as reflected on the Shipbuilding Adjusted Closing Balance Sheet exceeds
the Guaranteed Shipbuilding Cash Amount, Shipbuilding shall pay
Industrial Company the amount of such excess in cash within 10 days
after the Shipbuilding Determination Date.
(ii) Adjustments and Payments Relating to Tenneco. (A) If the amount
of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as
reflected on the Energy Adjusted Closing Balance Sheet is less than the
Guaranteed Energy Cash Amount, Industrial Company shall pay Tenneco the
amount of such deficiency in cash within 10 days after the Energy
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Tenneco and the Energy Subsidiaries as reflected on the
Energy Adjusted Closing Balance Sheet exceeds the Guaranteed Energy
Cash Amount, Tenneco shall pay Industrial Company the amount of such
excess in cash within 10 days after the Energy Determination Date.
(B) If the Actual Energy Expenditures Amount as reflected on the
Energy Adjusted Closing Balance Sheet is less than the Required Energy
Expenditures Amount, Industrial Company shall pay Tenneco the amount of
such deficiency in cash within 10 days after the Energy Determination
Date. If, on the other hand, the Actual Energy Expenditures Amount as
reflected on the Energy Adjusted Closing Balance Sheet is greater than
the Required Energy Expenditures Amount, Tenneco shall pay to
Industrial Company the amount of such excess in cash within 10 days
after the Energy Determination Date.
(C) Each of Tenneco and Industrial Company hereby agrees that the
amount of any cash payment otherwise due it under any provision of this
SECTION 7 may be offset against and reduced, on a dollar for dollar
basis, in respect of any cash payment it may otherwise be required to
make to the other pursuant to and in accordance with any other
provision of this SECTION 7, and that the amount of such offset and
reduction shall be treated as payment of its obligations under any
provision of this SECTION 7 to the extent of such offset and reduction.
7
<PAGE>
8. Miscellaneous Provisions.
(a) Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
(b) Best Efforts. If at any time after the Merger Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of Tenneco, Industrial Company and Shipbuilding Company shall, on the
written request of any of them, take (or cause the appropriate member of its
Group over which it has direct or indirect legal or effective control to take)
all such reasonably necessary or desirable action.
(c) Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various matters contemplated by this
Agreement.
(d) Successors and Assigns. Except as otherwise expressly provided herein,
no party hereto may assign or delegate, whether by operation of law or
otherwise, any of such party's rights or obligations under or in connection
with this Agreement without the written consent of each other party hereto. No
assignment will, however, release the assignor of any of its obligations under
this Agreement or waive or release any right or remedy the other parties may
have against such assignor hereunder. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will be binding upon and enforceable
against the respective successors and assigns of such party and will be
enforceable by and will inure to the benefit of the respective successors and
permitted assigns of such party.
(e) Modification; Waiver; Severability. This Agreement may not be amended or
modified except in a writing executed by each of the parties hereto. The
failure by any party to exercise or a delay in exercising any right provided
for herein shall not be deemed a waiver of any right hereunder. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(h) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient at such recipient's
address as indicated in the Distribution Agreement or to such other address or
to the attention of such other person as the recipient party has specified by
prior written notice to the sending party.
(i) Survival. Each of the agreements of the parties herein shall survive the
Merger Closing Date.
(j) No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and the other members of their respective
Groups, and shall not give rise to any rights of any kind to any other third
parties.
(k) Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES
CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND
THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO
THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO,
AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
/s/ Mark A. McCollum
By __________________________________
Name: Mark A. McCollum
Title: Vice President
NEW TENNECO INC.
/s/ Karen R. Osar
By __________________________________
Name: Karen R. Osar
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
/s/ Stephen B. Clarkson
By __________________________________
Name: Stephen B. Clarkson
Title: Vice President, General
Counsel
9
<PAGE>
Schedule 1
to Debt and Cash Allocation Agreement
Accounting fees and expenses
Actuarial fees and expenses
Appraisal fees and expenses
Audit fees and expenses
Broker/dealer fees and expenses
Consulting fees and expenses
Exchange/paying agent fees and expenses
Exit consent fees
Fees and expenses incurred in connection with arranging the Revolving Debt,
including commitment fees, drawdown fees, agent's fees, facility fees and
similar fees and expenses, and lender's costs and expenses payable by the
borrower
Filing fees, including SEC, NYSE, NASD, HSR and other similar fees
Information agent fees and expenses
Investment banking fees and expenses, dealer manager fees and expenses, and
similar fees and expenses
Fees and expenses with respect to legal matters pertaining to the transactions
Mailing expenses
Newspaper advertising costs
Printing fees and expenses
Proxy solicitation fees and expenses
Soliciting dealer fees and expenses
Rating Agency fees
Underwriting, placement, registration and similar fees, commissions and
discounts payable in connection with the NPS Preferred Stock
<PAGE>
Schedule 2
to Debt and Cash Allocation Agreement
The deferred intercompany items referred to in SECTION 1(A)(VI) of the Debt
and Cash Allocation agreement are the following intercompany transactions
<TABLE>
<CAPTION>
SELLER BUYER PROPERTY TRANSFERRED
- ------ ----- --------------------
<S> <C> <C>
Tenneco Corporation Tenneco Inc. Stock of Kern County Land Co.
Tenneco Corporation Tenneco Inc. Stock of Tenneco Credit Corp.
Tenneco Corporation Tennessee Gas Pipeline Co. Stock of Tenneco International Inc.
Channel Gas Marketing Channel Industries Gas DT Line
Tenngasco Gas Supply Channel Industries Gas Transmission facilities
Tennessee Gas Pipeline
Co. Energy TRACS Software assignment agreement
</TABLE>
<PAGE>
TENNECO INC.
Schedule 3
<TABLE>
<CAPTION>
PRE-DETERMINED
------------------------------------------------
SECURITY DESCRIPTION BENCHMARK TREASURY SPREAD TO TREASURY(1)
- ------------------------------------------------ ------------------------- ----------------------
INDENTURE FACE COUPON MATURITY COUPON MATURITY CASE A CASE B
--------- ------ ------ -------- ---------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inc. ................... $300.0 6.500% 12/15/05 5.875% 11/05 84 bp 76 bp
Inc. ................... 300.0 7.250% 12/15/25 pricing 30yr UST 125 113
Inc. ................... 500.0 7.875% 10/01/02 6.375% 08/02 73 66
Inc. ................... 250.0 8.000% 11/15/99 7.750% 11/99 58 52
Inc. ................... 150.0 9.000% 11/15/12 pricing 30yr UST 95 86
Inc. ................... 200.0 9.875% 02/01/01 7.750% 02/01 66 59
Inc. ................... 250.0 10.000% 03/15/08 pricing 30yr UST 91 82
Inc. ................... 500.0 10.000% 08/01/98 5.875% 08/98 51 46
Inc. ................... 175.0 10.375% 11/15/00 5.625% 11/00 64 58
TGP..................... 400.0 6.000% 12/15/11 pricing 30yr UST 95 86
TGP..................... 75.0 8.000% 05/15/97 NA NA NA NA
TGP..................... 250.0 9.000% 01/15/97 NA NA NA NA
TCC..................... 7.5 8.500% 01/30/97 NA NA NA NA
TCC..................... 0.5 8.500% 03/17/97 NA NA NA NA
TCC..................... 3.0 8.500% 03/24/97 NA NA NA NA
TCC..................... 5.0 8.520% 03/28/97 NA NA NA NA
TCC..................... 6.6 8.570% 03/18/97 NA NA NA NA
TCC..................... 150.0 9.250% 11/01/96 NA NA NA NA
TCC..................... 12.0 9.470% 09/21/98 5.875% 08/98 48 43
TCC..................... 10.0 9.480% 01/28/02 7.500% 11/01 69 62
TCC..................... 250.0 9.625% 08/15/01 7.875% 08/01 68 61
TCC..................... 7.6 9.720% 09/15/01 7.875% 08/01 68 61
TCC..................... 10.0 9.720% 09/25/01 7.875% 08/01 69 62
TCC..................... 5.0 9.900% 12/02/96 7.500% 12/96 45 41
TCC..................... 3.0 9.900% 08/19/98 5.875% 08/98 48 43
TCC..................... 4.5 10.000% 08/19/98 5.875% 08/98 48 43
TCC..................... 5.0 10.000% 12/13/01 7.500% 11/01 70 63
TCC..................... 50.0 10.500% 08/17/98 5.875% 08/98 48 43
TCC..................... 150.0 10.125% 12/01/97 5.250% 12/97 48 43
Inc. ................... $2,625
TGP..................... 725
TCC..................... 680
------
$4,030
------
</TABLE>
NOTE: (1) Case A represents the spread to treasury for each security in the
event that the percentage of the aggregate principal amount of the bonds
participating in any tender or exchange, measured as a group for all
bonds tendered or exchanged for, equals or exceeds 80% of all such bonds
eligible to participate. In the event that the percentage of bonds
participating in any tender or exchange falls short of 80% (calculated as
aforesaid), the market value of all bonds remaining outstanding will be
determined by using the spread to treasury indicated in Case B.
<PAGE>
SCHEDULE 4
TO
DEBT AND CASH ALLOCATION AGREEMENT
ADDITIONAL ADJUSTMENTS TO BASE AMOUNT
1. Indonesia (the South Sulawesi Project)
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time between June 19, 1996 and the Effective
Time (the "PRE-CLOSING PERIOD") shall be added to the Base Amount (but shall
not be included as a capital expenditure for purposes of determining the
Actual Energy Expenditures Amount); provided, however, the Base Amount will be
reduced by the amount of any Net Cash Proceeds (as defined) received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any monetization of this project during the Pre-Closing Period. As used
in the Schedule 4, the term "Net Cash Proceeds" means the total amount of cash
proceeds actually received by the party in question during the Pre-Closing
Period from the consummation during the Pre-Closing Period of the transaction
or transactions in question, less the sum of any and all costs, expenses and
taxes related to the transaction or transactions in question which either are
(i) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to or at the Effective Time (other than taxes based upon
income, which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (ii) incurred but not paid prior to or at the Effective Time by
any member of either the Industrial Group and/or Shipbuilding Group and which
will remain an obligation or liability of such entity (or any member of its
Group) after giving effect to the Distributions without reimbursement therefor
by Tenneco or any other member of the Energy Group.
2. Orange Cogeneration Project
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time during the Pre-Closing Period shall be
added to the Base Amount (but shall not be included as a capital expenditure
for purposes of determining the Actual Energy Expenditures Amount); provided,
however, the Base Amount will be reduced by the amount of any Net Cash
Proceeds received by Tenneco or any of its consolidated subsidiaries during
the Pre-Closing Period from any monetization of this project during the Pre-
Closing Period.
3. Australian Infrastructure Bonds
(a) The Base Amount shall be reduced by any Net Cash Proceeds received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any off-balance sheet financing in respect of this project.
4. Asset Sales
(a) Microwave Licenses. The Base Amount shall be reduced by the aggregate
amount of Microwave Net Cash Proceeds (as defined below) from any sale or
assignment during the Pre-Closing Period of private operational-fixed
microwave licenses issued by the Federal Communications Commission. As used
herein, "Microwave Net Cash Proceeds" means the gross cash proceeds actually
received by Tenneco or any of its consolidated subsidiaries less the sum of
(i) the total amount of relocation costs and cost and expenses of rebuilding
an acceptable replacement communication system that are actually incurred and
paid by Tenneco or any of its consolidated subsidiaries during the Pre-Closing
Period (or incurred by any member of the Industrial Group or Shipbuilding
Group and remain unpaid as of the Effective Time), and (ii) the amount of any
taxes incurred in connection with any such sale or assignment which are either
(A) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to the Effective Time (other than taxes based upon income,
which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (B) incurred by any member of the Shipbuilding Group or
Industrial Group and remain unpaid as of the Effective Time and which will
remain an obligation or liability of such entity (or any member of its Group)
after giving effect to the Distributions without reimbursement therefor by
Tenneco or any other member of the Energy Group.
<PAGE>
5. Land Sales
(a) 960 Acre Parcel Located Along Galveston Bay at Ingleside, Texas. The
Base Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period, in connection with the sale of the above referenced
property.
(b) Westchase Development in West Houston (also known as Tract 6A). The Base
Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period in connection with the sale of the above referenced
property.
(c) 1625 West Loop (also known as Post Oak Ranch). The Base Amount shall be
reduced by the total amount of Net Cash Proceeds actually received by Tenneco
or any of its consolidated subsidiaries at any time during the Pre-Closing
Period in connection with the sale of the above referenced property.
6. Sales of Gas Turbines
The Base Amount shall be reduced by the total amount of Net Cash Proceeds
actually received by Tenneco or any of its consolidated subsidiaries (and
credited to the account of Industrial Company under the Debt and Cash
Allocation Agreement) from its sale of any gas turbines at any time during the
Pre-Closing Period.
7. ICH Tax Indemnity Matter
The Base Amount shall be increased (without duplication) by any cash payment
(up to a maximum amount, however, of $19.0 million) made by Tenneco or any of
its consolidated subsidiaries during the Pre-Closing Period in respect of the
settlement of the ICH tax indemnity matter.
8. Payments due on Settlement of Certain Lawsuits During the Pre-Closing
Period
All cash payments actually received by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period in respect of any settlement of any
of the lawsuits or other proceedings identified and referred to in paragraph 9
of, and Schedule G-2 to, Exhibit G to the Merger Agreement shall, to the
extent provided for under the terms described under paragraph 9 of such
Exhibit G, be for the account of Industrial Company and shall not be included
in the Guaranteed Energy Cash Amount or have any effect on the Base Amount or
the calculation thereof.
9. Hedging Transactions
Any hedging transactions and all costs and expenses with respect thereto
that are entered into in connection with or in anticipation of the Debt
Realignment shall be for the benefit or detriment of Industrial Company and
shall have no effect whatsoever on the Base Amount or the calculation thereof.
10. Rate Refunds Payable to Customers
The Base Amount shall be reduced by the amount, calculated as of the
Effective Time, of any rate refunds, including interest, which would be
payable to customers pursuant to the rate settlement filed with the Federal
Energy Regulatory Commission at Docket No. RP95-112 and have not been paid as
of the Effective Time, whether such amounts are to be paid to customers or
credited against gas supply realignment costs pursuant to a settlement with
customers.
11. Sale of Tenneco Ventures
The Base Amount shall be reduced by the aggregate amount of Net Cash
Proceeds actually received by Tenneco or any of its subsidiaries from any sale
of Tenneco Ventures during the Pre-Closing Period.
12. Bonuses for Energy Employees
(a) The total amount of cash bonuses for Energy Employees for the calendar
year 1996 (the "1996 Bonus Amount") shall be pro rated based on the date on
which the Effective Time occurs and shall be shared between Tenneco and
Industrial Company based on such pro ration as follows:
2
<PAGE>
(i) Tenneco shall be responsible and liable for the payment of that
portion (the "Tenneco Bonus Portion") of the 1996 Bonus Amount that equals
the product of (A) the 1996 Bonus Amount, and (B) a fraction, the numerator
of which is the number of days remaining in the 1996 calendar year
following the day on which the Effective Time occurs (the "Effective Day"),
and the denominator of which is 365.
(ii) New Tenneco shall be responsible and liable for the payment of that
portion of the 1996 Bonus Amount that equals the amount by which the 1996
Bonus Amount exceeds the Tenneco Bonus Portion.
(b) Each of Tenneco's and New Tenneco's liability for its share of the 1996
Bonus Amount shall be accounted for in the Merger as follows:
(i) If 100% of the 1996 Bonus Amount is paid on or before the Effective
Time, the Base Amount shall be increased by the Tenneco Bonus Portion.
(ii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid exceeds the Tenneco Bonus Portion, the Base Amount
shall be reduced by the amount of such excess.
(iii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid equals the Tenneco Bonus Portion, the Base Amount
shall not be increased or decreased in respect of the 1996 Bonus Amount.
(c) The 1996 Bonus Amount shall be determined by Tenneco prior to the
Effective Time with the consent of Acquiror which shall not be unreasonably
withheld.
13. Non Cash Proceeds
Any proceeds received by Tenneco or any of its subsidiaries from the
transactions described in paragraphs 1, 2, 3, 4, 5, 6 and 11 other than cash
proceeds shall be for the account of Acquiror and shall be retained by or
distributed to the Energy Business.
3
<PAGE>
BENEFITS AGREEMENT
THIS BENEFITS AGREEMENT 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").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by and
among the parties hereto and dated as of November 1, 1996 (the "Distribution
Agreement") the parties have entered into this Agreement regarding certain
labor, employment, compensation and benefit matters occasioned by the
Distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each other member of its Group
over which it has direct or indirect legal or effective control, hereby agrees
as follows:
SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall
have the meanings set forth below in this Section 1. All other capitalized
terms which are used but are not otherwise defined herein shall have the
meanings ascribed to them in the Distribution Agreement.
"ACTIVE EMPLOYEES" means, with respect to each Group, all employees
regularly engaged in the performance of services to, for or on behalf of
any member of such Group as of the close of business on the Distribution
Date.
"FORMER EMPLOYEES" means, with respect to each Group, all former
employees of Tenneco and/or its Subsidiaries (including, but not limited
to, such employees who, as of the close of business on the Distribution
Date, are on leave of absence, long-term disability or layoff with recall
rights and the dependents of those persons) who, if they were regularly
engaged in the performance of services to, for or on behalf of Tenneco or
any of its Subsidiaries at the close of business on the Distribution Date,
would be an Active Employee of such Group, determined on a basis consistent
with the determination of the Active Employees of such Group.
"PENSION MATTERS" means, collectively, (a) Tenneco's 1986 pension plan
asset valuation and its cost accounting treatment, as described in the DCAA
Audit Report dated November 28, 1995, and (b) any claim which the DCAA or
any other agency of the DOD may assert that (or based on any allegation
that) the aggregate amount of assets of the TRP attributable to the Active
Employees and Former Employees of the Shipbuilding Group exceeds the
aggregate amount of the liabilities under the TRP attributable to Active
and Former Employees of the Shipbuilding Group.
"TENNECO SALARIED WELFARE PLANS" means, collectively, the Tenneco Inc.
Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco
Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance
Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and
the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan.
SECTION 2. GENERAL EMPLOYMENT MATTERS.
2.01. GENERAL OBLIGATIONS. From and after the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall, as
applicable, cause each of the other members of its respective Group over which
it has direct or indirect legal or effective control to) (a) continue the
employment of all of the Active Employees of its respective Group, subject,
however to the terms of SECTION 2.03 below and (b) except as otherwise
specifically provided herein, pay, perform and discharge any and all labor,
employment, compensation and benefit liabilities, whether arising prior to, on
or after the Distribution Date, with respect to all such Active Employees and
all Former Employees of its respective Group. Except as specifically provided
herein, each of Tenneco, Industrial Company and Shipbuilding Company shall be
solely responsible for the Former Employees of its respective Group.
2.02. INITIAL COMPENSATION OF ACTIVE EMPLOYEES. The initial compensation
(base salary or wage level) of each Active Employee of each Group shall be the
same as the compensation (base salary or wage level) of such Active Employee
immediately prior to the Distribution Date.
<PAGE>
2.03. NO ADDITIONAL EMPLOYMENT RIGHTS CREATED. Nothing in this Agreement
shall give any Active Employee of any Group any right to continued employment
by any member of that Group or any other Group beyond the Distribution Date,
which is in addition to or supplemental to any such right he or she may have
arising under contract or otherwise.
SECTION 3. COLLECTIVE BARGAINING.
3.01. CONTINUATION OF EXISTING COLLECTIVE BARGAINING AGREEMENTS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause,
as applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to honor all collective
bargaining agreements covering the Active Employees of its respective Group
which are in effect as of the close of business on the Distribution Date, in
accordance with and subject to the terms of each such collective bargaining
agreement. Each of the parties hereto hereby agrees and acknowledges, however,
that nothing herein, including its obligation to continue its applicable
collective bargaining agreements, shall be construed to restrict any right it,
or any other member of its respective Group, may have to terminate,
renegotiate, reopen or otherwise seek changes in any of its collective
bargaining agreements.
3.02. RECOGNITION OF INCUMBENT LABOR ORGANIZATIONS. Each of Tenneco,
Industrial Company and Shipbuilding Company shall (and shall cause, as
applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to recognize all incumbent
labor organizations which, as of the close of business on the Distribution
Date, have established collective bargaining relationships in respect of the
Active Employees of its respective Group.
3.03. CONTINUED SPONSORSHIP OF HOURLY EMPLOYEE BENEFIT PLANS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall continue (and
shall, as applicable, cause each other member of its respective Group over
which it has direct or indirect legal or effective control to continue) to
sponsor all hourly employee benefit plans which, as of the close of business
on the Distribution Date, are in existence and relate to the Active Employees
of its respective Group, subject to its rights under such plans to amend or
terminate such plans.
3.04. PROVISION OF WAGES, RIGHTS AND OTHER EMPLOYMENT BENEFITS REQUIRED
UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS. Without limiting the
generality of the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall provide those of its Active Employees whose
employment is subject to collective bargaining agreements and/or established
collective bargaining relationships with the wages, benefits, and terms and
conditions of employment required by such agreements or relationships, except
that (i) participation in the Tenneco Inc. Employee Stock Purchase Plan will
cease as of September 30, 1996, and (ii) no additional amounts may be invested
in any shares of the common stock, par value $5.00 per share, of Tenneco
("TENNECO COMMON STOCK") in any defined contribution plan from and after the
Effective Time.
SECTION 4. UNITED STATES SALARIED PENSION AND THRIFT BENEFITS.
4.01 TENNECO INC. RETIREMENT PLAN. Effective as of the Distribution Date,
Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco
Inc. Retirement Plan (the "TRP"), and Industrial Company shall become the
sponsor of the TRP. The TRP shall retain liability for all pension benefits
accrued by the Active and Former Employees of the Energy Group and
Shipbuilding Group who are or were formerly participants in the TRP through
the last day of the calendar month in which the Distribution Date occurs (the
"Impact Date").
4.02 AMENDMENT OF TRP. After Industrial Company has become the sponsor of
the TRP, it shall amend the TRP to (a) "freeze" the benefit accruals of the
Active Employees of the Energy Group and Shipbuilding Group as of the Impact
Date, and (b) provide that all benefits accrued as of the Impact Date by the
Active Employees of either the Energy Group or the Shipbuilding Group will be
fully vested and non-forfeitable, and Industrial Company shall inform, in
writing, each such Active Employee of his or her accrued benefits under the
TRP as of the Distribution Date; provided, however, that if the Distribution
Date occurs on the Impact Date, Industrial Company shall in any event (i)
first become the sponsor of the TRP as provided under SECTION 4.01 above, and
(ii) immediately thereafter amend the TRP as provided in this SECTION 4.02.
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4.03 NO CREDIT FOR POST-DISTRIBUTION DATE SERVICE. Except as may be required
by law, the TRP shall not be required to count service with any entity other
than Industrial Company after the Distribution Date for any purpose.
4.04 NO LIABILITY TO ENERGY GROUP. Following the Distribution Date, the
Energy Group will have no liability, contingent or otherwise, with respect to
the TRP or any other defined benefit pension plan that is subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended, including
any liability for benefits accrued prior to the Distribution Date (including
early retirement benefits and related subsidies) for employees of the Energy
Group, and Industrial Company shall assume or retain, as the case may be, all
such liabilities.
4.05 SHIPBUILDING COMPANY LIABILITIES.
(a) GENERAL INDEMNIFICATION OF INDUSTRIAL COMPANY. Except as specifically
provided in this SECTION 4.05, Shipbuilding Company shall retain, and shall
indemnify and hold the Industrial Company harmless from, any liability
incurred or accrued at any time (whether before on or after the date hereof),
which has been, or may in the future be, asserted by any of (i) the Defense
Contract Audit Agency ("DCAA"), (ii) the United States Navy, or (iii) any and
all other agencies of, within or affiliated with the United States Department
of Defense (the "DOD"), that arise or arose out of, or in connection with
either (A) the participation of Active Employees or Former Employees of the
Shipbuilding Group in the TRP, (B) payments made by any agency of the DOD with
respect to benefits accrued under the TRP, (C) any claim by any agency of the
DOD relating to the assets of the TRP, and (D) any other related matters.
(b) SHARING OF CERTAIN SHIPBUILDING COMPANY LIABILITIES. Notwithstanding the
foregoing, Industrial Company and Shipbuilding Company have agreed to share
the cost, if any, of certain specified liabilities described in SUBSECTION
4.05(A) above on the terms and conditions set forth in the remaining
Subsections of this SECTION 4.05. The liabilities which Industrial Company and
Shipbuilding Company have agreed to share are only those arising from a
Pension Matter.
(c) INDEMNIFICATION PERCENTAGES FOR PENSION MATTERS. Industrial Company
shall indemnify Shipbuilding Company from 80%, and Shipbuilding Company shall
retain and indemnify Industrial Company from 20%, of the following:
(i) all amounts paid in satisfaction of a Government claim for Pension
Matters; and
(ii) all costs incurred, including attorneys' and actuaries' fees, in
defending against the Government's claims in the Pension Matters, as
described in SUBSECTION 4.05(F) below.
Any indemnity amount owed by Industrial Company to Shipbuilding Company
pursuant to this Subsection 4.05(c) shall be computed and paid by Industrial
Company on a pre-tax basis, i.e. not taking into account any tax benefits
realized by Shipbuilding Company with respect to payments made by Shipbuilding
Company and to which such indemnity relates; subject, however to the
following:
(1) The parties intend that any payments made by Shipbuilding Company
which are indemnified by Industrial Company pursuant to this Subsection
4.05(c) will be deductible by Shipbuilding Company for federal income tax
purposes, and that any indemnity payment made by Industrial Company to
Shipbuilding Company pursuant to this Subsection 4.05(c) will be treated
for federal income tax purposes as a contribution to the capital of
Shipbuilding Company immediately prior to the Distribution Date
(collectively, the "INTENDED TAX TREATMENT");
(2) Shipbuilding Company will report on its applicable state and federal
income tax returns any indemnity amount received from Industrial Company
pursuant to this Subsection 4.05(c), and any payment made by Shipbuilding
Company to which such indemnity payment relates, in a manner that is
consistent with the Intended Tax Treatment;
(3) Upon the filing by Shipbuilding Company or its affiliates of any
state or federal income tax return claiming a deduction, loss, credit or
similar item with respect to payments made by Shipbuilding Company
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for which Shipbuilding Company has been indemnified pursuant to this
Subsection 4.05(c), Shipbuilding Company shall pay to Industrial Company
the amount of any tax benefit realized by Shipbuilding Company with respect
to such payments;
(4) Notwithstanding anything to the contrary in the Tax Sharing
Agreement, in the event the IRS challenges the Intended Tax Treatment the
parties agree that (1) Industrial Company shall have the exclusive right to
control the defense or prosecution of the portion of any tax contest
relating to such tax treatment, including settlement of any item relating
to such tax treatment and (2) Industrial Company shall be liable for, and
shall indemnify and hold Shipbuilding Company harmless from, any tax
liability resulting from any adjustment to the Intended Tax Treatment.
Notwithstanding anything to the contrary in the preceding sentence, if the
parties determine in good faith that filing a return based on the Intended Tax
Treatment would not properly report the items in question, then the timing and
amount of payments made pursuant to the preceding sentence shall be modified
to take into account the revised tax treatment of such items.
(d) CONTROL OVER PENSION MATTERS. Industrial Company shall have total and
exclusive control of and over all aspects of the defense by Industrial Company
and Shipbuilding Company against the Government's claims in the Pension
Matters. Without limiting the generality of the foregoing, Industrial Company
shall have the exclusive right to:
(i) engage and dismiss any and all law firms, actuarial firms and other
service providers;
(ii) settle, compromise or otherwise dispose of either Pension Matter;
(iii) determine to not appeal any adverse determination with respect to
either Pension Matter; and
(iv) negotiate and determine the terms of a deferral agreement described
in item (iv) of SUBSECTION 4.05(E) below.
(e) COOPERATION OF SHIPBUILDING COMPANY. Shipbuilding Company shall
cooperate fully with Industrial Company and its attorneys, actuaries and other
advisors and representatives in defending against the Government's claims in
the Pension Matters. Without limiting the generality of the foregoing,
Shipbuilding Company shall:
(i) advise Industrial Company in writing of any and all claims made by
the Government which may be included in the Pension Matters promptly after
Shipbuilding Company receives notice or otherwise becomes aware of such
claims;
(ii) provide Industrial Company copies of any and all correspondence,
pleadings or other papers it has or receives with respect to the Pension
Matters promptly upon receipt;
(iii) give Industrial Company at least 10 days written notice of and
afford Industrial Company an opportunity to be present at any and all
meetings, conferences or hearings relating to such issues; and
(iv) diligently seek an agreement to defer collection of any Government
claim for Pension Matters.
(f) BILLING FOR PAYMENT TO GOVERNMENT. Whenever the Shipbuilding Company or
Industrial Company makes a payment to the Government for a claim related to
Pension Matters or incurs a cost in defending against the Government's claims
in Pension Matters, it may bill the other party for that party's share of said
claim or cost. A payment to the Government for a claim related to Pension
Matters shall include (i) amounts paid directly to Government to satisfy the
claim; (ii) progress payments withheld to satisfy the Government claim; and
(iii) pension costs disallowed under Shipbuilding Company's new salaried
pension plan to satisfy the Government claim. Costs incurred in defending
against the Government's claims in the Pension Matters shall include outside
attorneys' fees, accounting fees and actuary fees and all other out-of-pocket
costs incurred in defending against the Government's claims. Neither
Industrial Company nor Shipbuilding Company shall charge the other any amounts
for the services of its employees. A bill for the other party's share of a
claim or cost shall be accompanied by adequate documentation and shall be paid
promptly upon receipt. However, any amounts so
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billed shall be subject to set-off for amounts owed by the presenter to
recipient whether relating to matters covered by this SECTION 4.05 or
otherwise.
(g) ADVANCES BY INDUSTRIAL COMPANY. Any amounts which Industrial Company may
advance to Shipbuilding Company to satisfy a Government Claim pending appeal
(regardless of whether the Government claim is satisfied by (i) direct payment
to the Government; (ii) progress payments withheld; or (iii) pension costs
disallowed under the Shipbuilding Company's new salaried pension plan) shall
be deducted from any amount due from Industrial Company to Shipbuilding
Company upon the ultimate resolution of the appeal of the Government's claim.
To the extent that the amounts advanced to Shipbuilding Company by Industrial
Company exceed the amount due upon the ultimate resolution of the appeal,
Shipbuilding Company shall, within 5 days after the date of such ultimate
resolution, reimburse such excess to Industrial Company with interest charged
from the date the amount was advanced at the interest rate established by the
Secretary of the Treasury under Public Law 92-41.
(h) PROHIBITION AGAINST CERTAIN ACTION OF SHIPBUILDING COMPANY. Shipbuilding
Company shall not take any action or permit or suffer any act or omission
within its control that is, or is likely to be, in any way detrimental to the
defense against the Government's claims under the Pension Matters. Without
limiting the generality of the preceding sentence, Shipbuilding Company will
not, without the express written consent of Industrial Company, which consent
may be withheld in Industrial Company's sole discretion, link either of the
Pension Matters to any other matter which it now has or may in the future have
pending with the Government in terms of settlement or otherwise.
(i) ASSERTION OF AFFIRMATIVE CLAIMS. If Industrial Company determines to
submit an affirmative claim against the Government in connection with the
Pension Matters, Industrial Company and Shipbuilding Company shall share the
cost of pursuing such claim and any recovery on such claim on a percentage
basis of 80% for Industrial Company and 20% for Shipbuilding Company.
(j) NO LIABILITY OF ENERGY BUSINESS. It is expressly acknowledged and agreed
that any liabilities described in this SECTION 4.05 are solely liabilities of
Shipbuilding Company and Industrial Company, in accordance with the terms of
the other provisions of this SECTION 4.05, and the Energy Business has no
obligation with respect to any of such liabilities.
4.06. TENNECO INC. THRIFT PLAN. The active participation in the Tenneco Inc.
Thrift Plan (the "Tenneco DC Plan") by persons other than the Active Employees
of the Industrial Group shall cease effective as of the Distribution Date. In
addition, each of Tenneco and Shipbuilding Company shall cease to be sponsors
of the Tenneco DC Plan as of the Distribution Date and Industrial Company
shall become the sponsor of the Tenneco DC Plan from and after the
Distribution Date.
4.07. ESTABLISHMENT OF ENERGY AND SHIPBUILDING DC PLANS.
(a) ENERGY DC PLAN. Tenneco shall establish or make available on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Energy Group (the "Energy DC Plan").
(b) SHIPBUILDING DC PLAN. Shipbuilding Company shall establish on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Shipbuilding Group (the
"Shipbuilding DC Plan").
(c) TRANSFER OF ACCOUNT BALANCES TO ENERGY AND SHIPBUILDING DC PLANS.
Industrial Company shall cause the Tenneco DC Plan to transfer: (i) to the
Shipbuilding DC Plan, the account balances of each Active Employee of the
Shipbuilding Group and each Former Employee of the Shipbuilding Group with
respect to whom the Tenneco DC Plan maintains an account as of the close of
business on the Distribution Date, and (ii) to the Energy DC Plan, the
account balances of each Active Employee of the Energy Group and each
Former Employee of the Energy Group with respect to whom the Tenneco DC
Plan maintains an account as of the close of business on the Distribution
Date. Such transfers shall be in cash, except that the Energy
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DC Plan and the Shipbuilding DC Plan will accept the following: (i) Tenneco
Common Stock (or stock of the Acquiror, as defined in the Merger Agreement)
for the Tenneco Common Stock fund portion of such account balances
(together with any and all of the shares of the common stock of Industrial
Company and/or Shipbuilding Company distributed in connection with the
Distributions); and (ii) amounts credited to the Tenneco DC Plan which are
held in mutual funds which are also investment media in the Energy DC Plan
or the Shipbuilding DC Plan, as the case may be.
4.08. NO TENNECO COMMON STOCK. No Tenneco Common Stock shall be offered as
an investment option with respect to contributions made after the Distribution
Date by any of the Tenneco DC Plan, Energy DC Plan or Shipbuilding DC Plan.
The sponsor of each of the foregoing plans shall cause the plan to afford each
participant therein an election to sell the stock of any entity held in the
Tenneco stock fund in the Tenneco DC Plan which does not employ him or her
immediately following the Distribution Date. Shipbuilding Company shall
administer each defined contribution plan which it maintains consistent with
any and all representations which Tenneco made to the Internal Revenue Service
at any time prior to the Distribution Date. No further contributions shall be
made under the Tenneco Inc. Employee Stock Purchase Plan after September 30,
1996.
SECTION 5. PENSION MATTERS OUTSIDE THE UNITED STATES. With respect to the
business and operations of each Group in jurisdictions outside the United
States, each of the parties hereto shall (and, as applicable, shall cause each
other member of its Group over which it has direct or indirect legal or
effective control to) retain any and all pension liabilities and attendant
plans and their assets related to its Active Employees and Former Employees.
SECTION 6. EXECUTIVE COMPENSATION.
6.01. TENNECO BENEFIT EQUALIZATION PLAN AND SUPPLEMENT EXECUTIVE RETIREMENT
PLAN. None of the Active Employees of either the Shipbuilding Group or the
Energy Group shall accrue any benefits under the Tenneco Benefit Equalization
Plan (the "BEP") or the Supplement Executive Retirement Plan (the "SERP") from
and after the Distribution Date. Industrial Company shall assume all
liabilities under the BEP and the SERP and shall cause the BEP and the SERP to
continue to cover the Active Employees and Former Employees of the Energy
Group and Shipbuilding Group after the Distribution Date who have accrued
benefits under either or both of such plans as of the close of business on the
Distribution Date, and the accrued benefits of such Active Employees under
such plans as of the close of business on the Distribution Date shall be fully
vested and non-forfeitable. Each of Tenneco and Shipbuilding Company shall
reimburse Industrial Company for any payments Industrial Company may make from
time to time under the BEP or the SERP to Mr. Edward J. Casey, Jr. in the case
of the Energy Group and any Active Employee or Former Employee of the
Shipbuilding Group, in the case of the Shipbuilding Group. Such charges shall
be made by written notice thereof to, and shall be promptly paid by, the
Energy Group and/or Shipbuilding Group, as the case may be. Tenneco shall
retain and assume any and all supplemental pension obligations (and any
related assets) which are in addition to benefits under the TRP, BEP and SERP
under the contract with Mr. Edward J. Casey, Jr.
6.02. TENNECO INC. DEFERRED COMPENSATION PLAN. The participation of the
Active Employees and Former Employees of the Energy Group and the Shipbuilding
Group in the Tenneco Inc. Deferred Compensation Plan (the "DC Plan") and 1993
Deferred Compensation Plan (the "1993 Plan") shall cease as of the
Distribution Date. As of the Distribution Date, Shipbuilding Company shall
assume the liability for the accounts of its Active Employees and Former
Employees in the DC Plan and the 1993 Plan, Tenneco shall assume the liability
for the accounts of the Active Employees and Former Employees of the Energy
Group in the DC Plan and the 1993 Plan, and Industrial Company shall succeed
to sponsorship of the 1993 Plan and the DC Plan and shall assume the liability
for the accounts of the Active Employees and Former Employees of the
Industrial Group in the DC Plan and the 1993 Plan. The total of each such
Active Employee's or Former Employee's account in the DC Plan and the 1993
Plan as of the Distribution Date shall become the opening balance of such
Active Employee's or Former Employee's account in a Nonqualified Deferred
Compensation Plan created, as of the Distribution Date by either, (i) Tenneco,
in the case of Active Employees and Former Employees of the Energy Group, or
(ii) Shipbuilding Company, in the case of Active Employees or Former Employees
of the Shipbuilding Group. Such opening balances shall become fully vested as
of the close of business on the Distribution Date.
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6.03. TENNECO BENEFITS PROTECTION PROGRAM. Effective upon the Distribution
Date, Shipbuilding Company and Tenneco shall each be released from any
obligations which it may have under the Tenneco Benefits Protection Program.
Neither Shipbuilding Company nor Tenneco shall be entitled to any portion of
the Tenneco Inc. Benefit Protection Trust (the "Trust"), other than to the
assets, if any, of the Trust allocable to the respective liabilities retained
or assumed by them pursuant to this Agreement. Industrial Company shall
continue to sponsor and maintain the Trust.
SECTION 6.04. TENNECO OPTIONS AND RESTRICTED STOCK. Prior to the
Distribution Date, Tenneco shall cause all outstanding restricted stock and
performance share equivalent unit awards to become fully vested. Except as
provided in the last sentence of this paragraph, the parties hereto shall
cause all outstanding Tenneco stock options to be converted to options to
acquire stock of Tenneco, Industrial Company or Shipbuilding Company in
amounts and with exercise prices adjusted so that as to each grant the excess
of the aggregate fair market value of the shares subject to the option
immediately after the Distributions over the aggregate option price of such
shares is not more than the excess of the aggregate fair market value of the
shares subject to the option immediately before the Distributions over the
aggregate option price of such shares. In all other respects, the options
shall remain subject to the terms and conditions of the grants under which
they were issued, conforming changes excepted. Except to the extent determined
by the Compensation and Benefits Committee of Tenneco's Board of Directors,
each grantee shall receive options with respect to the stock of the entity
which employs him (or with which he is otherwise affiliated) immediately after
the Distributions. If Tenneco has entered into a definitive agreement for a
third-party to acquire Tenneco, the Tenneco stock options held by employees of
the Energy Group shall not be treated as provided in the preceding portion of
this SECTION 6.04; rather such options shall be made fully exercisable no less
than 30 days prior to the closing date of such acquisition, and if such
options are not exercised prior to the closing date, they will be cancelled
effective as of the closing date.
SECTION 6.05. EMPLOYMENT CONTRACTS. Tenneco shall retain and assume any and
all contractual obligations to Messrs. Casey, Menikoff and Sinclair. Tenneco
shall retain and assume any and all obligations to provide office space and
secretarial help to Messrs. Ketelsen and Scott. Industrial Company shall
assume and discharge all supplemental pension obligations to Mr. Ketelsen.
SECTION 7. WELFARE BENEFITS.
7.01. TENNECO SALARIED WELFARE PLANS. Effective on the Distribution Date,
Tenneco and Shipbuilding Company shall each cease to be a sponsor of the
Tenneco Salaried Welfare Plans, and Industrial Company shall serve as the
sponsor of the Tenneco Salaried Welfare Plans from and after the Distribution
Date. If the Energy Group or the Shipbuilding Group adopt one or more welfare
plans which is (are) identical to the comparable Tenneco Salaried Welfare
Plan, the Industrial Company shall use its best efforts to administer such
plan on behalf of the Energy Group or the Shipbuilding Group, as the case may
be, for a period ending not later thanDecember 31, 1997. Each of Shipbuilding
Company and Tenneco hereby agrees to reimburse Industrial Company for all
costs incurred by it with respect thereto.
7.02. ALLOCATION AND DISCHARGE OF WELFARE PLAN LIABILITIES. Shipbuilding
Company shall retain and discharge all welfare plan liabilities with respect
to Active Employees and Former Employees of the Shipbuilding Group and their
dependents. Industrial Company shall retain and discharge all welfare plan
liabilities with respect to Active Employees and Former Employees of the
Industrial Group and their dependents. Tenneco shall retain and discharge all
other welfare plan liabilities which remain after allocation of liabilities to
Shipbuilding Company and Industrial Company under the two immediately
preceding sentences, including, without limitation, all such liabilities
relating to the Active Employees and Former Employees of the Energy Group and
their dependents, and shall retain or have transferred to it all related
assets allocable to such liabilities, including without limitation, the
Tennessee Gas Pipeline Company Health Care Plan VEBA.
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SECTION 8. GENERAL.
8.01. POST-DISTRIBUTION ADMINISTRATION OF PLANS. The parties hereto agree to
administer all plans consistently herewith, and to the extent necessary to
amend plans accordingly.
8.02. COST AND EXPENSES. Each party shall bear all costs and expenses,
including but not limited to legal and actuarial fees, incurred in the design,
drafting and implementation of any and all plans and compensation structures
which it enables or creates and the amendment of its existing plans or
compensation structures.
SECTION 9. MISCELLANEOUS.
9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Distribution
Agreement, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Notwithstanding any other provisions in this Agreement or the Distribution
Agreement to the contrary, in the event and to the extent that there shall be
a conflict between the provisions of this Agreement and the provisions of the
Distribution Agreement or any other Ancillary Agreement, this Agreement shall
control.
9.02. OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to address,
and should not be interpreted to address, the matters specifically and
expressly covered by any of the other Ancillary Agreements.
9.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
9.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided herein,
all covenants and agreements of the parties contained in this Agreement shall
survive the Distribution Date.
9.05. NOTICES. All notices and other communications to a party hereunder
shall be in writing and hand delivered or mailed by registered or certified
mail (return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to such party
(and will be deemed given on the date on which the notice is received by such
party) at the address for such party set forth below (or at such other address
for the party as the party shall, from time to time, specify by like notice to
the other parties):
If to Tenneco, at:1010 Milam Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Attention: Corporate Secretary
9.06. WAIVERS. The failure of any party hereto to require strict performance
by any other party of any provision in this Agreement will not waive or
diminish that party's right to demand strict performance thereafter of that or
any other provision hereof.
9.07. AMENDMENTS. This Agreement may not be modified or amended except by an
agreement in writing signed by the parties hereto.
9.08. ASSIGNMENT. This Agreement shall be assignable in whole in connection
with a merger or consolidation or the sale of all or substantially all the
assets of a party hereto so long as the resulting, surviving
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or transferee entity assumes all the obligations of the relevant party hereto
by operation of law or pursuant to an agreement in form and substance
reasonably satisfactory to the other parties to this Agreement. Otherwise this
Agreement shall not be assignable, in whole or in part, directly or
indirectly, by any party hereto without the prior written consent of the
others, and any attempt to assign any rights or obligations arising under this
Agreement without such consent shall be void.
9.09. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
9.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and the members of their respective Groups and
Affiliates, after giving effect to the Distributions, and should not be deemed
to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
9.11. ATTORNEY FEES. A party in breach of this Agreement shall, on demand,
indemnify and hold harmless the other parties hereto for and against all out-
of-pocket expenses, including, without limitation, reasonable legal fees,
incurred by such other party by reason of the enforcement and protection of
its rights under this Agreement. The payment of such expenses is in addition
to any other relief to which such other party may be entitled hereunder or
otherwise.
9.12. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
9.13. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO
THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE
STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH
PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND
(iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL
HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY
WITHIN THE STATE OF DELAWARE.
9.14. SEVERABILITY. In the event any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
9.15. SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantee the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
9.16. RELEASE FROM POST EMPLOYMENT LIABILITY. Tenneco hereby agrees that in
the event it intends to request of any Energy Employee at any time on or
within 5 years subsequent to the Effective Time any release of liability and
further obligation on the part of Tenneco that it will promptly notify New
Tenneco in writing of such intent and, if so requested by New Tenneco, in
connection with such request also request from such Energy Employee a release
of liability and further obligation on the part of New Tenneco either, at New
Tenneco's election, (a) in the form provided to Tenneco by New Tenneco prior
to the Effective Time, with such changes
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thereto as may subsequently be reasonably requested from time to time by New
Tenneco, or (b) in substantially the same form as the release obtained from
such Energy Employee by Tenneco.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
/s/ Karl A. Stewart
By __________________________________
Name: Karl A. Stewart
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
/s/ Stephen B. Clarkson
By __________________________________
Name: Stephen B. Clarkson
Title: Vice President
NEW TENNECO INC.
/s/ Robert G. Simpson
By __________________________________
Name: Robert G. Simpson
Title: Vice President
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INSURANCE AGREEMENT
This Insurance Agreement (the "AGREEMENT") 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., a Delaware corporation
("SHIPBUILDING COMPANY").
WHEREAS, Tenneco, Industrial Company and Shipbuilding Company have entered
into that certain Distribution Agreement, dated as of November 1, 1996 (the
"DISTRIBUTION AGREEMENT"), pursuant to which (i) Tenneco and its Subsidiaries
shall cause to be consummated the Corporate Restructuring Transactions in
order to restructure, divide and separate their existing businesses and assets
so that (a) the Industrial Assets and Industrial Business shall be owned,
controlled and operated, directly or indirectly, by the Industrial Company,
and (b) the Shipbuilding Assets and Shipbuilding Business shall be owned,
controlled and operated, directly or indirectly, by the Shipbuilding Company,
and (ii) Tenneco shall distribute (the "Distributions") on the Distribution
Date all of the outstanding capital stock of Industrial Company and
Shipbuilding Company as a dividend to the holders of shares of the common
stock, par value $5.00 per share, of Tenneco upon the terms and subject to the
conditions set forth in the Distribution Agreement;
WHEREAS, Tenneco, its Subsidiaries and their respective predecessors have
historically maintained various Policies for the benefit or protection of one
or more of the Energy Covered Persons, Industrial Covered Persons and
Shipbuilding Covered Persons;
WHEREAS, in connection with the transactions contemplated by the
Distribution Agreement, Tenneco, Industrial Company and Shipbuilding Company
have determined that it is necessary and desirable to provide for the
respective continuing rights and obligations in respect of said Policies from
and after the Distribution Date; and
WHEREAS, pursuant to the Distribution Agreement the parties hereto have
agreed to enter into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. Unless otherwise defined herein or unless the context otherwise
requires, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined).
"AGREEMENT" shall mean this Insurance Agreement, dated as of December 11,
1996, by and among Tenneco, Industrial Company and Shipbuilding Company,
including any amendments hereto and each Schedule attached hereto.
"CLAIMS ADMINISTRATION" shall mean, with respect to any Policy, the
processing of claims made under such Policy, including, without limitation,
the reporting of losses or claims to insurance carriers and the management,
defense and settlement of claims.
"CLAIMS DEPOSIT" shall mean the amount of funds, as of the Distribution
Date, maintained by Tenneco on deposit for the benefit of the insurance
carriers under the Retained Policies.
"CLAIMS-MADE" shall mean, with respect to any Policy, coverage provided by
such Policy for claims made during a period specified therein.
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"CLAIMS-MADE POLICIES" shall mean those current and past Policies which are
Claims-Made in nature, including but not limited to those Policies identified
on SCHEDULE A hereto, which show Tenneco or any of its predecessors (or such
entity and its subsidiaries and/or affiliates) as the named insured, but
excluding (i) any directors' and officers' liability insurance policies which
are or were maintained by or on behalf of Tenneco, (ii) the Exclusive
Policies, and (iii) the Retained Policies.
"COMMON POLICIES" shall mean the Claims-Made Policies, Occurrence-Based
Policies, Eastern Policies and Retained Policies.
"CONSENT" shall have the meaning set forth in Section 2.3 hereof.
"CORPORATE RESTRUCTURING TRANSACTIONS" shall have the meaning set forth in
the Distribution Agreement.
"COVERED PERSONS" shall mean (i) with respect to Tenneco, the Energy Covered
Persons, (ii) with respect to Industrial Company, the Industrial Covered
Persons, and (iii) with respect to Shipbuilding Company, the Shipbuilding
Covered Persons.
"CURRENT CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies in effect
as of the Distribution Date, which Policies are set forth on SCHEDULE A
hereto.
"CURRENT OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
in effect as of the Distribution Date, which Policies are set forth on
SCHEDULE B hereto.
"DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement,
dated as of November 1, 1996, by and among Tenneco, Industrial Company and
Shipbuilding Company, including any amendments, exhibits and schedules
thereto.
"DISTRIBUTION DATE" shall have the meaning set forth in the Distribution
Agreement.
"DISTRIBUTION TIME" shall mean the time at which the Distributions become
effective.
"EASTERN POLICIES" shall mean the Policies identified on SCHEDULE C hereto,
which Policies show a member of the Energy Group as the named insured,
together with any predecessor policies thereto.
"ENERGY" shall mean, when unqualified, the Energy Assets, Energy Liabilities
and/or Energy Business.
"ENERGY ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY COVERED PERSON" shall mean each member of the Energy Group and any
other Person, in each case to the extent any Policy addressed herein purports
to provide insurance coverage in respect of any claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages or expenses
incurred by such Person arising out of, in connection with or otherwise
related to Energy.
"ENERGY GROUP" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY LIABILITIES" shall have the meaning set forth in the Distribution
Agreement.
"EXCLUSIVE POLICIES" shall mean the Tenneco Exclusive Policies, Industrial
Exclusive Policies and Shipbuilding Exclusive Policies.
"GROUP" shall have the meaning set forth in the Distribution Agreement.
"INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial
Liabilities, Prior Industrial Businesses and/or Industrial Business.
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"INDUSTRIAL ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL COVERED PERSON" shall mean each member of the Industrial Group
and any other Person, in each case to the extent any Policy addressed herein
purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Industrial.
"INDUSTRIAL EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Industrial Company, any other member of the Industrial Group or any
of their respective predecessors (or such entity and its subsidiaries and/or
affiliates) as the named insured and do not purport to relate to Energy or
Shipbuilding or to cover any Energy Covered Person or Shipbuilding Covered
Person, but excluding any Retained Policy.
"INDUSTRIAL GROUP" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"INSURANCE ADMINISTRATION" shall mean, with respect to any Policy, the
accounting for premiums, defense costs, indemnity payments, deductibles and
retentions, as appropriate, under the terms and conditions of such Policy, and
the distribution of Insurance Proceeds.
"INSURANCE PROCEEDS" shall mean those monies, net of any applicable premium
adjustment, deductible, retention or similar cost paid or held by or for the
benefit of an insured party which are either (i) received by an insured from
an insurance carrier, or (ii) paid by an insurance carrier on behalf of an
insured.
"LETTERS OF CREDIT" shall have the meaning set forth in Section 7.1 hereof.
"MERGER" shall have the meaning set forth in the Distribution Agreement.
"MERGER AGREEMENT" shall have the meaning set forth in the Distribution
Agreement.
"MERGER TIME" shall mean the time at which the Merger becomes effective.
"OCCURRENCE-BASED" shall mean, with respect to any Policy, coverage provided
by such Policy for acts, omissions, damages or injuries which occur or are
alleged to have occurred during a period specified in such Policy.
"OCCURRENCE-BASED POLICIES" shall mean those current and past Policies which
are Occurrence-Based in nature, including but not limited to those policies
identified on SCHEDULE B hereto, which show Tenneco or any of its predecessors
(or such entity and its subsidiaries and/or affiliates) as the named insured,
but excluding (i) any directors' and officers' liability policies which are or
were maintained by or on behalf of Tenneco, (ii) the Exclusive Policies, (iii)
the Retained Policies, and (iv) the Eastern Policies.
"OTHER CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies other than
the Transferred Claims-Made Policies.
"OTHER OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
other than the Transferred Occurrence-Based Policies.
"PERSON" shall have the meaning set forth in the Distribution Agreement.
"POLICIES" means insurance policies and insurance contracts of any kind
(other than life and benefits policies or contracts), including, without
limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, automobile, aircraft, property and
casualty, workers' compensation and employee dishonesty insurance policies,
bond and self-insurance and captive insurance company arrangements, together
with the rights, benefits and privileges thereunder.
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"PRIOR INDUSTRIAL BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"PRIOR SHIPBUILDING BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"RETAINED POLICIES" shall mean the Policies identified on SCHEDULE D hereto,
together with all other current and past primary, workers' compensation,
automobile liability and general liability (including products liability)
Policies showing Tenneco, any other member of the Energy Group or any of their
respective predecessors (or such entity and its subsidiaries and/or
affiliates) as the insured party and which are cost plus, fronting, high
deductible or retrospective premium programs but excluding the Eastern
Policies.
"SHIPBUILDING" shall mean, when unqualified, the Shipbuilding Assets,
Shipbuilding Liabilities, Prior Shipbuilding Businesses and/or Shipbuilding
Business.
"SHIPBUILDING ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING COVERED PERSON" shall mean each member of the Shipbuilding
Group and any other Person, in each case to the extent any Policy addressed
herein purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Shipbuilding.
"SHIPBUILDING EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Shipbuilding Company, any other member of the Shipbuilding Group or
any of their respective predecessors (or such entity and its subsidiaries
and/or affiliates) as the named insured and do not purport to relate to Energy
or Industrial or to cover any Energy Covered Person or Industrial Covered
Person, but excluding any Retained Policy.
"SHIPBUILDING GROUP" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"SUBSIDIARY" shall have the meaning set forth in the Distribution Agreement.
"TENNECO EXCLUSIVE POLICIES" shall mean all current and past Policies,
including but not limited to the current Policies set forth on SCHEDULE E
hereto, which show Tenneco, any other member of the Energy Group or any of
their respective predecessors (or such entity and its subsidiaries and/or
affiliates) as the named insured and do not purport to relate to Shipbuilding
or Industrial or to cover any Shipbuilding Covered Person or Industrial
Covered Person, excluding (i) any directors' and officers' liability policies
which are or were maintained by or on behalf of Tenneco, and (ii) any Retained
Policy.
"TERMINATION TIME" shall mean with respect to coverage under any Policy for
any Covered Person, the time as of which coverage under said Policy is to be
cancelled with respect to that Covered Person pursuant to the terms hereof.
"TRANSFERRED CLAIMS-MADE POLICIES" shall have the meaning set forth in
Section 2.2 hereof.
"TRANSFERRED OCCURRENCE-BASED POLICIES" shall have the meaning set forth in
Section 2.1 hereof.
"TRANSFERRED POLICIES" shall have the meaning set forth in Section 2.3
hereof.
1.2 References. References herein to a "Schedule" are, unless otherwise
specified, to one of the Schedules attached to this Agreement, and references
to an "Article" or a "Section" are, unless otherwise specified, to one of the
Articles or Sections, respectively, of this Agreement.
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ARTICLE II
SUBSTITUTION OF NAMED INSUREDS AND CANCELLATION OF POLICIES
2.1 Current Occurrence-Based Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company (and, at the option of Industrial Company,
its subsidiaries and affiliates after giving effect to the Distributions) is
added as a named insured under those Current Occurrence-Based Policies
identified on SCHEDULE 2.1-A hereto (the "TRANSFERRED OCCURRENCE-BASED
POLICIES"), effective as of the Distribution Time, and (ii) to cause the
Current Occurrence-Based Policies identified on SCHEDULE 2.1-B hereto to be
cancelled as of, and to afford no further coverage to the insureds thereunder
except as otherwise contemplated by this Agreement from and after, (A) the
Distribution Time, with respect to any Industrial Covered Person or
Shipbuilding Covered Person, and (B) the Merger Time, with respect to any
Energy Covered Person. Industrial Company agrees to be added as a named
insured under the Transferred Occurrence-Based Policies and to execute such
further documents as Tenneco may reasonably request in connection therewith.
2.2 Current Claims-Made Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company (and, at the option of Industrial Company,
its subsidiaries and affiliates after giving effect to the Distributions) is
added as a named insured under those Current Claims-Made Policies identified
on SCHEDULE 2.2-A hereto (the "TRANSFERRED CLAIMS-MADE POLICIES"), effective
as of the Distribution Time, and (ii) to cause the Current Claims-Made
Policies identified on SCHEDULE 2.2-B hereto to be cancelled as of, and to
afford no further coverage to the insureds thereunder except as otherwise
contemplated by this Agreement from and after, (A) the Distribution Time, with
respect to any Industrial Covered Person or Shipbuilding Covered Person, and
(B) the Merger Time, with respect to any Energy Covered Person. Industrial
Company agrees to be added as a named insured under the Transferred Claims-
Made Policies and to execute such further documents as Tenneco may reasonably
request in connection therewith.
2.3 Consent. Tenneco and Industrial Company shall each use its best efforts
to obtain prior to the Distribution Date the consent of each insurance carrier
under the Transferred Occurrence-Based Policies and the Transferred Claims-
Made Policies (collectively, the "TRANSFERRED POLICIES") that is required to
consummate the transactions contemplated by Sections 2.1 and 2.2 hereof (each,
a "CONSENT"), it being understood that if Consent to such transactions is not
received as contemplated by this Section 2.3 with respect to any Policy, such
Policy shall nonetheless be considered and treated as a Transferred Claims-
Made Policy or Transferred Occurrence-Based Policy, as the case may be, for
purposes of this Agreement.
2.4 No Transfer of Certain Policies. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
add Industrial Company as a named insured under any Transferred Policy without
Consent thereto if such addition without such Consent would constitute a
breach of such Transferred Policy. If Consent to such addition is not obtained
prior to the Distribution Date, Tenneco and Industrial Company agree to
negotiate in good faith an arrangement which shall place the Industrial
Company, insofar as reasonably possible, in the same position as would have
existed had such Consent to addition been obtained prior to the Distribution
Date.
ARTICLE III
COVERAGE
3.1 Maintenance of Coverage Through Merger Time. From the date hereof up to
the Merger Time, the parties hereto agree to use their best efforts to
maintain (and to cause each member of their respective Groups over which they
have legal or effective direct or indirect control to maintain) in full force
and effect the Occurrence-Based Policies, Claims-Made Policies, Eastern
Policies and Retained Policies for the benefit of any Energy Covered Person,
Industrial Covered Person and Shipbuilding Covered Person to which such
Policies by
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their terms relate except to the extent coverage under any such Policy is to
be terminated hereunder prior to the Merger Time (it being understood that
there shall be no obligation hereunder to maintain in full force and effect
coverage under any such Policy which, by operation of the terms of such
Policy, is terminated as to any Covered Person as a result of the
Distributions).
3.2 Coverage Under Occurrence-Based Policies.
(a) Termination of Coverage Under Transferred Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Occurrence-Based Policy, coverage under the Transferred
Occurrence-Based Policies shall be terminated (it being understood that such
Transferred Occurrence-Based Policies shall nonetheless remain in full force
and effect) so that none of the Transferred Occurrence-Based Policies shall
afford any further coverage to any Energy Covered Person or Shipbuilding
Covered Person for occurrences which take place or are alleged to have taken
place on or after the (A) Merger Time, with respect to any Energy Covered
Person and (B) Distribution Time, with respect to any Shipbuilding Covered
Person. From and after the Distribution Time and Merger Time, coverage under
any Transferred Occurrence-Based Policy may, at the option of Industrial
Company and subject to the rights of the insurers thereunder, continue for any
Industrial Covered Person upon the terms and conditions of such Transferred
Occurrence-Based Policy.
(b) Termination of Coverage Under Other Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Other Occurrence-Based Policy, coverage under the Other Occurrence-Based
Policies shall be terminated so that none of the Other Occurrence-Based
Policies shall afford any further coverage to any Energy Covered Person,
Industrial Covered Person or Shipbuilding Covered Person for occurrences which
take place or are alleged to have taken place on or after the (A) Merger Time,
with respect to any Energy Covered Person, and (B) Distribution Time, with
respect to any Shipbuilding Covered Person or Industrial Covered Person.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.2(a) and 3.2(b) hereof, from and after their
respective Termination Time under any Occurrence-Based Policy each Energy
Covered Person, Industrial Covered Person and Shipbuilding Covered Person
shall have the right to coverage and to make or pursue a claim for coverage
under such Occurrence-Based Policy with respect to all claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages and expenses
incurred or claimed to have been incurred prior to such Termination Time by
such Covered Person in or in connection with the operation of, or otherwise
related to, (i) Energy, with respect to any Energy Covered Person, (ii)
Industrial, with respect to any Industrial Covered Person, or (iii)
Shipbuilding, with respect to any Shipbuilding Covered Person, in each case
subject to the terms, conditions and limitations of such Occurrence-Based
Policy, provided, however, that nothing in this Section 3.2(c) shall be deemed
to constitute or reflect an assignment of any such Occurrence-Based Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under an Occurrence-Based Policy may claim for such
insurance as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Occurrence-Based
Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Occurrence-Based Policy, use its best efforts to either (i)
obtain and comply in full with the conditions required to effect the
reinstatement of the full limits of liability under such Occurrence-Based
Policy for all claims which would be covered thereby absent such exhaustion
(including any pending or known claims) and be responsible for and pay all
costs and expenses, including the amount of any resultant increase in the
premium charged in respect of such Occurrence-Based Policy or any renewal
thereof, in connection therewith, or (ii) obtain and maintain in full force
and effect a Policy in replacement of the limits of liability exhausted under
such Occurrence-Based Policy for all claims which would be covered thereby
absent such exhaustion (including any pending or known claims), and be
responsible for and pay all costs and expenses in connection therewith, which
Policy shall provide at least the same coverage,
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and contain terms and provisions which are no less favorable to the insured
parties, as existed under the Occurrence-Based Policy in respect of which such
replacement is obtained, provided, however, that no party hereto shall be
required to expend more than an amount equal to 350% of the original premium
paid with respect to the portion of the limits of liability under such
Occurrence-Based Policy (determined on a pro rata basis) exhausted by such
party's respective Covered Persons to obtain reinstatement or a replacement
Policy as contemplated hereby, it being understood that each party hereto
shall nonetheless be required to obtain the maximum amount of reinstatement or
replacement coverage available for such 350% premium amount in accordance with
the terms and provisions of clauses (i) or (ii) hereof, as applicable. If at
any time a party (an "Impairing Party") hereto becomes aware (such party being
deemed to be aware whenever any of the directors or executive officers of such
party or any other member of its respective Group become aware) of a claim or
potential claim against any of such Impairing Party's respective Covered
Persons which claim is reasonably likely to exhaust (but has not yet
exhausted) all or any portion of the aggregate limits of liability, if any,
under any Occurrence-Based Policy (a "Potential Impairment"), such Impairing
Party shall promptly provide notice of such Potential Impairment to the other
parties hereto. Such Impairing Party shall have five business days after
providing such notice to elect to, at that time, either secure reinstatement
of the limits of liability under such Occurrence-Based Policy (to the extent
provided for therein) or purchase a Policy in replacement of such limits of
liability (in each case in accordance with the terms and provisions of the
second preceding sentence) in respect of such Potential Impairment (but shall
not be required to so elect at such time). If such Impairing Party does not
timely elect to secure reinstatement or replacement coverage, then either or
both of the other parties hereto may elect to reinstate the limits of
liability under such Occurrence-Based Policy (to the extent provided for
therein) and pay all expenses incurred in connection therewith, provided,
however, that if such Potential Impairment actually occurs, the Impairing
Party shall reimburse the other parties for any fees and expenses incurred by
such parties in connection with such reinstatement.
3.3 Coverage Under Claims-Made Policies.
(a) Termination of Coverage Under Transferred Claims-Made Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Claims-Made Policy, coverage under the Transferred Claims-Made
Policies shall be terminated (it being understood that such Transferred
Claims-Made Policies shall nonetheless remain in full force and effect) so
that none of the Transferred Claims-Made Policies shall afford any further
coverage to any Energy Covered Person or Shipbuilding Covered Person for
claims which have not been reported or made as provided by the terms of such
Transferred Claims-Made Policy prior to (A) the Merger Time, with respect to
any Energy Covered Person, and (B) the Distribution Time, with respect to any
Shipbuilding Covered Person. From and after the Distribution Time and Merger
Time, coverage under any Transferred Claims-Made Policy may, at the option of
Industrial Company and subject to the rights of the insurers thereunder,
continue for any Industrial Covered Person upon the terms and conditions of
such Transferred Claims-Made Policy.
(b) Termination of Coverage Under Other Claims-Made Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate action
so that, notwithstanding anything to the contrary contained in any Other
Claims-Made Policy, coverage under the Other Claims-Made Policies shall be
terminated so that no Other Claims-Made Policy shall afford any further
coverage to any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person for claims which have not been reported or made as
provided by the terms of such Other Claims-Made Policy prior to (A) the Merger
Time, with respect to any Energy Covered Person, and (B) the Distribution
Time, with respect to any Shipbuilding Covered Person or Industrial Covered
Person.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.3(a) and 3.3(b) hereof, from and after their
respective Termination Time under any Claims-Made Policy each Energy Covered
Person, Industrial Covered Person and Shipbuilding Covered Person shall have
the right to coverage and to make or pursue a claim for coverage under such
Claims-Made Policy with respect to all claims, suits, actions, proceedings,
injuries, losses, liabilities, occurrences, damages and expenses which are
reported in accordance with the terms of such Claims-Made Policy prior to such
Termination Time and which are incurred
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or claimed to be incurred by such Covered Person in or in connection with the
operation of, or otherwise related to, (i) Energy, with respect to any Energy
Covered Person, (ii) Industrial, with respect to any Industrial Covered
Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered
Person, in each case subject to the terms, conditions and limitations of such
Claims-Made Policy, provided, however, that nothing in this Section 3.3(c)
shall be deemed to constitute or reflect an assignment of any such Claims-Made
Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under a Claims-Made Policy may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under such Claims-Made Policy.
Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Claims-Made Policy, use its best efforts to either (i) obtain
and comply in full with the conditions required to effect the reinstatement of
the full limits of liability under such Claims-Made Policy for all claims
which would be covered thereby absent such exhaustion (including any pending
or known claims) and be responsible for and pay all costs and expenses,
including the amount of any resultant increase in the premium charged in
respect of such Claims-Made Policy or any renewal thereof, in connection
therewith, or (ii) obtain and maintain in full force and effect at its own
cost a Policy in replacement of the limits of liability exhausted under such
Claims-Made Policy for all claims which would be covered thereby absent such
exhaustion (including any pending or known claims), and be responsible for and
pay all costs and expenses in connection therewith, which Policy shall provide
at least the same coverage, and contain terms and provisions which are no less
favorable to the insured parties, as existed under the Claims-Made Policy in
respect of which such replacement is obtained, provided, however, that no
party hereto shall be required to expend more than an amount equal to 350% of
the original premium paid with respect to the portion of the limits of
liability under such Claims-Made Policy (determined on a pro rata basis)
exhausted by such party's respective Covered Persons to obtain reinstatement
or a replacement Policy as contemplated hereby, it being understood that each
party hereto shall nonetheless be required to obtain the maximum amount of
reinstatement or replacement coverage available for such 350% premium amount
in accordance with the terms and provisions of clauses (i) or (ii) hereof, as
applicable. If at any time an Impairing Party becomes aware (such party being
deemed to be aware whenever any of the directors or executive officers of such
party or any other member of its respective Group become aware) of a claim or
potential claim against any of such Impairing Party's respective Covered
Persons which claim is reasonably likely to exhaust (but has not yet
exhausted) all or any portion of the aggregate limits of liability, if any,
under any Claims-Made Policy (a "Potential Impairment"), such Impairing Party
shall promptly provide notice of such Potential Impairment to the other
parties hereto. Such Impairing Party shall have five business days after
providing such notice to elect to, at that time, either secure reinstatement
of the limits of liability under such Claims-Made Policy (to the extent
provided for therein) or purchase a Policy in replacement of such limits of
liability (in each case in accordance with the terms and provisions of the
second preceding sentence) in respect of such Potential Impairment (but shall
not be required to so elect at such time). If such Impairing Party does not
timely elect to secure reinstatement or replacement coverage, then either or
both of the other parties hereto may elect to reinstate the limits of
liability under such Claims-Made Policy (to the extent provided for therein)
and pay all expenses incurred in connection therewith, provided, however, that
if such Potential Impairment actually occurs, the Impairing Party shall
reimburse the other parties for any fees and expenses incurred by such parties
in connection with such reinstatement.
3.4 Coverage Under Retained Policies.
(a) Termination of Coverage at Distribution Time. The parties hereto agree
to take or cause to be taken all necessary or appropriate action so that,
except as otherwise contemplated by the terms of this Agreement and
notwithstanding anything to the contrary contained in any Retained Policy,
effective as of the Distribution Time any and all coverage of any Industrial
Covered Person or Shipbuilding Covered Person under the Retained Policies
shall be terminated (it being understood that such Retained Policies shall
nonetheless remain in full force and effect). From and after the Distribution
Time, coverage under any of the Retained Policies may, at the option of
Tenneco and subject to the rights of the insurers thereunder, continue for any
Energy Covered Person upon the terms and conditions of such Retained Policies
(it being understood that the insurer under the Retained Policies currently in
effect has expressed its intention to cancel coverage thereunder as of the
Merger Time).
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(b) Access to Policies and Policy Limits. Notwithstanding the provisions of
Section 3.4(a) hereof, from and after the Distribution Time each Industrial
Covered Person and Shipbuilding Covered Person shall have the right to
coverage and to make or pursue a claim for coverage under any Retained Policy
with respect to all claims, suits, actions, proceedings, injuries, losses,
liabilities, occurrences, damages and expenses incurred or claimed to have
been incurred prior to the Distribution Time by such Covered Person in or in
connection with the operation of, or otherwise related to, (i) Industrial,
with respect to any Industrial Covered Person, or (ii) Shipbuilding, with
respect to any Shipbuilding Covered Person, in each case subject to the terms,
conditions and limitations of such Retained Policy, provided, however, that
nothing in this Section 3.4(b) shall be deemed to constitute or reflect an
assignment of any such Retained Policy. Any Industrial Covered Person or
Shipbuilding Covered Person may claim insurance coverage under a Retained
Policy as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Retained Policy.
3.5 Coverage Under Eastern Policies.
(a) Termination of Coverage Under Eastern Policies. The parties hereto agree
to take or cause to be taken all necessary or appropriate action so that,
notwithstanding anything to the contrary contained in any Eastern Policies,
effective as of the Distribution Time coverage under the Eastern Policies
shall be terminated (it being understood that such Eastern Policies in full
force and effect as of the Distribution Time shall nonetheless remain in full
force and effect) so that the Eastern Policies do not afford any further
coverage to any Industrial Covered Person or Shipbuilding Covered Person for
occurrences which take place or are alleged to have taken place on or after
the Distribution Time. From and after the Distribution Time, coverage under
the Eastern Policies may, at the option of Tenneco and subject to the rights
of the insurers thereunder, continue for any Energy Covered Person upon the
terms and conditions of the Eastern Policies.
(b) Access to Eastern Policies Following Distribution Time. Notwithstanding
the provisions of Sections 3.5(a) hereof, from and after the Distribution Time
each Energy Covered Person, Industrial Covered Person (to the extent (but only
to that extent and subject to the last sentence of this Section 3.5(b) and
Section 3.5(d)) payment under any Eastern Policy is a condition precedent to
the provision of coverage by any insurer providing coverage in the same layer
as, or a layer excess to that of, such Eastern Policy) and Shipbuilding
Covered Person (to the extent (but only to the extent and subject to the last
sentence of this Section 3.5(b)) necessary to access reinsurance policies)
shall have the right to coverage and to make or pursue a claim for coverage
under any Eastern Policy with respect to all claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages and expenses
incurred or claimed to have been incurred prior to the Distribution Time by
such Covered Person in or in connection with the operation of, or otherwise
related to, (i) Energy, with respect to any Energy Covered Person, (ii)
Industrial, with respect to any Industrial Covered Person, or (iii)
Shipbuilding, with respect to any Shipbuilding Covered Person, in each case,
subject to the terms, conditions and limitations of such Eastern Policy,
provided, however, that nothing in this Section 3.5(b) shall be deemed to
constitute or reflect an assignment of the Eastern Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate actions
so that, from and after the Distribution Time, no Industrial Covered Person or
Shipbuilding Covered Person shall be entitled to coverage or to make or pursue
a claim for coverage under the Eastern Policies except to the extent expressly
provided for herein and in no event shall the Eastern Insurance Provider (as
defined below) or any of its subsidiaries have any obligation or liability to
any Shipbuilding Covered Person or Industrial Covered Person under any Eastern
Policy which is not either as a conduit with respect to third party
reinsurance or subject to reimbursement by Industrial Company pursuant to
Section 3.5(d).
(c) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under the Eastern Policies may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under the Eastern Policies, subject to the
provisions of Section 3.5(b).
(d) Reimbursement Obligation of Industrial Company. Industrial Company
agrees to reimburse to the insurer under each Eastern Policy (the "EASTERN
INSURANCE PROVIDER") the full amount of any claim for insurance coverage for
an Industrial Covered Person under such Eastern Policy made pursuant to the
terms of Section 3.5(b) hereof which is actually paid by said Eastern
Insurance Provider after the Distribution Time.
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3.6 Coverage Under Exclusive Policies. From and after the Distribution Time,
coverage under any Exclusive Policy may (at the option of the party or parties
shown as the named insured thereunder, and subject to the rights of the
insurers thereunder) continue with respect to any claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages or expenses
incurred or claimed to have been incurred prior to, on or after the
Distribution Date, subject to the terms, conditions and limitations of such
Exclusive Policy, provided, however, that (i) no member of the Energy Group
shall have any liability or obligation with respect to any of the Industrial
Exclusive Policies or Shipbuilding Exclusive Policies, (ii) no member of the
Industrial Group shall have any liability or obligation with respect to any of
the Tenneco Exclusive Policies or Shipbuilding Exclusive Policies, and (iii)
no member of the Shipbuilding Group shall have any liability or obligation
with respect to any of the Tenneco Exclusive Policies or Industrial Exclusive
Policies.
3.7 Assistance in Obtaining Additional Coverage. Each of the parties hereto
agrees to use its reasonable best efforts to assist the other parties in the
transition to separate insurance coverage for the Energy Group, Industrial
Group and Shipbuilding Group from and after the Distribution Date which
assistance shall include, but shall not be limited to, the identification of
potential insurance carriers.
3.8 Discovery Periods. Except with respect to any Industrial Covered Person
and except as the parties hereto may otherwise agree, the parties hereto
acknowledge and agree that when this Agreement calls for the termination of
insurance coverage under a Claims-Made Policy such insurance coverage shall be
terminated as of the time specified and that no discovery period of coverage
in respect of such Policy shall be provided thereunder, notwithstanding
anything to the contrary contained herein or in any such Policy.
Notwithstanding the foregoing, if requested to do so by Tenneco, Industrial
Company shall use its reasonable efforts to procure that the relevant insurers
under the Claims-Made Policies offer to Tenneco a discovery period of coverage
under said Claims-Made Policies for Energy Covered Persons with an aggregate
limitation of liability separate from the limitation of liability under said
Claims-Made Policies for coverage afforded Industrial Covered Persons. All
premiums, costs and other charges with respect to any discovery period of
coverage provided under any Claims-Made Policy shall be the sole
responsibility of (i) Tenneco, with respect to coverage for Energy Covered
Persons, and (ii) Industrial Company, with respect to coverage for Industrial
Covered Persons. Each party hereto shall not (and shall not permit any of its
respective Covered Persons over which it has legal or effective direct or
indirect control to) take any action contrary to the provisions of this
Section 3.8.
3.9 Further Assurances. Each of Tenneco, Industrial Company and Shipbuilding
Company agree to take (and to cause each of its respective Covered Persons
over which it has direct or indirect legal or effective control to take) all
such actions as are necessary or appropriate, including the provision of
notice to all relevant insurance carriers and cooperation with respect to the
obtaining of any reinstatement of limitations on liability as contemplated
hereby, to effectuate the purposes of this Article III.
ARTICLE IV
PREMIUMS, DEDUCTIBLES AND RELATED MATTERS
4.1 Occurrence-Based and Claims-Made Policies.
(a) Premiums in Respect of Occurrence-Based and Claims-Made Policies. From
and after the Distribution Time, all premiums, costs and other charges with
respect to any Occurrence-Based Policy or Claims-Made Policy shall be paid by
Industrial Company, provided, however, that (i) Tenneco shall promptly
reimburse Industrial Company in full for any such premiums, costs or other
charges in respect of the cover afforded under any such Occurrence-Based
Policy or Claims-Made Policy to any Energy Covered Person, and (ii)
Shipbuilding Company shall promptly reimburse Industrial Company in full for
any such premiums, costs or other charges in respect of the cover afforded
under any such Occurrence-Based Policy or Claims-Made Policy to any
Shipbuilding Covered Person, in each case determined in accordance with
Tenneco's historical practices with respect to the allocation of such
premiums, costs and charges prior to the date hereof. All amounts refunded
from and after the
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Distribution Time by insurance carriers in respect of premiums previously paid
under any Occurrence-Based Policy or Claims-Made Policy shall be the sole
property of Industrial Company, provided, however, that Industrial Company
shall promptly pay to Tenneco or the Shipbuilding Company, as applicable, upon
receipt thereof from an insurance carrier, the Energy Group's or the
Shipbuilding Group's respective share of any such amounts refunded (such
respective share to be determined in accordance with Tenneco's historical
practices with respect to the allocation of insurance premiums among its
Subsidiaries and divisions prior to the date hereof). Each of Tenneco and
Shipbuilding Company shall (and shall cause each member of its respective
Group over which it has direct or indirect legal or effective control to)
promptly pay to Industrial Company any such refunded amounts actually received
by it to which Industrial Company is entitled pursuant hereto.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Distribution Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Occurrence-Based Policy
or Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with
respect to any coverage or claim for coverage in respect of any Energy Covered
Person, (ii) Industrial Company, with respect to any coverage or claim for
coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding
Company, with respect to any coverage or claim for coverage in respect of any
Shipbuilding Covered Person.
4.2 Retained Policies.
(a) Premiums, Costs and Other Charges. From and after the Distribution Time,
all premiums, costs and other charges with respect to any Retained Policy,
including claim payments and associated expenses under cost plus or fronting
policies, shall be the sole responsibility of and be paid by Tenneco,
provided, however, that (i) Industrial Company shall promptly reimburse
Tenneco for all such premiums, costs and other charges paid by Tenneco
(including amounts paid by Tenneco as reimbursement in respect of amounts
drawn under letters of credit maintained by Tenneco pursuant to Section 7.1
hereof) in respect of coverage provided for any Industrial Covered Person to
the extent such premiums, costs and other charges exceed the amount of the
Claims Deposit, and (ii) Shipbuilding Company shall promptly reimburse Tenneco
for all such premiums, costs and other charges paid by Tenneco (including
amounts paid by Tenneco as reimbursement in respect of amounts drawn under
letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in
respect of coverage provided for any Shipbuilding Covered Person. All amounts
refunded from and after the Distribution Time by insurance carriers in respect
of premiums previously paid under any Retained Policy shall be the sole
property of Tenneco, provided, however, that Tenneco shall promptly pay to (i)
Industrial Company, all such refunded amounts in respect of coverage provided
for any Industrial Covered Person under such Retained Policy, and (ii)
Shipbuilding Company, all such refunded amounts in respect of coverage
provided for any Shipbuilding Covered Person under such Retained Policy.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Distribution Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Retained Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
4.3 Eastern Policies.
(a) Premiums in Respect of Eastern Policies. All amounts refunded from and
after the Distribution Time by insurance carriers in respect of premiums
previously paid under any Eastern Policy shall be the sole property of
Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial
Company, upon receipt thereof from an insurance carrier, the Industrial
Group's respective share of any such amounts refunded, and (ii) Shipbuilding
Company, upon receipt thereof from an insurance carrier, the Shipbuilding
Group's respective share of any such amounts refunded, in each case determined
in accordance with Tenneco's historical practices with respect to the
allocation of insurance premiums among its Subsidiaries and divisions prior to
the date hereof. Each party shall (and shall cause each member of its
respective Group over which it has direct or indirect legal or effective
control to) promptly pay to any other party any such amounts actually received
by it to which such other party is entitled pursuant to this Section 4.3(a).
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(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Distribution Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Eastern Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
(c) Amounts to be Refunded. Tenneco shall direct and instruct the Eastern
Insurance Provider to pay to Industrial Company in cash promptly after the
Distribution Time, to the extent permitted by law, and to record a
corresponding dollar-for-dollar reduction in all associated liabilities on its
books and records for, (i) all amounts which appear as reserves on the books
and records of the Eastern Insurance Provider as of the Distribution Time in
respect of claims relating to any Industrial Covered Person which have been
reported prior to the Distribution Time, (ii) the full amount of any "incurred
but not reported" reserve and any portfolio loss transfer reserve appearing on
the books and records of the Eastern Insurance Provider as of the Distribution
Time under the contingent liability programs of the Eastern Policies, and
(iii) 50% of the amount of any "incurred but not reported" reserve appearing
on the books and records of the Eastern Insurance Provider as of the
Distribution Time under the excess liability programs of the Eastern Policies
with respect to Industrial and Energy.
4.4 Exclusive Policies. From and after the Distribution Time, all
deductibles, retentions, self-insured amounts, premiums and other costs with
respect to any Exclusive Policy or claim for coverage thereunder shall be the
sole responsibility of, and all refunded premiums with respect to any
Exclusive Policy shall be the sole property of, (i) Tenneco, with respect to
any Tenneco Exclusive Policy, (ii) Industrial Company, with respect to any
Industrial Exclusive Policy, and (iii) Shipbuilding Company, with respect to
any Shipbuilding Exclusive Policy.
4.5 Excess Costs and Settlements. Each Covered Person shall be responsible
for any excess costs and expenses relating to its respective claims permitted
hereunder (or those of any member of its respective Group) under the Common
Policies, including defense costs to the extent such defense costs are not
covered under such Common Policies, and shall be responsible for obtaining or
reviewing the appropriateness of releases upon settlement of such claims.
4.6 Effect on Other Agreements. Notwithstanding anything to the contrary
contained herein, nothing in this Article IV shall be construed to alter or in
any way limit any rights to indemnity provided in the Distribution Agreement
or in any other Ancillary Agreement (as such term is defined in the
Distribution Agreement).
ARTICLE V
ADMINISTRATION
5.1 Occurrence-Based and Claims-Made Policies.
(a) Administration. From and after the Distribution Date, Claims
Administration and Insurance Administration with respect to the Occurrence-
Based Policies and Claims-Made Policies shall be the responsibility of (i)
Tenneco, with respect to any coverage or claim for coverage of any Energy
Covered Person, (ii) Industrial Company, with respect to any coverage or claim
for coverage of any Industrial Covered Person, and (iii) Shipbuilding Company,
with respect to any coverage or claim for coverage of any Shipbuilding Covered
Person. Each of Shipbuilding Company and Tenneco shall (and shall cause each
of its respective Covered Persons over which it has direct or indirect legal
or effective control to) provide prompt notice to Industrial Company of all
actions taken by it with respect to the Claims Administration and Insurance
Administration for the Occurrence-Based Policies and Claims-Made Policies as
contemplated by this Section 5.1. Each party hereto shall (and shall cause
each other member of its Group over which it has direct or indirect legal or
effective control to) take all necessary or appropriate action, if any, to
delegate Claims Administration and Insurance Administration with respect to
the Occurrence-Based Policies and Claims-Made Policies to any other party who
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is to assume such responsibilities pursuant hereto and, to the extent such
delegation is not permitted by the terms of any such policy, shall engage in
Claims Administration or Insurance Administration for any such policy only
upon the express authorization and direction of such other party. Each party
hereto shall be responsible for its own disbursements and out-of-pocket
expenses and the direct and indirect costs of its employees or agents relating
to Claims Administration and Insurance Administration contemplated by this
Section 5.1. Notwithstanding anything to the contrary contained herein,
Industrial Company shall have the right, at its option, to undertake at its
own cost and expense Claims Administration and/or Insurance Administration
with respect to any coverage or claim for coverage of any Energy Covered
Person or Shipbuilding Covered Person.
(b) Effect of Administrative Responsibilities. Each of Tenneco, Industrial
Company and Shipbuilding Company acknowledges and agrees that each other
party's responsibilities under this Section 5.1 for Claims Administration and
Insurance Administration shall not relieve any party submitting an insured
claim under any Occurrence-Based Policy or Claims-Made Policy of (a) the
primary responsibility for reporting such insured claim accurately, completely
and in a timely manner, or (b) any other right or responsibility which such
party may have pursuant to the terms of any Occurrence-Based Policy or Claims-
Made Policy.
5.2 Eastern and Retained Policies. From and after the Distribution Time,
Tenneco shall be solely responsible for Claims Administration and Insurance
Administration with respect to the Retained Policies and Eastern Policies
including, without limitation, the administration of all billings associated
with the Retained Policies by the insurance carriers thereunder.
Notwithstanding the foregoing, each of Industrial Company and Shipbuilding
Company shall retain the right to, at its option, direct the management,
defense, reporting and settlement of claims involving its respective Covered
Persons under the Retained Policies and Eastern Policies.
ARTICLE VI
PROCEEDS
6.1 Occurrence-Based and Claims-Made Policies. From and after the
Distribution Date, Insurance Proceeds received with respect to claims, costs
and expenses under the Occurrence-Based Policies and Claims-Made Policies
shall be paid to the Covered Person to which such Insurance Proceeds are due
pursuant to the terms of such Policies.
6.2 Eastern and Retained Policies. From and after the Distribution Date,
Insurance Proceeds received with respect to claims, costs and expenses under
the Retained Policies and Eastern Policies shall be paid, as appropriate, to
the Covered Person to which such Insurance Proceeds are due pursuant to the
terms of such Policies.
6.3 Return of Proceeds. Each of Tenneco, Industrial Company and Shipbuilding
Company shall (and shall cause each of its respective Covered Persons over
which it has direct or indirect legal or effective control to) to promptly pay
to each other party any Insurance Proceeds actually received by it to which
any of such other party's Covered Persons are entitled pursuant hereto, which
other party shall then distribute such Insurance Proceeds to the Covered
Person to which they are due pursuant hereto.
ARTICLE VII
LETTERS OF CREDIT AND SURETY BONDS
7.1 Maintenance. (a) Letters of Credit. From and after the Distribution
Date, to secure obligations under the Retained Policies relating to periods
preceding the Distribution Time, Tenneco shall, for such time as may be
required by law or the terms of any Retained Policy, maintain in full force
and effect the letters of credit identified on SCHEDULE 7.1-A hereto or, as
necessary or appropriate, substitute therefor and maintain in full force and
effect letters of credit acceptable to the insurance carriers and/or surety
under the Retained Policies issued
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by comparably rated lenders containing substantially identical terms and
conditions (collectively, the "LETTERS OF CREDIT"). The parties hereto shall
use reasonable commercial efforts to obtain the necessary consents and
approvals, and shall thereafter negotiate in good faith an agreement, to
allocate the Letters of Credit among the parties hereto such that each party
becomes responsible for the maintenance of letters of credit for such time as
may be required by law or the terms of any Retained Policy to secure
obligations under the Retained Policies relating to periods prior to the
Distribution Time in respect of coverage afforded thereunder to such party's
respective Covered Persons, provided, however, that neither Industrial Company
nor Shipbuilding Company shall be required to use such reasonable commercial
efforts or negotiate any such agreement if such party determines that the
allocation contemplated hereby cannot be accomplished without commercially
unreasonable expense.
(b) Surety Bonds. The parties hereto acknowledge that Tenneco is obligated
to indemnify the sureties under certain performance bonds and other surety
instruments that secure obligations of the Energy Business, Energy Group,
Industrial Business, Prior Industrial Businesses, Industrial Group,
Shipbuilding Business, Prior Shipbuilding Businesses and/or Shipbuilding Group
including, but not limited to, the surety instruments identified on SCHEDULE
7.1-B hereto (the "TENNECO-PROVIDED BONDS"). From and after the Distribution
Time, Tenneco shall maintain such Tenneco-Provided Bonds in place for such
time as may be required by law. To the extent possible on commercially
reasonable terms, each of Industrial Company and Shipbuilding Company shall
use reasonable commercial efforts to obtain a replacement for each Tenneco-
Provided Bond that secures obligations of the Industrial Business, Prior
Industrial Businesses or Industrial Group (in the case of Industrial Company)
or the Shipbuilding Business, Prior Shipbuilding Businesses or Shipbuilding
Group (in the case of Shipbuilding Company) and to thereafter arrange for the
release of Tenneco from the Tenneco-Provided Bond which has been so replaced.
If the surety under any Tenneco-Provided Bond is required to and does in fact
perform according to the terms of said Tenneco-Provided Bond and Tenneco is
required to and does in fact indemnify such surety in respect thereof, (i)
Industrial Company shall reimburse Tenneco for all amounts actually paid by
Tenneco to such surety to the extent such amounts constitute Industrial
Liabilities, and (ii) Shipbuilding Company shall reimburse Tenneco for all
amounts actually paid by Tenneco to such surety to the extent such amounts
constitute Shipbuilding Liabilities.
7.2 Reimbursement for Maintenance Fees. Each of Industrial Company and
Shipbuilding Company hereby agrees to reimburse Tenneco annually commencing on
January 31, 1998 (such date and each anniversary thereof being referred to
herein as a "DUE DATE") for the actual and reasonable administrative fees and
expenses paid by Tenneco (the "LC MAINTENANCE FEES") in respect of the
issuance and maintenance of the Letters of Credit during the twelve-month
period ended 31 days prior to such year's Due Date (each, a "YEARLY PERIOD"),
to the extent such Letters of Credit secure obligations relating to any
Industrial Covered Person or Shipbuilding Covered Person, respectively, under
the Retained Policies. The amount of the LC Maintenance Fees for each Yearly
Period which shall be the responsibility of Industrial Company and
Shipbuilding Company hereunder shall be based on the total outstanding
reserves showing on the books and records of CIGNA, as of February 28 during
such Yearly Period, for claims by all Industrial Covered Persons, Energy
Covered Persons and Shipbuilding Covered Persons under the Retained Policies
relating to periods prior to the Distribution Time (the "YEARLY TOTAL
RESERVES"). Industrial Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Industrial Covered Persons under the Retained
Policies relating to periods prior to the Distribution Time, and (ii) the
denominator of which is equal to the Yearly Total Reserves for such Yearly
Period. Shipbuilding Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Shipbuilding Covered Persons under the
Retained Policies relating to periods prior to the Distribution Time, and (ii)
the denominator of which is equal to the Yearly Total Reserves for such Yearly
Period.
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ARTICLE VIII
MISCELLANEOUS
8.1 Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
8.2 Further Assurances. If at any time after the Distribution Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of Tenneco, Industrial Company and Shipbuilding Company shall,
on the written request of any of them, take (or cause the appropriate member
of its Group over which it has direct or indirect legal or effective control
to take) all such reasonably necessary or desirable action. If subsequent to
the Distribution Date any Policy showing any member of the Energy Group,
Industrial Group or Shipbuilding Group, or any of their respective
predecessors, as named insured is discovered which was in effect for periods
prior to the Distribution Time and has not been addressed by the provisions of
this Agreement or the Merger Agreement, the parties hereto agree to negotiate
in good faith an arrangement with respect to such Policy which shall give, to
the fullest extent possible, effect to the purposes of this Agreement and the
transactions contemplated by the Distribution Agreement.
8.3 Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various insurance matters
contemplated by this Agreement. Each party hereto shall not (and shall not
permit any of its respective Covered Persons over which it has legal or
effective direct or indirect control to) take any action or permit any
inaction that could reasonably be expected to jeopardize or otherwise
interfere with the rights of any other party (or any of such other party's
respective Covered Persons) hereunder or the ability of any other party (or
any of such other party's respective Covered Persons) to collect any proceeds
which might be available under any of the Policies addressed herein in
accordance with the terms of this Agreement.
8.4 No Representations and Warranties. The parties hereto understand and
agree that no representation or warranty as to the existence, applicability or
extent of insurance coverage for Energy, Industrial or Shipbuilding under any
Policy is herein being made.
8.5 Limitation on Liability. Except as may be otherwise expressly provided
for herein, no party hereto shall be liable hereunder to another party or any
of such other party's Covered Persons for claims not reimbursed by insurers
for any reason not within the control of such party including, without
limitation, coinsurance provisions, deductibles, quota share deductibles,
exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of
an insurance carrier, Policy limitations or restrictions, any coverage
disputes, any failure to timely claim or any defect in such claim or its
processing.
8.6 Successors and Assigns. Except as otherwise expressly provided herein,
no party hereto may assign or delegate, whether by operation of law or
otherwise, any of such party's rights or obligations under or in connection
with this Agreement without the written consent of each other party hereto. No
assignment will, however, release the assignor of any of its obligations under
this Agreement or waive or release any right or remedy the other parties may
have against such assignor hereunder. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will be binding upon and enforceable
against the respective successors and assigns of such party and will be
enforceable by and will inure to the benefit of the respective successors and
permitted assigns of such party.
8.7 Modification; Waiver; Severability. This Agreement may not be amended or
modified except in a writing executed by each of the parties hereto. The
failure by any party to exercise or a delay in exercising any right provided
for herein shall not be deemed a waiver of any right hereunder. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
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8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
8.9 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
8.10 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient at such recipient's
address as indicated below:
TENNECO INC.:1010 Milam Street
Houston, TX 77002
Attention: Corporate Secretary
INDUSTRIAL COMPANY:1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
SHIPBUILDING COMPANY:4101 Washington Avenue
Newport News, VA 23607
Attention: Corporate Secretary
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8.11 Survival. Each of the agreements of the parties herein shall survive
the Distribution Date.
8.12 No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and their respective Covered Persons, and shall
not give rise to any rights of any kind to any other third parties.
8.13 Other. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO
BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE
COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE
OF DELAWARE. This Agreement, together with the Distribution Agreement and
other Ancillary Agreements (as such term is defined in the Distribution
Agreement), constitutes the entire agreement and supersedes all other prior
and contemporaneous agreements and undertakings, both written and oral, among
the parties with respect to the subject matter hereof.
8.14 Sole Agent. In all matters relating to this Agreement, including the
resolution of any disputes relating to this Agreement between any members of
different Groups, (i) Tenneco shall be the sole agent for the members of the
Energy Group, (ii) Industrial Company shall be the sole agent for the members
of the Industrial Group, and (iii) Shipbuilding Company shall be the sole
agent for members of the Shipbuilding Group. No member of any Group shall have
any authority to represent itself in any such matter or to terminate such
agency without the prior written consent of each party hereto.
8.15 No Double Recovery. No provision of this Agreement shall be construed
to provide recovery to any Person for any costs, expenses or other amounts for
which such Person has been fully compensated under any other provision of this
Agreement, any other agreement or otherwise.
16
<PAGE>
IN WITNESS WHEREOF, the parties have made and entered into this Insurance
Agreement as of the date first set forth above.
TENNECO INC.
/s/ Karen R. Osar
By __________________________________
Name: Karen R. Osar
Title: Vice President and Treasurer
NEW TENNECO INC.
/s/ Karen R. Osar
By __________________________________
Name: Karen R. Osar
Title: Vice President and Treasurer
NEWPORT NEWS SHIPBUILDING INC.
/s/ Stephen B. Clarkson
By __________________________________
Name: Stephen B. Clarkson
Title: Vice President
17
<PAGE>
SCHEDULE A
TO INSURANCE AGREEMENT
CURRENT CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ------ ---------------- ------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
2.2-A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company- $100,000,000xs
Bermuda $100,000,000
2.2-B Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000xs
$200,000,000
2.2-B Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company- $200,000,000xs
Bermuda $300,000,000
2.2-B Fiduciary Liability NIA 0120905-96 3/1/96-97 Reliance $ 50,000,000 $500,000
71FF 1010075268CM Aetna
8141-48-49-A Federal
2.2-B ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $ 15,000,000 NIL
Ins. Co. (AIG)
</TABLE>
18
<PAGE>
SCHEDULE B
TO INSURANCE AGREEMENT
CURRENT OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER TYPE OF
SCHED. COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS
------ -------- ------------- ------------ ----------- ------
<C> <S> <C> <C> <C> <C>
2.1-B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000 xs
$10,000,000
2.1-B Excess Liability BE8180249RA 9/1/96-97 American $25,000,000 xs
International (AIG) $20,000,000
Specialty Lines Ins. Co.
2.1-B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000 xs
$45,000,000
2.1-B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. $22,000,000 xs
(Zurich) $70,000,000
2.1-B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000 xs
(Front for Amer Re) $92,000,000
2.1-B Automobile--Mexico HLN 00261 1/1/96-97 Seguros Comercial BI: $30,000/
America $60,000
PD: $30,000
2.1-A Aircraft Products Lia- 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000
bility Underwriters Aggr. Cov. A
$100,000,000
Aggr. Cov. B
$150,000,000
Aggr. Cov. A & B
2.1-A Aviation Hull & Liabil- 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000
ity Underwriters Per Occurrence
2.1-B Ocean Cargo EIPH1008 7/1/96-97 ESIS International, Inc. $10,000,000
One Conveyance
2.1-A All Risk Property Dam- YMM800856 6/1/96-97 Royal Insurance $2,000,000,000
age/ Blanket Per Occur.
Business Interruption
(Global)
2.1-B Comprehensive Boiler & BMI-SA-9138264-20 11/1/96-97 Hartford Steam Boiler $100,000,000
Machinery Per Accident
Property
Damage/Business
Interruption
2.1-B Foreign Public & Prod- 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000
ucts Liability Per Occurrence
Insurance (Primary Cov-
er)
2.1-B Umbrella Excess Liabil- W51010 9/1/96-97 Winterthur (Front for $8,000,000
ity Eastern Insurance Co.) Any One
Occurrence
xs $2,000,000
2.1-B Employer's Liability 054/095/6000 Not avail. Eagle Star Not avail.
5626/1 Insurance Company
Limited
2.1-B Personal Accident--Eu- 5.011.926 7/1/92 until CIGNA 600,000 Pounds
rope cancelled Sterling per person
2,500,000
Pounds Sterling per acc.
2.1-B Nuclear Energy Liability NS-0379 1/1/96- Nuclear Energy Liability $20,000,000
Insurance 12/31/96 Insurance Association
<CAPTION>
DEDUCTIBLES
------ -----------
<C>
$10,000,000
Per Occurrence
$5,000,000
Per Occ.-USA/Can.
$250,000
Per Occ.-
Rest of World
$5,000,000
Any One Accident
$5,000 per Claim
$50,000 Pollution
</TABLE>
19
<PAGE>
SCHEDULE C
TO INSURANCE AGREEMENT
EASTERN POLICIES
<TABLE>
<CAPTION>
TYPE OF POLICY POLICY
COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
-------- ------ ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Excess Li- 96ED2501 9/1/96-97 Eastern Insurance Company $8,000,000xs
ability Limited-Bermuda $2,000,000
Contingent 96ED2801 1/1/96-97 Eastern Insurance Company
Liability Limited-Bermuda
</TABLE>
20
<PAGE>
SCHEDULE D
TO INSURANCE AGREEMENT
CURRENT RETAINED POLICIES
<TABLE>
<CAPTION>
POLICY POLICY
TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------ ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Workers' Compensation WLRC 9/1/96-97 Bankers Standard $2,000,000 $2,000,000
Texas-Ded. 42203063 Ins. Co.
Workers' Compensation WLRC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000
Other States-Ded. 42203051 Ins. Co.
Workers' Compensation CCSC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000
Retro 42203087 Ins. Co.
Workers' Compensation 1810017884 9/1/96-97 Maine Employers' $100,000/$500,000 $5,000
Maine Mutual $100,000
General Liability HDOG 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000
18967248 Casualty Ins. Co.
Automobile Liability ISAH 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000
007131641 Casualty Ins. Co.
Environmental HDCG 9/1/96-97 CIGNA Property & $1,000,000 $1,000,000
18967285 Casualty Ins. Co.
Automobile Liability - CAC391021 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000
Canada Canada
General Liability - CGLO23835 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000
Canada Canada
Railroad Protective- ORPG 8/1/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
Besemer 18968617 North America (CIGNA) $6,000,000 $6,000,000
& Lake Erie RR Co.
Railroad Protective- ORPG 8/1/96-97 CIGNA Property & $2,000,000/ $2,000,000/
Boston 18968575 Casualty Insur. Co. $6,000,000 $6,000,000
& Maine Corp.
Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
AMTRAK 18967923 North America (CIGNA) $6,000,000 $6,000,000
Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
Mass. 18967881 North America (CIGNA) $6,000,000 $6,000,000
Bay Transp.
New York State OCPG 10/10/96-97 CIGNA $500,000/ $500,000/
Owners & Contractors 18968629 $500,000 $500,000
Protective Liability
</TABLE>
21
<PAGE>
SCHEDULE E
TO INSURANCE AGREEMENT
CURRENT TENNECO EXCLUSIVE POLICIES
<TABLE>
<CAPTION>
POLICY POLICY
TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ---------------------------- ----------- ---------- ----------------------------- ------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Tenneco Gas Production SWO5505896 6/19/96-97 St. Paul Surplus $1,000,000 $2,500
General Liability Lines Ins. Co. Each Occurrence
$1,000,000
Prod/CO Agg.
Tenneco Gas Production SPO5511912 6/19/96-97 St. Paul Surplus $10,000,000 $10,000
Umbrella Liability Lines Ins. Co. Each Occurrence,
$10,000,000
Prod/CO Agg.
Tenneco Gas South America 82/900194/D 7/24/95- Gerling-Konzern $2,000,000 $10,000
Construction Risk Liability 1/24/97
Tenneco Gas Australia CXC 042840 7/24/95- CIGNA $8,000,000 xs
Construction Risk Liability 1/24/97 $2,000,000
Excess Liability BE 9320742 4/26/96-97 National Union $10,000,000 $500,000
Michigan Production Fire Ins. Co. (AIG) Each Occurrence SIR
Company Gen. Agg. & Prod/CO Agg.
Offshore Property/OEE Pkg. MMA 96-134 7/27/96-97 UNI 17.0%; Sec. IA Sec. IA
Sec. IA&B - Offshore Prop. Gjensidige 14.0%; -- Per Schedule -- $5,000,000
Sec. II - OEE Vesta 15.0%; (100%) AOO
Sec. III - Protector 8.0%; Sec. IB Sec. IB
Charterer's Liab. Commonwealth 13.0%; -- Per Schedule -- $1,000,000
Hull & Co. 5.0%; (100%) AOO
All American Sec. II Sec. II
Marine Slip. 5.0%; OEE $50,000,000 -- $200,000
Reliance 5.0%; OCSLA $35,000,000 (100%) AOO
C.T. Bowring 18.0% CCC $5,000,000 OCSLA $200,000
(100%) Per Occ.
CCC $50,000
(100%) Per Occ.
Sec. III
Sec. III -- $50,000
--$1,000,000 (100%) AOO
Construction All Risk HG 015595 10/5/95- National Vulcan Cornhill Ins. Aus. $209,032,000 Aus. $30,000
12/31/96 SR International All Perils except:
Royal Insurance Global Aus. $250,000
Generali Windstorm, Flood,
SCOR and Earth Movement
Worker's Compensation-- E 13344308 Ongoing (Placed with Government) TBD
South Australia
Employer Cost Control 03P002771 7/31/96-97 CIGNA Maximum Weekly
Insurance Benefit: $500
Professional Indemnity 9617VK18625 7/28/96-97 HIH Casualty & General TBD $20,000 each and
Insurance Ltd. every claim
Motor Vehicle MV 452743 7/31/96-97 CIC Insurance Own Damage:
$24,000
Primary GL/AL/EL CXC 042960 8/13/96-97 CIGNA International $1,000,000
Mexico - Scada/Pemex Ea. Occurrence,
Gen Agg. & Prod/CO Agg.
(Contingent Auto)
$2,000,000 BI by Accident
$2,000,000 BI by disease
(Each Employee)
$2,000,000 BI by disease
(Policy Limit)
Follow Form Excess CXC 042962 8/26/96-97 CIGNA International $19,000,000 Any One
Mexico - Scada/Pemex Occur. & Aggregate
Foreign Workers' Comp. CXC 042979 11/1/96-97 CIGNA International $2,000,000
EPIP 8190265/ 11/1/96-97 American International $10,000,000
8190266 Specialty Lines
Ins. Co. (AIG)
Crime 4843124 11/1/96- AIG $1,000,000
11/1/97
</TABLE>
22
<PAGE>
SCHEDULE 2.1-A
TO INSURANCE AGREEMENT
TRANSFERRED OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ------ ---------------- ------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
B All Risk Property YMM800856 6/1/96-97 Royal Insurance $2,000,000,000 $5,000,000
Damage/Business Blanket per Occur. Per Occ.-USA/Can.
Interruption (Global) $250,000,
Per Occ.-Rest of World
B Aircraft Products Liability 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000
Underwriters Aggr. Cov. A
$100,000,000
Aggr. Cov. B
$150,000,000
Aggr. Cov. A & B
B Aviation Hull & Liability 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000
Underwriters Per Occurrence
</TABLE>
23
<PAGE>
SCHEDULE 2.1-B
TO INSURANCE AGREEMENT
CANCELLED OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER
SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS
- ------ ---------------- ------------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000xs
$10,000,000
B Excess Liability BE8180249RA 9/1/96-97 American International (AIG) $25,000,000xs
Specialty Lines Ins. Co. $20,000,000
B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000xs
$45,000,000
B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. (Zurich) $22,000,000xs
$70,000,000
B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000xs
(Front for Amer Re) $92,000,000
B Automobile-Mexico HLN 00261 1/1/96-97 Seguros Comercial America BI: $30,000/$60,000
PD: $30,000
B Ocean Cargo EIPH1006 7/1/96-97 ESIS International, Inc. $10,000,000
One Conveyance
B Comprehensive Boiler & BMI-SA- 11/1/96-97 Hartford Steam Boiler $100,000,000
Machinery Property 9138264-20 Per Accident
Damage/Business
Interruption
B Foreign Public & Products 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000
Liability Insurance Per Occurrence
(Primary Cover)
B Umbrella Excess Liability W51010 9/1/96-97 Winterthur (Front for $8,000,000
Eastern Insurance Co.) Any One Occurrence
xs $2,000,000
B Employer's Liability 054/950/ Not avail. Eagle Star Not avail.
60005626/1 Insurance Company
Limited
B Personal Accident-Europe 5.011.926 7/1/92 until CIGNA 800,000 Pounds
cancelled Sterling per person
2,500,000 Pounds
Sterling per acc.
B Nuclear Energy NS-0379 1/1/96- Nuclear Energy $20,000,000
Liability Insurance 12/31/96 Liability Insurance
Association
<CAPTION>
OTHER
SCHED. DEDUCTIBLES
- ------ -----------
<S> <C>
B
B
B
B
B
B
B $10,000,000
Per Occurrence
B $5,000,000
Any One Accident
B $5,000 per Claim
$50,000 Pollution
B
B
B
B
</TABLE>
24
<PAGE>
SCHEDULE 2.2-A
TO INSURANCE AGREEMENT
TRANSFERRED CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
------ ---------------- ------ ------------ ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company $100,000,000 xs
-Bermuda $100,000,000
</TABLE>
25
<PAGE>
SCHEDULE 2.2-B
TO INSURANCE AGREEMENT
CANCELLED CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER
SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
------ ---------------- ------------- ------------ ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
A Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000 xs
$200,000,000
A Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company $200,000,000 xs
-Bermuda $300,000,000
A Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000
71FF 101007525BCM Aetna
8141-48-49-A Federal
A ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $15,000,000 NIL
Ins. Co. (AIG)
</TABLE>
26
<PAGE>
SCHEDULE 7.1-A
TO INSURANCE AGREEMENT
LETTERS OF CREDIT CURRENTLY IN PLACE
<TABLE>
<CAPTION>
LOC BANK LOC# AMOUNT
--- ---- ---- ------
<S> <C> <C> <C>
CIGNA Program NationsBank 130995 $22,000,000
CIGNA Program Texas Commerce I-422502 18,000,000
CA Self Insurance Bank of America LASB-119266 1,147,981
</TABLE>
27
<PAGE>
SCHEDULE 7.1-B
TO INSURANCE AGREEMENT
SURETY BONDS CURRENTLY IN PLACE
See attached schedule.
28
<PAGE>
TAX SHARING AGREEMENT
This Agreement is entered into as of December 11, 1996 by and between
Tenneco Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding
Inc. (formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company"), New Tenneco Inc., a Delaware corporation
("Industrial Company"), and El Paso Natural Gas Company, a Delaware
corporation ("Acquiror"). Tenneco, Shipbuilding Company, and Industrial
Company are sometimes collectively referred to herein as the "Companies."
Capitalized terms used in this Agreement are defined in Section 1 below.
Unless otherwise indicated, all "Section" references in this Agreement are to
sections of this Agreement.
RECITALS
WHEREAS, as of the date hereof, Tenneco is the common parent of an
affiliated group of corporations, including Shipbuilding Company and
Industrial Company, which has elected to file consolidated Federal income tax
returns; and
WHEREAS, the Companies have entered into a Distribution Agreement setting
forth the corporate transactions pursuant to which Tenneco will distribute all
of the outstanding shares of common stock of Shipbuilding Company and all of
the outstanding shares of common stock of Industrial Company to Tenneco
shareholders in transactions intended to qualify as tax-free distributions
under Section 355 of the Code (as defined below); and
WHEREAS, as a result of the Distributions, Shipbuilding Company and
Industrial Company, and their respective subsidiaries, will cease to be
members of the affiliated group of which Tenneco is the common parent,
effective as of the Distribution Date; and
WHEREAS, the Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the transactions contemplated by the Distribution Agreement,
and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Companies hereby agree as follows:
Section 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to each of Shipbuilding Company
and Industrial Company, any date as of the end of which there is a closing of
the financial accounting records for such entity.
"ACCOUNTING FIRM" shall have the meaning provided in Section 15.
"ACQUIROR" means El Paso Natural Gas Company, a Delaware corporation, and
any successor.
"ADJUSTMENT REQUEST" means any formal or informal claim or request filed
with any Tax Authority, or with any administrative agency or court, for the
adjustment, refund, or credit of Taxes, including (a) any amended Tax return
claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.
"AFFILIATE" means any entity that directly or indirectly is "controlled" by
the person or entity in question. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through ownership of voting securities, by
contract or otherwise. Except as otherwise provided herein, the term Affiliate
shall refer to Affiliates of a person as determined immediately after the
Distributions.
"AGREEMENT" shall mean this Tax Sharing Agreement.
<PAGE>
"ALLOCATED FEDERAL TAX LIABILITY" shall have the meaning provided in Section
5.01(b)(i).
"BASE AMOUNT ADJUSTMENT ITEMS" means any Tax Items arising from the amounts
described in clause (i)(A) of the definition of Base Amount in the Debt and
Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement
(relating to gas supply realignment costs and recoveries of such costs) or in
clause (i)(C) of such definition of Base Amount (relating to payments made in
settlement of any significant Energy Liability (as defined in the Merger
Agreement)), and any Tax Items related to such amounts (such as income accrued
with respect to payments to be received after the Distribution Date from
customers, insurers, or other third parties with respect to gas supply
realignment costs or settlements of Energy Liabilities).
"CARRYBACK" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means Tenneco, Shipbuilding Company, and Industrial Company,
collectively, and "COMPANY" means any one of Tenneco, Shipbuilding Company, or
Industrial Company.
"CONSOLIDATED OR COMBINED INCOME TAX" means any Income Tax computed by
reference to the assets and activities of members of more than one Group.
"CONSOLIDATED OR COMBINED STATE INCOME TAX" means any State Income Tax
computed by reference to the assets and activities of members of more than one
Group.
"CONSOLIDATED TAX LIABILITY" means, with respect to any Tenneco Federal
Consolidated Return, the "tax liability of the group" as that term is used in
Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts, and penalties as provided in the
Code), adjusted as follows:
(i) such tax liability shall be treated as including any alternative
minimum tax liability under Code Section 55;
(ii) in the case of the Tax Period which includes the Distribution Date,
the Consolidated Tax Liability shall be computed as if the Distribution
Date were the last day of the Tax Period; and
(iii) Base Amount Adjustment Items and Debt Discharge Items shall be
disregarded.
"CUMULATIVE FEDERAL TAX PAYMENT" shall have the meaning provided in Section
5.01(b)(ii).
"DEBT DISCHARGE ITEMS" means any Tax Items arising from the Debt Realignment
(as defined in the Merger Agreement).
"DISTRIBUTION AGREEMENT" means the agreement, as amended from time to time,
setting forth the corporate transactions required to effect the distribution
to Tenneco shareholders of Shipbuilding Common Shares and Industrial Common
Shares, and to which this Tax Sharing Agreement is attached as an exhibit.
"DISTRIBUTION DATE" means the Distribution Date as that term is defined in
the Distribution Agreement.
"DISTRIBUTIONS" means the distributions to Tenneco shareholders on the
Distribution Date of all of the outstanding stock of Industrial Company and
Shipbuilding Company owned by Tenneco.
"EFFECTIVE TIME" shall have the meaning provided in the Merger Agreement.
"ENERGY INVESTMENTS GROUP" means the corporations, or divisions of
corporations, identified on Schedule 3.
"FEDERAL ALLOCATION METHOD" shall have the meaning provided in Section
2.02(a).
2
<PAGE>
"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A or F of the Code.
"FEDERAL TAX ADJUSTMENT" shall have the meaning provided in Section 2.02(b).
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
possession of the United States, or by any political subdivision of any
foreign country or United States possession, which is an income tax as defined
in Treasury Regulation Section 1.901-2.
"GROUP" means the Tenneco Group, the Shipbuilding Group, and the Industrial
Group, as the context requires.
"GSR ITEMS" means, for any Tax Period: (a) the deductions or losses
allowable in such Tax Period attributable to (i) the payment of gas supply
realignment costs as described in clause (i) of the definition of Base Amount
in the Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, or (ii) the payment in any Post-Distribution Tax
Period of gas supply realignment costs incurred pursuant to contracts entered
into on or prior to the Distribution Date; and (b) any taxable income or gain
recognized in such Tax Period attributable to the recovery of such costs from
customers, insurers, or third parties or attributable to any reduction in any
previously deducted payments.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INDUSTRIAL ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Industrial Company
would be exclusively liable for any resulting Tax under this Agreement and
exclusively entitled to receive any resulting Tax Benefit under this
Agreement. For purposes of this Agreement, any proposed adjustment relating to
Tenneco Business Services Inc. (or the predecessor shared services project of
Tenneco) shall be an Industrial Adjustment, and Industrial Company shall be
liable for any Taxes (and shall be entitled to receive any Tax Benefit)
arising from such adjustments.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation, and any
successor.
"INDUSTRIAL GROUP" means Industrial Company and its Affiliates as determined
immediately after the Distributions, modified as provided in Section 18.
"INDUSTRIAL GROUP PRIOR FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(ii).
"INDUSTRIAL GROUP PRIOR STATE TAX LIABILITY" shall have the meaning provided
in Section 2.03(b)(ii)(B).
"INDUSTRIAL GROUP RECOMPUTED FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(i).
"INDUSTRIAL GROUP RECOMPUTED STATE TAX LIABILITY" shall have the meaning
provided in Section 2.03(b)(ii)(A).
"JOINT ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim
for refund asserted in a Tax Contest which is neither an Industrial
Adjustment, a Shipbuilding Adjustment, nor a Tenneco Adjustment.
"MERGER" means the merger of El Paso Merger Company with and into Tenneco as
described in the Merger Agreement.
"MERGER AGREEMENT" means the Amended and Restated Agreement and Plan of
Merger among Tenneco, Acquiror, and El Paso Merger Company dated as of June
19, 1996, as amended from time to time.
"PAYMENT DATE" means (i) with respect to any Tenneco Federal Consolidated
Return, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the return determined under Code Section 6072, and the
date the return is filed,
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and (ii) with respect to any Tax Return for any Consolidated or Combined State
Income Tax, the corresponding dates determined under the applicable Tax Law.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period beginning the day after the Distribution Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period ending on the Distribution Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"PRIOR INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral
agreement or any other arrangements relating to allocation of Taxes existing
between or among the Tenneco Group, the Shipbuilding Group, and the Industrial
Group as of the Distribution Date (other than this Agreement and other than
any such agreement or arrangement between or among persons who are members of
a single Group). The following agreements, including any amendments thereto,
shall not be considered a Prior Intercompany Tax Allocation Agreement: (i) the
agreement by and between Tenneco and Case Equipment Corporation (now known as
Case Corporation) dated June 23, 1994; (ii) the agreement by and among
Tenneco, Tenneco United Kingdom Holdings Limited, and Albright and Wilson plc
dated February 16, 1995; and (iii) the agreement by and between Tennessee Gas
Pipeline Company, Tenneco Gas Marketing Company, and IGC Energy, Inc. dated
November 1, 1995.
"PROHIBITED ACTION" shall have the meaning provided in Section 11.
"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means the Taxes described in Sections 2.06(a)(ii) or
2.06(a)(iii) (relating to Tax resulting from any income or gain recognized as
a result of the Transactions).
"RULING REQUEST" means the letter filed by Tenneco with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and
any amendment or supplement to such ruling request letter.
"SEPARATE COMPANY TAX" means any Tax computed by reference to the assets and
activities of a member or members of a single Group.
"SHIPBUILDING ADJUSTMENT" means any proposed adjustment by a Tax Authority
or claim for refund asserted in a Tax Contest to the extent Shipbuilding
Company would be exclusively liable for any resulting Tax under this Agreement
and exclusively entitled to receive any resulting Tax Benefit under this
Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly known
as Tenneco InterAmerica Inc.), a Delaware corporation, and any successor.
"SHIPBUILDING GROUP" means Shipbuilding Company and its Affiliates as
determined immediately after the Distributions, modified as provided in
Section 18.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Distribution Date.
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"STATE INCOME TAX" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in
respect of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX BENEFIT" means any refund, credit, or other reduction in otherwise
required Tax payments (including any reduction in estimated tax payments).
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund) for any Tax Period
ending on or before the Distribution Date or any Straddle Period.
"TAX CONTEST COMMITTEE" shall have the meaning provided in Section 9.02(b).
"TAX ITEM" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, and credit.
"TAX LAW" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"TAX OPINION" means the opinion letter to be issued by Tenneco's tax counsel
as required by the Merger Agreement, a form of which is attached as Exhibit K
of the Merger Agreement.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax is
reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records
required to be maintained under the Code or other applicable Tax Laws or under
any record retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the
Code or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or
supplements to any of the foregoing.
"TENNECO" means Tenneco Inc., a Delaware corporation, and any successor.
"TENNECO ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Tenneco would be
exclusively liable for any resulting Tax under this Agreement and exclusively
entitled to receive any resulting Tax Benefit under this Agreement.
"TENNECO FEDERAL CONSOLIDATED RETURN" means any United States federal Tax
Return for the affiliated group (as that term is defined in Code Section 1504)
that includes Tenneco as the common parent and includes any member of the
Shipbuilding Group or the Industrial Group.
"TENNECO GROUP" means Tenneco and its Affiliates, excluding any entity that
is a member of the Industrial Group or the Shipbuilding Group.
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"TRANSACTIONS" means the transactions contemplated by the Distribution
Agreement (including the Corporate Restructuring Steps and Distributions, as
defined in such agreement) and by the Merger Agreement (including the Debt
Realignment, as defined in such agreement).
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
Section 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each Company's liability for Taxes with respect to
Pre-Distribution Periods. Once the liability has been determined under this
Section 2, Section 5 determines the time when payment of the liability is to
be made, and whether the payment is to be made to the Tax Authority directly
or to another Company.
2.01 General Rule
(a) Tenneco Liability. Tenneco shall be liable for all Taxes not
specifically allocated to either Industrial Company or Shipbuilding Company
under this Section 2. Tenneco shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for Taxes which Tenneco is liable for under this Section 2.01(a).
(b) Industrial Company Liability. Industrial Company shall be liable for,
and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, Taxes which are
allocated to Industrial Company under this Section 2.
(c) Shipbuilding Company Liability. Shipbuilding Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Industrial Group from and against any liability for, Taxes which are
allocated to Shipbuilding Company under this Section 2.
2.02 Allocation of United States Federal Income Tax. Except as provided in
Sections 2.06, 6.02, and 6.03:
(a) Allocation of Tax Relating to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. With respect to any Tenneco Federal
Consolidated Return filed after the Distribution Date, the Consolidated Tax
Liability shall be allocated among the Groups in accordance with the method
prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on
the date hereof) determined by treating each Group as a single member of
the consolidated group and by disregarding Base Amount Adjustment Items and
Debt Discharge Items in computing each Group's taxable income (the "Federal
Allocation Method"). For purposes of such allocation, the excess, if any,
of (i) Consolidated Tax Liability over (ii) Consolidated Tax Liability
determined without regard to any alternative minimum tax liability under
Code Section 55, shall be allocated among the Groups in accordance with
their respective amounts of alternative minimum taxable income, and any
corresponding alternative minimum tax credit shall be allocated in
accordance with the allocation of such alternative minimum tax liability.
Any amount so allocated to the Industrial Group shall be a liability of
Industrial Company to Tenneco under this Section 2, and any amount so
allocated to the Shipbuilding Group shall be a liability of Shipbuilding
Company to Tenneco under this Section 2. Amounts described in Code Section
1561 (relating to limitations on certain multiple benefits) shall be
divided equally among the Tenneco Group, the Industrial Group, and the
Shipbuilding Group to the extent permitted by the Code.
(b) Allocation of Tenneco Federal Consolidated Return Tax Adjustments. If
there is any adjustment to the reported Tax liability with respect to any
Tenneco Federal Consolidated Return, or to such Tax liability as previously
adjusted, Industrial Company shall be liable to Tenneco for the excess (if
any) of--
(i) the Consolidated Tax Liability of the Industrial Group computed
as if all members of the Industrial Group included in the Tax Return
had filed a consolidated Tax Return for such members based on the Tax
Items of such members as so adjusted (the "Industrial Group Recomputed
Federal Tax Liability"); over
(ii) the Consolidated Tax Liability of the Industrial Group computed
as if such members of the Industrial Group had filed a consolidated Tax
Return for such members based on the Tax Items of such
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members as reported (or, if applicable, as previously adjusted) (the
"Industrial Group Prior Federal Tax Liability").
If the Industrial Group Prior Federal Tax Liability exceeds the Industrial
Group Recomputed Federal Tax Liability, Tenneco shall be liable to
Industrial Company for such excess. The Shipbuilding Group liability shall
be recomputed in a like manner, and Shipbuilding Company shall be liable to
Tenneco for any excess of the Shipbuilding Group Recomputed Federal Tax
Liability over the Shipbuilding Group Prior Federal Tax Liability, and
Tenneco shall be liable to Shipbuilding Company for any excess of the
Shipbuilding Group Prior Federal Tax Liability over the Shipbuilding Group
Recomputed Federal Tax Liability. For purposes of this Section 2.02(b), if
the Industrial Group or the Shipbuilding Group has a net operating loss
after taking into account the adjustments allocable to such group, the
Recomputed Federal Tax Liability of the group shall be less than zero to
the extent such net operating loss produces a Tax Benefit in consolidation
for the applicable taxable year.
(c) Special Allocation With Respect to Energy Investments Group. If the
net operating loss of the Energy Investments Group as reported on the
Tenneco Federal Consolidated Tax Return for the taxable year ended December
31, 1996 (but computed as if the Distribution Date were the last day of the
Tax Period) is less than $185,000,000, Industrial Company shall be liable
to Tenneco for an amount equal to 35% of the difference between
$185,000,000 and the Energy Investments Group net operating loss or net
taxable income. If such net operating loss of the Energy Investments Group
is greater than $213,000,000, Tenneco shall be liable to Industrial Company
for an amount equal to 35% of the difference between $213,000,000 and the
amount of the Energy Investments Group net operating loss. If there is any
subsequent adjustment to the Energy Investment Group's net operating loss
or taxable income, the amount payable by or to Industrial Company under
this Section 2.02(c) shall be adjusted accordingly based on the net
operating loss or taxable income as adjusted.
2.03 Allocation of State Income Taxes. Except as provided in Sections 2.04,
2.05, 2.06, 6.02, and 6.03, State Income Taxes shall be allocated as follows:
(a) Separate Company Taxes. In the case of any State Income Tax which is
a Separate Company Tax, Industrial Company shall be liable for such Tax
imposed on any members of the Industrial Group, and Shipbuilding Company
shall be liable for such Tax imposed on any members of the Shipbuilding
Group.
(b) Consolidated or Combined State Income Taxes. In the case of any
Consolidated or Combined State Income Tax, the liability of Industrial
Company and Shipbuilding Company with respect to such Tax for any Tax
Period shall be computed as follows:
(i) Allocation of Tax Reported on Tax Returns Filed After the
Distribution Date. In the case of any Consolidated or Combined State
Income Tax reported on any Tax Return filed after the Distribution Date
(excluding any amended return), Industrial Company shall be liable to
Tenneco for the State Income Tax liability computed as if all members
of the Industrial Group included in the computation of such Tax had
filed a consolidated or combined Tax Return for such Industrial Group
members based on the income, apportionment factors, and other items of
such members, and Shipbuilding Company shall be liable to Tenneco for
the State Income Tax liability computed as if all members of the
Shipbuilding Group included in the computation of such Tax had filed a
consolidated or combined Tax Return for such Shipbuilding Group members
based on the income, apportionment factors, and other items of such
members.
(ii) Allocation of Combined or Consolidated State Income Tax
Adjustments. If there is any adjustment to the amount of Consolidated
or Combined State Income Tax reported on any Tax Return (or as
previously adjusted), the liability of the Industrial Group and the
Shipbuilding Group shall be recomputed as provided in this
subparagraph. Industrial Company shall be liable to Tenneco for the
excess (if any) of--
(A) the State Income Tax liability computed as if all members of
the Industrial Group included in the Tax Return had filed a
consolidated or combined Tax Return for such members
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based on the income, apportionment factors, and other items of such
members as so adjusted (the "Industrial Group Recomputed State Tax
Liability"); over
(B) the State Income Tax liability computed as if such members of
the Industrial Group had filed a consolidated or combined Tax Return
for such members based on the income, apportionment factors, and
other items of such members as reported (or, if applicable, as
previously adjusted) (the "Industrial Group Prior State Tax
Liability").
If the Industrial Group Prior State Tax Liability exceeds the
Industrial Group Recomputed State Tax Liability, Tenneco shall be
liable to Industrial Company for such excess. The Shipbuilding Group
liability shall be recomputed in a like manner, and Shipbuilding
Company shall be liable to Tenneco for any excess of the Shipbuilding
Group Recomputed State Tax Liability over the Shipbuilding Group Prior
State Tax Liability, and Tenneco shall be liable to Shipbuilding
Company for any excess of the Shipbuilding Group Prior State Tax
Liability over the Shipbuilding Group Recomputed State Tax Liability.
For purposes of this paragraph, the determination and payment of
estimated Taxes (including the determination and payment of any Tax
required to be paid with a request for an extension of time to file a
Tax Return) shall not be treated as an adjustment to the related
Consolidated or Combined State Income Tax.
2.04 Allocation of State Income Tax Effects of Federal Audit Adjustments.
Tenneco shall be liable for any State Income Taxes resulting from the
adjustments to Tenneco Federal Consolidated Returns for Tax Periods ending on
or before December 31, 1989. In accordance with Section 6, any Tax Benefit
realized by the Shipbuilding Group or by the Industrial Group as a result of
Tenneco's payment of such State Income Taxes shall be for the account of
Tenneco and shall be paid to Tenneco under Section 6. For example, if Tenneco
pays a State Income Tax liability of $100x related to adjustments to the Tax
Return of a member of the Shipbuilding Group, and if such payment is available
as a deduction on the Shipbuilding Group's Tax Return for Federal Income Tax,
Shipbuilding Company shall pay to Tenneco the Federal Income Tax benefit
attributable to the deduction (i.e., $35x assuming a 35% maximum marginal tax
rate under Code Section 11, and assuming the payment is treated as a
nondeductible dividend under the Code in accordance with Section 14 of this
Agreement).
2.05 Allocation of Other Taxes. Except as provided in Section 2.06, all
Taxes other than those specifically allocated pursuant to Sections 2.03
through 2.04 shall be allocated based on the legal entity on which the legal
incidence of the Tax is imposed. As between the parties to this Agreement,
Industrial Company shall be liable for all Taxes imposed on any member of the
Industrial Group (including Taxes imposed on the separate consolidated federal
income tax return of Tenneco International Holding Corp.), and Shipbuilding
Company shall be liable for all Taxes imposed on any member of the
Shipbuilding Group. The Companies believe that there is no Tax not
specifically allocated pursuant to Sections 2.03 through 2.04 which is legally
imposed on more than one legal entity (e.g., joint and several liability);
however, if there is any such Tax, it shall be allocated in accordance with
past practices as reasonably determined by the affected Companies, or in the
absence of such practices, in accordance with any allocation method agreed
upon by the affected Companies.
2.06 Transaction and Other Taxes
(a) Tenneco Liability. Except as otherwise provided in Sections 2.06 and
6.02, Tenneco shall be liable for, and shall indemnify and hold harmless
Industrial Group and the Shipbuilding Group from and against any liability
for, all Taxes resulting from the Transactions (other than Taxes allocated
to the Acquiror under the Merger Agreement), including:
(i) Any sales and use, gross receipts, or other transfer Taxes
imposed on the transfers occurring pursuant to the Transactions;
(ii) any Tax resulting from any income or gain recognized under
Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any
corresponding provisions of other applicable Tax Laws) as a result of
the Transactions; and
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(iii) any Tax resulting from any income or gain recognized as a
result of any of the transactions contemplated by the Distribution
Agreement failing to qualify for tax-free treatment under Code Sections
332, 351, 355, 361, or other provisions of the Code (as contemplated in
the Ruling Request) or other applicable Tax Laws, or as a result of the
Merger failing to qualify for tax-free treatment under Code Sections
354 and 361 or other provisions of the Code or other applicable Tax
Laws (as contemplated in the Merger Agreement).
If any Tax referred to in this Section 2.06(a) is included in the
definition of Actual Energy Debt Amount, but cannot be calculated on the
Energy Determination Date (as such terms are defined in the Debt and Cash
Allocation Agreement attached as Exhibit C to the Distribution Agreement),
then Industrial Company shall pay to Tenneco the amount which would have
been included in the Actual Energy Debt Amount. Such payments shall be made
at the time such amounts are determinable. For the purposes of this Section
2.06(a) and the definition of Actual Energy Debt Amount (as defined in the
Debt and Cash Allocation Agreement), the term "transfer Taxes" includes any
Illinois franchise tax imposed under Ill. Rev. Stat. ch. 805, (S) 15.65(b)
in connection with the transfer by Tenneco Corporation of net intercompany
receivables in the approximate amount of $6.9 billion to a subsidiary of
Midwestern Gas Transmission Company in connection with the Corporate
Restructuring Transactions.
(b) Indemnity for Inconsistent Acts. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax (described in subparagraphs (ii) and (iii) above) to the extent arising
from any breach of Industrial Company's representations or covenants under
Section 11. Shipbuilding Company shall be liable for, and shall indemnify
and hold harmless the Tenneco Group and the Industrial Group from and
against any liability for, any Restructuring Tax to the extent arising from
any breach of Shipbuilding Company's representations or covenants under
Section 11. Acquiror shall be liable for, and shall indemnify and hold
harmless the Industrial Group and Shipbuilding Group from and against any
liability for, any Restructuring Tax to the extent arising from any breach
of Acquiror's representations or covenants under Section 11.
(c) Indemnity for Representations. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax to the extent arising from the inaccuracy of any factual statements or
representations in connection with the Ruling Request or the Tax Opinion,
but in each case only to the extent such inaccuracy arises from facts in
existence prior to the Effective Time, and excluding any inaccuracy with
respect to any statements or representations relating to Acquiror,
Shipbuilding Company, or their Affiliates or any plan or intention on the
part of Acquiror, Shipbuilding Company, or their Affiliates as to actions
to be taken at or subsequent to the Effective Time. Shipbuilding Company
shall be liable for, and shall indemnify and hold harmless the Tenneco
Group and the Industrial Group from and against any liability for, any
Restructuring Tax to the extent arising from the inaccuracy of any factual
statements or representations relating to the Shipbuilding Company or its
Affiliates in connection with the Ruling Request or the Tax Opinion.
Acquiror shall be liable for, and shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for, any Restructuring Tax to the extent arising from the inaccuracy of any
factual statements or representations relating to Acquiror or its
Affiliates (other than the Tenneco Group) in connection with the Ruling
Request or the Tax Opinion.
(d) Change in Law Relating to Deferred Gains. If between the date of the
Merger Agreement and the Effective Time there is a change in law and as a
result of such change in law Tenneco is required to restore to income as a
result of the Merger the deferred gains identified on Schedule 2 to the
Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, then any resulting Tax shall be allocated equally
between Industrial Company and Tenneco. For purposes of this Section
2.06(d), the term "change in law" shall mean any of the following occurring
between the date of the Merger Agreement and the Effective Time: (i) an
amendment to the Code; (ii) an amendment to the Treasury Regulations
(including any issuance of proposed, temporary, or final Treasury
Regulations); (iii) a decision of the Tax Court, any Federal District
Court, the Court of Federal Claims, the Federal Circuit Court, or the
United States Supreme Court; and (iv) any notice, announcement, or other
administrative pronouncement published by the Internal
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Revenue Service in the Internal Revenue Bulletin to the effect that the
Treasury Department intends to issue Treasury Regulations after the
Effective Time that will be effective with respect to the Transactions.
(e) Taxes Relating to Settlement Receipts For Account of Industrial
Company. To the extent the economic benefit of any amounts received by the
Energy Business prior to the Effective Time from the settlement of pending
litigation (as identified on Schedule G2 to Exhibit G of the Merger
Agreement) is allocated to Industrial Company under the Debt and Cash
Allocation Agreement, any corresponding tax liability with respect to such
amounts shall be allocated to Industrial Company.
Section 3. Proration of Taxes for Straddle Periods
3.01 General Method of Proration. In the case of any Straddle Period, Tax
Items shall be apportioned between Pre-Distribution Periods and Post-
Distribution Periods in accordance with the principles of Treasury Regulation
Section 1.1502-76(b) as reasonably interpreted and applied by the Companies.
No election shall be made under Treasury Regulation Section 1.1502-
76(b)(2)(ii) (relating to ratable allocation of a year's items). If the
Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury
Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate
the items (other than extraordinary items) for the month which includes the
Distribution Date.
3.02 Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Items relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to such items shall be treated under Treasury Regulation
Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall
be allocated to Pre-Distribution Periods.
Section 4. Preparation and Filing of Tax Returns
4.01 General. Except as otherwise provided in this Section 4, Tax Returns
shall be prepared and filed when due (including extensions) by the person
obligated to file such Tax Returns under the Code or applicable Tax Law. The
Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7. As used in this Section 4,
the terms "domestic" and "foreign" have the meanings ascribed to such terms in
Code Section 7701.
4.02 Industrial Company's Responsibility. Industrial Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed:
(a) Tenneco Federal Consolidated Returns for Tax Periods ending on or
before December 31, 1996.
(b) Tax Returns for State Income Taxes (including Tax Returns with
respect to State Income Taxes that are Separate Company Taxes) which the
Companies reasonably determine, in accordance with Tenneco's past
practices, are required to be filed by the Companies or any of their
Affiliates for Tax Periods ending on or before December 31, 1996, other
than Tax Returns with respect to State Income Taxes that are Separate
Company Taxes of the Shipbuilding Group for Tax Periods beginning on or
after the Distribution Date. If Acquiror elects or is required to combine
the income of any Company or its Affiliates with the income of the Acquiror
or any of its Affiliates (other than any Company or its Affiliates) with
respect to any Tax Return for State Income Taxes for any Tax Period ending
on or before December 31, 1996, Industrial Company shall provide to
Acquiror in accordance with a compliance schedule to be agreed to by
Industrial Company and Acquiror information and documents reasonably
required by Acquiror to prepare and file such Tax Return, and Acquiror
shall have the exclusive obligation and right to prepare and file such Tax
Return, or to cause such Tax Return to be prepared and filed.
(c) Tax Returns that are required to be filed by the members of the
Industrial Group (including the federal consolidated Tax Return required to
be filed by Tenneco International Holding Corp.).
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Nothing in this Section 4.02 shall impose on Industrial Company any liability
for any failure to file any Tax Return, or for failure to file any Tax Return
when due, with respect to any Pre-Distribution Period if the due date for such
return (including extensions) was prior to the Distribution Date.
4.03 Shipbuilding Company's Responsibility. Shipbuilding Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed, Tax Returns required to be filed by members of the Shipbuilding
Group other than those Tax Returns which Industrial Company is required to
prepare and file under Section 4.02.
4.04 Tenneco Responsibility. Tenneco shall prepare and file, or shall cause
to be prepared and filed, Tax Returns required to be filed by or with respect
to members of the Tenneco Group other than those Tax Returns which Industrial
Company is required to prepare and file under Section 4.02. The Tax Returns
required to be prepared and filed by Tenneco under this Section 4.04 shall
include (a) the Tenneco Federal Consolidated Return for Tax Periods ending
after December 31, 1996, (b) Tax Returns for Consolidated or Combined State
Income Taxes which the Companies reasonably determine, in accordance with
Tenneco's past practices, are required to be filed by the Companies or any of
their Affiliates for Tax Periods ending after December 31, 1996, and (c) Tax
Returns for State Income Taxes for Tax Periods ending on or before December
31, 1996 if Acquiror elects or is required to combine the income of any
Company or its Affiliates with the income of the Acquiror or any of its
Affiliates (other than any Company or its Affiliates) with respect to such Tax
Return.
4.05 Tax Accounting Practices
(a) General Rule. Except as otherwise provided in this Section 4.05, any
Tax Return for any Pre-Distribution Period or any Straddle Period, and any
Tax Return for any Post-Distribution Period to the extent items reported on
such Tax Return might reasonably affect items reported on any Tax Return
for any Pre-Distribution Period or any Straddle Period, shall be prepared
in accordance with past Tax accounting practices used with respect to the
Tax Returns in question (unless such past practices are no longer
permissible under the Code or other applicable Tax Law), and to the extent
any items are not covered by past practices (or in the event such past
practices are no longer permissible under the Code or other applicable Tax
Law), in accordance with reasonable Tax accounting practices selected by
the Responsible Company. The Companies agree to report their portion of the
consolidated cumulative overall foreign loss based on the notional account
balances determined on a legal entity basis in a manner consistent with
past practices.
(b) Reporting of Transaction Tax Items Other Than Debt Discharge Items
and Base Amount Adjustment Items. The tax treatment reported on any Tax
Return of Tax Items relating to the Transactions shall be consistent with
the treatment of such item in the IRS Ruling Letter (as defined in the
Merger Agreement) and the Tax Opinion (unless such treatment is not
permissible under the Code). To the extent there is a Tax Item relating to
the Transactions which is not covered by the IRS Ruling Letter or the Tax
Opinion, the Companies shall agree on the tax treatment of any such Tax
Item reported on any Tax Return. For this purpose, the tax treatment of
such Tax Items on a Tax Return by the Responsible Company with respect to
such Tax Return shall be agreed to by the other Company unless either (i)
there is no reasonable basis for such tax treatment, or (ii) such tax
treatment is inconsistent with the tax treatment contemplated in the Ruling
Request or in the Tax Opinion. Such Tax Return shall be submitted for
review pursuant to Section 4.07(a), and any dispute regarding such proper
tax treatment shall be referred for resolution pursuant to Section 15,
sufficiently in advance of the filing date of such Tax Return (including
extensions) to permit timely filing of the return.
(c) Debt Discharge Items. Industrial Company shall determine the tax
treatment of any Debt Discharge Item on any Tax Return, subject only to the
other Companies' rights of review under Section 4.07.
(d) Base Amount Adjustment Items. Tenneco shall determine the tax
treatment of any Base Amount Adjustment Item on any Tax Return, subject
only to the other Companies' rights of review under Section 4.07.
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4.06 Consolidated or Combined Returns. The Companies will elect and join,
and will cause their respective Affiliates to elect and join, in filing
consolidated, unitary, combined, or other similar joint Tax Returns, to the
extent each entity is eligible to join in such Tax Returns, if the Companies
reasonably determine that the filing of such Tax Returns is consistent with
past reporting practices, or in the absence of applicable past practices, will
result in the minimization of the net present value of the aggregate Tax to
the entities eligible to join in such Tax Returns.
4.07 Right to Review Tax Returns
(a) General. The Responsible Company with respect to any Tax Return shall
make such Tax Return and related workpapers available for review by the
other Companies, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return
relates to Taxes for which the requesting party may be liable in whole or
in part for any additional Taxes owing as a result of adjustments to the
amount of Taxes reported on such Tax Return, (iii) such Tax Return relates
to Taxes for which the requesting party may have a claim for Tax Benefits
under this Agreement, or (iv) the requesting party reasonably determines
that it must inspect such Tax Return to confirm compliance with the terms
of this Agreement. The Responsible Company shall use its reasonable best
efforts to make such Tax Return available for review as required under this
paragraph sufficiently in advance of the due date for filing such Tax
Returns to provide the requesting party with a meaningful opportunity to
analyze and comment on such Tax Returns and have such Tax Returns modified
before filing, taking into account the person responsible for payment of
the tax (if any) reported on such Tax Return and the materiality of the
amount of Tax liability with respect to such Tax Return. The Companies
shall attempt in good faith to resolve any issues arising out of the review
of such Tax Returns.
(b) Execution of Returns Prepared by Other Party. In the case of any Tax
Return which is required to be prepared and filed by one Company under this
Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to
sign such Tax Return shall not be required to sign such Tax Return under
this Agreement if there is no reasonable basis for the tax treatment of any
material items reported on the Tax Return.
4.08 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment
Requests")
(a) Consent Required for Adjustment Requests Related to Consolidated or
Combined Income Taxes. Except as provided in paragraphs (b), (c), and (d)
below, each of the Companies hereby agrees that, unless each of the other
Companies consents in writing, which consent shall not be unreasonably
withheld, (i) no Adjustment Request with respect to any Consolidated or
Combined Income Tax for a Pre-Distribution Period shall be filed, and (ii)
any available elections to waive the right to claim in any Pre-Distribution
Period with respect to any Consolidated or Combined Income Tax any
Carryback arising in a Post-Distribution Period shall be made, and no
affirmative election shall be made to claim any such Carryback. Any
Adjustment Request which the Companies consent to make under this Section
4.08 shall be prepared and filed by the Responsible Company under Section
4.02 for the Tax Return to be adjusted. The Company requesting the
Adjustment Request shall provide to the Responsible Company all information
required for the preparation and filing of such Adjustment Request in such
form and detail as reasonably requested by the Responsible Company.
(b) Exception for Adjustment Requests Related to Debt Discharge Items.
Industrial Company shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Debt Discharge Items,
or (ii) IRS Form 1139 (Corporation Application for Tentative Refund) or IRS
Form 1120X (Corporation Amended Return) (or any similar Adjustment Request
allowed under the Code or other Tax Laws), and to make any elections
necessary to file such forms, with respect to any net operating loss
Carryback arising in any Tax Period in which there is any reduction of
Taxes as a result of Debt Discharge Items if any portion of such Carryback
is attributable to such Debt Discharge Items (determined in accordance with
the principles of Section 6.04). If Industrial Company is not the
Responsible
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Company with respect to any such return, then the Responsible Company shall
file such return upon request of the Industrial Company.
(c) Exception for Adjustment Requests Related to Base Amount Adjustment
Items. Tenneco shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Base Amount Adjustment
Items, or (ii) IRS Form 1139 (Corporation Application for Tentative Refund)
or IRS Form 1120X (Corporation Amended Return) (or any similar Adjustment
Request allowed under the Code or other Tax Laws), and to make any
elections necessary to file such forms, with respect to any net operating
loss Carryback arising in Tax Period in which there is any reduction of
Taxes as a result of Base Amount Adjustment Items if any portion of such
Carryback is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04). If Tenneco is not the
Responsible Company with respect to any such return, then the Responsible
Company shall file such return upon request of the Industrial Company.
(d) Exception for Adjustment Requests Related to Audit Adjustments. Each
of the Companies shall be entitled, without the consent of any other
Company, to require Industrial Company to file an Adjustment Request to
take into account any net operating loss, net capital loss, deduction,
credit, or other adjustment attributable to such Company or any member of
its Group corresponding to any adjustment resulting from any audit by the
Internal Revenue Service or other Tax Authority with respect to
Consolidated or Combined Income Taxes for any Pre-Distribution Tax Period.
For example, if the Internal Revenue Service requires a Company to
capitalize an item deducted for the taxable year 1993, the Company shall be
entitled, without the consent of any other Company, to require Industrial
Company to file an Adjustment Request for the taxable year 1994 (and later
years) to take into account any depreciation or amortization deductions in
such years directly related to the item capitalized in 1993.
(e) Other Adjustment Requests Permitted. Nothing in this Section 4.08
shall prevent any Company or its Affiliates from filing any Adjustment
Request with respect to Income Taxes which are not Consolidated or Combined
Income Taxes or with respect to any Taxes other than Income Taxes. Any
refund or credit obtained as a result of any such Adjustment Request (or
otherwise) shall be for the account of the person liable for the Tax under
this Agreement.
(f) Payment of Refunds. Any refunds or other Tax Benefits received by any
Company (or any of its Affiliates) as a result of any Adjustment Request
which are for the account of another Company (or member of such other
Company's Group) shall be paid by the Company receiving (or whose Affiliate
received) such refund or Tax Benefit to such other Company in accordance
with Section 6.
Section 5. Tax Payments and Intercompany Billings
5.01 Payment of Taxes With Respect to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. In the case of any Tenneco Federal
Consolidated Return the due date for which (including extensions) is after the
Distribution Date,
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date, the Responsible Company shall compute the amount
of Tax required to be paid to the Internal Revenue Service (taking into
account the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and, if
Tenneco is not the Responsible Company with respect to such Tax Return,
shall notify Tenneco in writing of the amount of Tax required to be paid on
such Payment Date. Tenneco will pay such amount to the Internal Revenue
Service on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability With Respect
to Tax Due. Within 30 days following any Payment Date, Industrial Company
will pay to Tenneco the excess (if any) of--
(i) the Consolidated Tax Liability determined as of such Payment Date
with respect to the applicable Tax Period allocable to the members of
the Industrial Group as determined by the
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Responsible Company in a manner consistent with the provisions of
Section 2.02(a) (relating to allocation of the Consolidated Tax
Liability in accordance with the Federal Allocation Method) (the
"Allocated Federal Tax Liability"), over
(ii) the cumulative net payments with respect to such Tax Return
prior to such Payment Date by the members of the Industrial Group (the
"Cumulative Federal Tax Payment").
If the Industrial Group Cumulative Federal Tax Payment is greater than the
Industrial Group Allocated Federal Tax Liability as of any Payment Date,
then Tenneco shall pay such excess to Industrial Company within 30 days of
Tenneco's receipt of the corresponding Tax Benefit (i.e., through either a
reduction in Tenneco's otherwise required Tax payment, or a refund of prior
tax payments). Any amount due under Section 2.02(c) with respect to the
Energy Investments Group net operating loss or taxable income as reported
on the Tenneco Federal Consolidated Tax Return for the taxable year ended
December 31, 1996 shall be paid within 30 days following the Payment Date
which is the date the return is filed, and any subsequent adjustment to the
payment due under Section 2.02(c) shall be paid with interest as determined
in a manner consistent with the provisions of Section 5.02.
(c) Computation and Payment of Shipbuilding Company Liability With
Respect to Tax Due. Within the time for any payment under paragraph (b) of
this subsection, the Responsible Company shall also notify Tenneco, if
necessary, and Shipbuilding Company in writing of the Shipbuilding Group
Allocated Federal Tax Liability and the Shipbuilding Group Cumulative
Federal Tax Payment (computed in manner consistent with paragraph (b) of
this subsection). If the Shipbuilding Group Allocated Federal Tax Liability
exceeds the Shipbuilding Group Cumulative Federal Tax Payment, then
Shipbuilding Company shall pay such excess to Tenneco within three business
days following receipt of such notice. If the Shipbuilding Group Cumulative
Federal Tax Payment exceeds the Shipbuilding Group Allocated Federal Tax
Liability, then Tenneco shall pay such excess to Shipbuilding Company
within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e.,
either a reduction in Tenneco's otherwise required Tax payment, or a refund
of estimated tax payments).
(d) Deemed Cumulative Federal Tax Payment for First Payment Date After
the Distribution Date. For purposes of Sections 5.01(b)(ii) and 5.01(c)
with respect to the Tenneco Federal Consolidated Tax Return for the taxable
year ended December 31, 1996, the Industrial Group's Cumulative Federal Tax
Payment shall be equal to $49,000,000, and the Shipbuilding Group's
Cumulative Federal Tax Payment shall be equal to $40,000,000.
(e) Interest on Intergroup Tax Allocation Payments. In the case of any
payments to Tenneco required under paragraphs (b) or (c) of this subsection
5.01, the payor shall also pay to Tenneco an amount of interest computed at
the Prime Rate on the amount of the payment required based on the number of
days from the applicable Payment Date to the date of payment. In the case
of any payments by Tenneco required under paragraphs (b) or (c) of this
subsection 5.01, Tenneco shall also pay to the payee an amount of interest
computed at the Prime Rate on the amount of the payment required based on
the number of days from the date of receipt of the Tax Benefit to the date
of payment of such amount to the payee.
(f) Representation Regarding Cumulative 1996 Federal Income Tax Payments.
Industrial Company represents and warrants to Tenneco that, as of the the
date hereof, $205,500,000 of cumulative net payments have been made by
Tenneco, and credited by the Internal Revenue Service, with respect to the
1996 Tenneco Federal Consolidated Return.
5.02 Payment of Federal Income Tax Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of any adjustment to the Tax liability with
respect to any Tenneco Federal Consolidated Return for any Pre-Distribution
Period. The Responsible Company shall compute the amount attributable to
Industrial Group and the Shipbuilding Group in accordance with Section
2.02(b) and Industrial Company and Shipbuilding Company shall pay to
Tenneco any amount due Tenneco under Section 2.02(b) within 30 days from
the later of (i) the date the additional Tax was paid by Tenneco or (ii)
the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the
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particulars relating thereto. Any amount due to Industrial Company or
Shipbuilding Company under Section 2.02(b) shall be paid within 30 days
from the date the additional Tax was paid by Tenneco to the Internal
Revenue Service. Any payments required under this Section 5.02(a) shall
include interest computed at the Prime Rate based on the number of days
from the date the additional Tax was paid by Tenneco to the date of the
payment under this Section 5.02(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the
Consolidated Tax Liability with respect to any Tenneco Federal Consolidated
Return for any Pre-Distribution Period, Tenneco shall pay to Industrial
Company and Shipbuilding Company, or Industrial Company and Shipbuilding
Company shall pay to Tenneco (as the case may be), their respective amounts
due from or to Tenneco as determined by the Responsible Company in
accordance with Section 2.02(b). Any payments required under this Section
5.02(a) shall include interest computed at the Prime Rate based on the
number of days from the date the Tax Benefit was received by Tenneco to the
date of payment to Industrial Company or Shipbuilding Company under this
Section 5.02(b).
5.03 Payment of State Income Tax With Respect to Returns Filed After the
Distribution Date
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax
required to be paid to the applicable Tax Authority (taking into account
the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and--
(i) If such Tax Return is with respect to a Consolidated or Combined
State Income Tax, the Responsible Company shall, if Tenneco is not the
Responsible Company with respect to such Tax Return, notify Tenneco in
writing of the amount of Tax required to be paid on such Payment Date.
Tenneco will pay such amount to such Tax Authority on or before such
Payment Date.
(ii) If such Tax Return is with respect to a Separate Company Tax,
the Responsible Company shall, if it is not the Company liable for the
Tax reported on such Tax Return, notify the Company liable for such Tax
in writing of the amount of Tax required to be paid on such Payment
Date. The Company liable for such Tax will pay such amount to such Tax
Authority on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability and
Shipbuilding Company Liability With Respect to Tax Due. Within 120 days
following the due date (including extensions) for filing any Tax Return for
any Consolidated or Combined State Income Tax (excluding any Tax Return
with respect to payment of estimated Taxes or Taxes due with a request for
extension of time to file), (i) Industrial Company shall pay to Tenneco the
tax liability allocable to the Industrial Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i), plus
interest computed at the Prime Rate on the amount of the payment based on
the number of days from the due date (including extensions) to the date of
payment by Industrial Company to Tenneco, and (ii) the Responsible Company
shall notify Tenneco (if Tenneco is not the Responsible Company with
respect to such Tax Return) and Shipbuilding Company in writing of the tax
liability allocable to the Shipbuilding Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i). Within
three business days following receipt of such notice, Shipbuilding Company
shall pay to Tenneco the Shipbuilding Group's allocated tax liability as
set forth in such notice, plus interest computed at the Prime Rate on the
amount of the payment based on the number of days from the due date
(including extensions) to the date of payment by Shipbuilding Company to
Tenneco.
5.04 Payment of State Income Taxes Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
applicable Tax Authority when due any additional State Income Tax required
to be paid as a result of any adjustment to the tax liability with respect
to any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. Industrial Company and Shipbuilding Company shall
pay to Tenneco their respective shares of any such additional Tax payment
determined by the Responsible Company in accordance with Section
2.03(b)(ii) within 120 days from the later of (i) the date the additional
Tax was paid by Tenneco or
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(ii) the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the particulars relating
thereto. Industrial Company and Shipbuilding Company shall also pay to
Tenneco interest on their respective shares of such Tax computed at the
Prime Rate based on the number of days from the date the additional Tax was
paid by Tenneco to the date of their payment to Tenneco under this Section
5.04(a).
(b) Adjustments Resulting in Overpayments. Within 120 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the tax
liability with respect to any Tax Return for any Consolidated or Combined
State Income Tax for any Pre-Distribution Period, Tenneco shall pay to
Industrial Company and Shipbuilding Company their respective shares of any
such Tax Benefit determined by the Responsible Company in accordance with
Section 2.03(b)(ii). Tenneco shall also pay to Industrial Company or
Shipbuilding Company interest on their respective shares of such Tax
Benefit computed at the Prime Rate based on the number of days from the
date the Tax Benefit was received by Tenneco to the date of payment to
Industrial Company or Shipbuilding Company under this Section 5.04(b).
5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall
cause to be paid, to the applicable Tax Authority when due all Separate
Company Taxes owed by such Company or a member of such Company's Group.
5.06 Indemnification Payments. If any Company (the "payor") is required to
pay to a Tax Authority a Tax that another Company (the "responsible party") is
required to pay to such Taxing Authority under this Agreement, the responsible
party shall reimburse the payor within 30 days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.06.
Section 6. Tax Benefits
6.01 General Rule. If a member of one Group receives any Tax Benefit with
respect to any Taxes for which a member of another Group is liable hereunder,
the Company receiving such Tax Benefit shall make a payment to the Company who
is liable for such Taxes hereunder within 30 days following receipt of the Tax
Benefit in an amount equal to the Tax Benefit (including any Tax Benefit
realized as a result of the payment), plus interest on such amount computed at
the Prime Rate based on the number of days from the date of receipt of the Tax
Benefit to the date of payment of such amount under this Section 6.01.
6.02 Debt Discharge Items
(a) Any Tax Benefit attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be credited against
any amount owed by Industrial Company to Tenneco under Sections 5.01(b) or
5.03(b), and any excess Tax Benefit shall be paid by Tenneco to Industrial
Company as an amount owed by Tenneco to Industrial Company under Sections
5.01(b) or 5.03(b). If the Tax Benefit is subsequently adjusted (including
any adjustment to the Tax Benefit received as a reduction in otherwise
required estimated tax payments), Industrial Company shall pay to Tenneco
an amount equal to any reduction in the Tax Benefit, and Tenneco shall pay
to Industrial Company an amount equal to any increase in the Tax Benefit,
in each case under Section 5.01(b) (in the case of adjustments to Tax
payments), or Sections 5.02 or 5.04 (in the case of audit adjustments).
(b) Any Tax liability attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be paid by Industrial
Company to Tenneco as an additional amount owed by Industrial Company to
Tenneco under Section 5.01(b) or 5.03(b). Any adjustment to such Tax
liability shall be paid under Section 5.01(b) (in the case of adjustments
to Tax payments), or Sections 5.02 or 5.04 (in the case of audit
adjustments).
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(c) Payments under this Section 6.02 shall include interest as provided
under Sections 5.01, 5.02, 5.03, or 5.04, as applicable.
6.03 Base Amount Adjustment Items. Any Tax Benefit (or Tax liability)
attributable to Base Amount Adjustment Items (determined in accordance with
the principles of Section 6.04) shall be for the account of Tenneco,
regardless of the legal entity reporting such Tax Benefit or Tax liability.
Pursuant to this Section 6.03, to the extent any net operating loss of the
Tenneco Group is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04), any Tax Benefit associated
with the deduction of such net operating loss (either in the current year or
as a carryback or carryover) shall be for the account of Tenneco.
6.04 Ordering of Tax Items. Tax Items for any Tax Period shall be taken into
account for purposes of this Agreement in the following order of priority:
(a) First, Tax Items other than Debt Discharge Items and Base Amount
Adjustment Items.
(b) Second, Debt Discharge Items and Base Amount Adjustment Items (other
than GSR Items) in proportion to the relative net amounts of such items.
(c) Third, GSR Items.
Section 7. Assistance and Cooperation
7.01 General. After the Distribution Date, each of the Companies shall
cooperate (and cause their respective Affiliates to cooperate) with each other
and with each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to the Companies and their Affiliates
including (i) preparation and filing of Tax Returns, (ii) determining the
liability for and amount of any Taxes due (including estimated Taxes) or the
right to and amount of any refund of Taxes, (iii) examinations of Tax Returns,
and (iv) any administrative or judicial proceeding in respect of Taxes
assessed or proposed to be assessed. Such cooperation shall include making all
information and documents in their possession relating to the other Companies
and their Affiliates available to such other Companies as provided in Section
8. Each of the Companies shall also make available to each other, as
reasonably requested and available, personnel (including officers, directors,
employees and agents of the Companies or their respective Affiliates)
responsible for preparing, maintaining, and interpreting information and
documents relevant to Taxes, and personnel reasonably required as witnesses or
for purposes of providing information or documents in connection with any
administrative or judicial proceedings relating to Taxes. Any information or
documents provided under this Section 7 shall be kept confidential by the
Company receiving the information or documents, except as may otherwise be
necessary in connection with the filing of Tax Returns or in connection with
any administrative or judicial proceedings relating to Taxes.
7.02 Income Tax Return Information. Each Company will provide to each other
Company information and documents relating to their respective Groups required
by the other Companies to prepare Tax Returns. The Responsible Company shall
determine a reasonable compliance schedule for such purpose in accordance with
Tenneco's past practices. Any additional information or documents the
Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company
reasonably requests and in sufficient time for the Responsible Company to file
such Tax Returns timely.
Section 8. Tax Records
8.01 Retention of Tax Records. Except as provided in Section 8.02, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of their respective Groups for Pre-Distribution Tax
Periods, and Tenneco shall preserve and keep all other Tax Records relating to
Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the
contents thereof may become material in the administration of any matter under
the Code or other applicable Tax Law, but in any event until the later of (i)
the expiration of any applicable statutes of limitation, and (ii) seven years
after the Distribution Date. If, prior to the expiration of the applicable
statute of limitation and such seven-year period, a Company reasonably
determines that any Tax Records which it is required to preserve and keep
under this Section 8 are no longer material in the administration
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of any matter under the Code or other applicable Tax Law, such Company may
dispose of such records upon 90 days prior notice to the other Companies. Such
notice shall include a list of the records to be disposed of describing in
reasonable detail each file, book, or other record accumulation being
disposed. The notified Companies shall have the opportunity, at their cost and
expense, to copy or remove, within such 90-day period, all or any part of such
Tax Records.
8.02 State Income Tax Returns. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the guidelines of Section
8.01, by the Company responsible for preparing and filing the applicable Tax
Return.
8.03 Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to
the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items
under this Agreement.
Section 9. Tax Contests
9.01 Notice. Each of the parties shall provide prompt notice to the other
parties of any pending or threatened Tax audit, assessment or proceeding or
other Tax Contest of which it becomes aware related to Taxes for Tax Periods
for which it is indemnified by one or more other parties hereunder. Such
notice shall contain factual information (to the extent known) describing any
asserted Tax liability in reasonable detail and shall be accompanied by copies
of any notice and other documents received from any Tax Authority in respect
of any such matters. If an indemnified party has knowledge of an asserted Tax
liability with respect to a matter for which it is to be indemnified hereunder
and such party fails to give the indemnifying party prompt notice of such
asserted Tax liability, then (i) if the indemnifying party is precluded from
contesting the asserted Tax liability in any forum as a result of the failure
to give prompt notice, the indemnifying party shall have no obligation to
indemnify the indemnified party for any Taxes arising out of such asserted Tax
liability, and (ii) if the indemnifying party is not precluded from contesting
the asserted Tax liability in any forum, but such failure to give prompt
notice results in a monetary detriment to the indemnifying party, then any
amount which the indemnifying party is otherwise required to pay the
indemnified party pursuant to this Agreement shall be reduced by the amount of
such detriment.
9.02 Control of Tax Contests
(a) Separate Company Taxes. In the case of any Tax Contest with respect
to any Separate Company Tax, the Company having liability for the Tax shall
have exclusive control over the Tax Contest, including exclusive authority
with respect to any settlement of such Tax liability.
(b) Consolidated or Combined Income Taxes. In the case of any Tax Contest
with respect to any Consolidated or Combined Income Tax, (i) Shipbuilding
Company shall control the defense or prosecution of the portion of the Tax
Contest directly and exclusively related to any Shipbuilding Adjustment,
including settlement of any such Shipbuilding Adjustment, (ii) Tenneco
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Tenneco Adjustment, including
settlement of any such Tenneco Adjustment, and (iii) Industrial Company
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Industrial Adjustment, including
any settlement of any Industrial Adjustment, and (iv) the Tax Contest
Committee shall control the defense or prosecution of Joint Adjustments and
any and all administrative matters not directly and exclusively related to
any Shipbuilding Adjustment, Tenneco Adjustment, or Industrial Adjustment.
The Tax Contest Committee shall be comprised of two persons, one person
selected by Industrial Company (as designated in writing to Tenneco) and
one person selected by Tenneco (as designated in writing to Industrial
Company). Each person serving on the Tax Contest Committee shall continue
to serve unless and until he or she is replaced by the party designating
such person. Any and all matters to be decided by the Tax Contest Committee
shall require the unanimous approval of both persons serving on the
committee. In the event the Tax Contest Committee shall be deadlocked on
any matter, the provisions of Section 15 of this
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Agreement shall apply. The Tax Contest Committee shall consult in good
faith with Shipbuilding Company to the extent Shipbuilding Company might
reasonably be expected to be materially affected by such matters. A Company
shall not agree to any Tax liability for which another Company may be
liable under this Agreement, or compromise any claim for any Tax Benefit
which another Company may be entitled under this Agreement, without such
other Company's written consent (which consent may be given or withheld at
the sole discretion of the Company from which the consent would be
required).
Section 10. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Distribution Date.
Immediately prior to the close of business on the Distribution Date (i) all
Prior Intercompany Tax Allocation Agreements shall be terminated, and (ii)
amounts due under such agreements as of the Distribution Date shall be settled
as of the Distribution Date (including capitalization or distribution of
amounts due or receivable under such agreements). Upon such termination and
settlement, no further payments by or to Tenneco, by or to the Shipbuilding
Group, or by or to the Industrial Group, with respect to such agreements shall
be made, and all other rights and obligations resulting from such agreements
between the Companies and their Affiliates shall cease at such time. Any
payments pursuant to such agreements shall be ignored for purposes of
computing amounts due under this Agreement.
Section 11. No Inconsistent Actions. Each of the Companies and the Acquiror
covenants and agrees that it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which is inconsistent with the
Tax treatment of the Transactions as contemplated in the Ruling Request or in
the Tax Opinion (any such action is referred to in this Section 11 as a
"Prohibited Action"), unless such Prohibited Action is required by law, or the
person acting has obtained the prior written consent of each of the other
parties (which consent shall not be unreasonably withheld). With respect to
any Prohibited Action proposed by a Company or the Acquiror (the "Requesting
Party"), each of the other parties (the "Requested Parties") shall grant its
consent to such Prohibited Action if the Requesting Party obtains a ruling
with respect to the Prohibited Action from the Internal Revenue Service or
other applicable Tax Authority that is reasonably satisfactory to each of the
Requested Parties (except that the Requesting Party shall not submit any such
ruling request if a Requested Party determines in good faith that filing such
request might have a materially adverse effect upon such Requested Party).
Without limiting the foregoing:
(a) No Inconsistent Plan or Intent
(i) Each of Industrial Company and Shipbuilding Company represents
and warrants that neither it nor any of its Affiliates has any plan or
intent to take any action which is inconsistent with any factual
statements or representations in the Ruling Request or in the Tax
Opinion. Regardless of any change in circumstances, each of Industrial
Company and Shipbuilding Company covenants and agrees that it will not
take, and it will cause its Affiliates to refrain from taking, any such
inconsistent action on or before the last day of the calendar year
ending after the second anniversary of the Distribution Date other than
as permitted in this Section 11. For purposes of applying this Section
11(a) to any such inconsistent action prior to the Effective Time, the
members of the Tenneco Group shall be treated as Affiliates of
Industrial Company.
(ii) Acquiror represents and warrants that neither it nor any of its
Affiliates has any plan or intent to take any action which is
inconsistent with any factual statements or representations in the
Ruling Request or in the Tax Opinion. Regardless of any change in
circumstances, Acquiror covenants and agrees that it will not take, and
it will cause Tenneco and the other Affiliates of Acquiror to refrain
from taking, any such inconsistent action on or before the last day of
the calendar year ending after the second anniversary of the
Distribution Date other than as permitted in this Section 11.
(b) Amended or Supplemental Rulings. Each of the Companies covenants and
agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent
to the Distribution Date without the consent of the other Companies, which
consent shall not be unreasonably withheld.
Section 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
19
<PAGE>
Section 13. Employee Matters. Each of the Companies agrees to utilize, or
cause its Affiliates to utilize, the alternative procedure set forth in
Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting.
Section 14. Treatment of Payments; Tax Gross Up
14.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of
any change in tax treatment under the Code or other applicable Tax Law,
(a) any Tax indemnity payments made by a Company under Section 5 shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of the Industrial Common Shares and the Shipbuilding Common
Shares to Tenneco shareholders on the Distribution Date, but only to the
extent the payment does not relate to a Tax allocated to the payor in
accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws), and
(b) any Tax Benefit payments made by a Company under Section 6, shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of Industrial Common Shares and Shipbuilding Common Shares to
Tenneco shareholders on the Distribution Date, but only to the extent the
payment does not relate to a Tax allocated to the payor in accordance with
Treasury Regulation Section 1.1502-33(d) (or under corresponding principles
of other applicable Tax Laws).
14.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the
amount of such payment, reduced by the amount of all Income Taxes payable with
respect to the receipt thereof (but taking into account all correlative Tax
Benefits resulting from the payment of such Income Taxes), shall equal the
amount of the payment which the Company receiving such payment would otherwise
be entitled to receive pursuant to this Agreement.
14.03 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect
to the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such
Tax payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income
by the indemnitee (includible in income to the extent provided by law). The
amount of the payment shall not be adjusted under Section 14.02 to take into
account any associated Tax Benefit to the indemnitor or increase in Tax to the
indemnitee.
Section 15. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 16. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 16 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at
20
<PAGE>
the higher of the interest rate provided under this Section 16 or the interest
rate provided under such other provision.
Section 17. Expenses. Except as provided in Section 15, each party and its
Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
Section 18. Special Rules for Determining Members of Groups. For purposes of
this Agreement, the following special rules shall apply for determining the
members of the Industrial Group and members of the Shipbuilding Group:
18.01 Tennessee Gas Pipeline Company. The assets and activities of Tennessee
Gas Pipeline Company for Pre-Distribution Periods that comprise the Walker
Manufacturing Company Division, the Tenneco Automotive Headquarters Division,
and the Tenneco Brakes Division, as jointly determined by Industrial Company
and Tenneco in accordance with past practices, shall be combined and treated
as a separate corporate entity which is a member of the Industrial Group.
18.02 Former Affiliates of Shipbuilding Group or Industrial Group. The
entities listed on Schedule 1 attached hereto shall be treated as members of
the Shipbuilding Group, and the entities listed on Schedule 2 attached hereto
shall be treated as members of the Industrial Group. Any entity substantially
all of the assets and liabilities of which have been transferred to a member
of the Shipbuilding Group (e.g., by a statutory merger) shall be treated as a
member of the Shipbuilding Group, and any entity substantially all of the
assets and liabilities of which have been transferred to a member of the
Industrial Group shall be treated as a member of the Industrial Group. For
example, Newport News Shipbuilding and Dry Dock Company, a Virginia
corporation, shall, by virtue of its merger into Tenneco InterAmerica Inc., be
treated as a member of the Shipbuilding Group. For purposes of this paragraph,
Tenneco's Affiliates shall not be limited to persons who are Affiliates
immediately after the Distributions.
Section 19. General Provisions
19.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to Shipbuilding Company:
Director, Taxes
Newport News Shipbuilding and Dry Dock Company
4101 Washington Avenue
Newport News, VA 23607
If to Tenneco:
Director, Taxes
Tennessee Gas Pipeline Co.
1010 Milam Street
Houston, Texas 77002
With a copy to:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
21
<PAGE>
If to Industrial Company:
Robert G. Simpson
Vice President, Tax
Tenneco Inc.
1275 King Street
Greenwich, CT 06831
If to Acquiror:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
19.02 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
19.03 Waiver. No failure by any party to insist upon the strict performance
of any obligation under this Agreement or to exercise any right or remedy
under this Agreement shall constitute waiver of any such obligation, right, or
remedy or any other obligation, rights, or remedies under this Agreement.
19.04 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
19.05 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation
as is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 9.
19.06 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and the Distribution Agreement or any
other agreements relating to the transactions contemplated by the Distribution
Agreement, the provisions of this Agreement shall control.
19.07 Construction. The language in all parts of this Agreement shall in all
cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
19.08 No Double Recovery; Subrogation. No provision of this Agreement shall
be construed to provide an indemnity or other recovery for any costs, damages,
or other amounts for which the damaged party has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or equity. Unless expressly required in this Agreement, a party shall
not be required to exhaust all remedies available under other agreements or at
law or equity before recovering under the remedies provided in this Agreement.
Subject to any limitations provided in this Agreement (for example, the
limitation on filing claims for refund in Section 4.08), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.
19.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
22
<PAGE>
19.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
the respective officers as of the date set forth above.
Tenneco Inc.
/s/ Robert G. Simpson
By: _________________________________
Vice President, Tax
Its: ________________________________
Newport News Shipbuilding Inc.
/s/ Stephen B. Clarkson
By: _________________________________
Vice President, General Counsel
Its: ________________________________
New Tenneco Inc.
/s/ Robert G. Simpson
By: _________________________________
Robert G. Simpson
Vice President, Taxes
El Paso Natural Gas Company
/s/ Britton White, Jr.
By: _________________________________
Senior Vice President
Its: ________________________________
23
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 1
ADDITIONAL MEMBERS OF THE SHIPBUILDING GROUP
For purposes of this Agreement, in addition to Shipbuilding Company and its
Affiliates as determined immediately after the Distribution Date, the
Shipbuilding Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"shipbuilding" segment for purposes of segment reporting in Tenneco's Annual
Reports on Form 10-K, and (3) sold, transferred, otherwise disposed of, or
discontinued prior to the date hereof. Without limiting the foregoing, the
Shipbuilding Group shall include:
Sperry Marine Inc.
Sperry Marine-Asia Inc.
Sperry Marine (S) PTE Ltd. (Singapore)
Sperry Marine S.p.A. (Italy)
Sperry Marine S.A.R.L. (France)
Sperry Marine Limited (United Kingdom)
Sperry Marine GmbH (Germany)
Sperry Marine A/S (Denmark)
Sperry Marine A/S (Norway)
Sperry Marine B.V. (Netherlands)
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 2
ADDITIONAL MEMBERS OF THE INDUSTRIAL GROUP
For purposes of this Agreement, in addition to Industrial Company and its
Affiliates as determined immediately after the Distribution Date, the
Industrial Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"automotive parts" or "packaging" segment for purposes of segment reporting in
Tenneco's Annual Reports on Form 10-K, and (3) sold, transferred, otherwise
disposed of, or discontinued prior to the date hereof.
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 3
ENERGY INVESTMENTS GROUP
KERN COUNTY LAND COMPANY
PETRO-TEX CHEMICAL CORPORATION
TENFAC CORPORATION
TENNCHASE, INC.
TENNECO COAL COMPANY
TENNECO CORPORATION
TENNECO CREDIT CORPORATION
TENNECO EQUIPMENT CORPORATION (f/k/a Case Corporation)
TENNECO EQUIPMENT HOLDING IV CO. (f/k/a Case Finance Co.)
TENNECO EQUIPMENT HOLDING V CO. (f/k/a Integrated Technical Systems, Inc.)
TENNECO EQUIPMENT HOLDING VI CO. (f/k/a Viscosity Oil Co.)
TENNECO INC.
TENNECO INSURANCE VENTURES
TENNECO INTERAMERICA, INC.
TENNECO INTERNATIONAL, INC.
TENNECO MINERALS COMPANY--CALIFORNIA
TENNECO MINERALS COMPANY--NEVADA
TENNECO OIL COMPANY
TENNECO POLYMERS, INC.
TENNECO SHALE OIL COMPANY
TENNECO SNG, INC.
TENNECO SYNFUELS COMPANY
TENNECO WEST
TENNESSEE GAS PIPELINE COMPANY--CORPORATE DIVISION
<PAGE>
Exhibit 10.8
FIRST AMENDMENT TO THE TAX SHARING AGREEMENT
--------------------------------------------
This FIRST AMENDMENT (the "Amendment") to the TAX SHARING AGREEMENT,
dated as of December 11, 1996 (the "Agreement") among Tenneco Inc., a Delaware
corporation ("Tenneco") New Tenneco Inc., a Delaware corporation ("Industrial
Company"), Newport News Shipbuilding Inc. (formerly known as Tenneco
InterAmerica Inc.), a Delaware corporation ("Shipbuilding Company"), and El Paso
Natural Gas Company, a Delaware corporation, is entered into as of December 11,
1996. Unless otherwise defined herein, capitalized terms used in this Amendment
shall have the meaning assigned to such terms in the Agreement.
WHEREAS, the parties have executed the Agreement; and
WHEREAS, the parties hereto wish to amend the Agreement to provide for
the allocation between the parties of State Income Taxes for 1996, including any
estimated tax payments with respect to 1996 State Income Taxes and State Income
Tax Overpayments for 1995 which are carried forward and applied as payments on
1996 State Income Tax liabilities, together with refunds (when received) in
connection with State Tax Returns as originally filed for 1996 or prior years;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies hereby agree as follows:
Section 1. Total 1996 State Income Tax Liabilities. The total 1996
State Income Tax liability allocated to each Group (the "Separate State Tax
Liability") shall be the sum of:
(a) in the case of any State Income Tax which is a Separate
Company Tax, the amount of Separate Company Tax imposed on any members of
such Group; and
(b) in the case of any Consolidated or Combined State Income Tax,
the product of (I) the actual State Income Tax liability shown on the
relevant Tax Returns (before application of estimated tax payments and
other such credits) and (II) a fraction, the numerator of which is the
State Income Tax liability of such Group, included in the computation of
such Tax had filed a Consolidated or Combined Tax Return for such Group's
members based on the income, apportionment factors, and
<PAGE>
other items of such members (the "Hypothetical State Tax Liability"), and
the denominator of which is the sum of the Hypothetical State Tax
Liabilities of all of the Groups,
such that the sum of the Separate State Tax Liabilities of the three Groups is
equal to the total 1996 State Income Tax liabilities shown on the Tax Returns of
all of the Groups (the"Total 1996 State Tax Liability"). The determination of
the Separate Company Tax, the actual State Income Tax liability shown on the
relevant Tax Returns and the Hypothetical State Tax Liability shall be made
without regard to Base Amount Adjustment Items and Debt Discharge Items.
Section 2. 1996 Estimated Tax Payments. "1996 Estimated Tax Payments"
shall mean any estimated tax payments made with respect to the first three
quarters of 1996 in connection with all Tax Returns filed in all States
(including any overpayments of State Income Tax for 1995 which are carried
forward and applied as payments on 1996 State Tax Returns). In the event that
the 1996 Estimated Tax Payments exceed, or are less than, the Total estimated
total 1996 State Tax Liability, such excess or deficit, as the case may be,
shall be shared by the three Groups. Each Group's share shall be determined by
multiplying such excess or deficit by a fraction, (a) the numerator of which is
the Separate State Tax Liability determined for such Group, and (b) the
denominator of which is the Total 1996 State Tax Liability, with appropriate
payments being made by Industrial Company or Shipbuilding Company to Tenneco, or
by tenneco to Industrial Company or Shipbuilding Company, to achieve the
appropriate sharing of the 1996 Estimated Tax Payments.
Section 3. Fourth Quarter Estimated Tax Payments. Industrial Company
shall pay to the appropriate State Taxing authorities the estimated taxes due
with respect to the fourth quarter of 1996 (which shall not include any payment
on a normal due date of a 1996 Tax Return in connection with obtaining an
extension for the filing of such Tax Return). Industrial Company shall be
reimbursed, without interest, after all of the allocations for the 1996
Estimated reimburse Industrial Company for the portion of such fourth quarter
payments relating to Separate Company Tax of the Shipbuilding Group (if any),
and Tenneco shall reimburse Industrial Company for the portion of such fourth
quarter payments relating to Separate Company Tax of the Tenneco Group (if any)
and for the portion of such fourth quarter payments relating to Consolidated or
Combined State Income Tax.
-2-
<PAGE>
Section 4. Refunds.
(a) With respect to refunds received after the Distribution Date in
connection with State Tax Returns as originally filed for 1995 or prior years,
(i) in the case of any Tax Return relating to a Separate Company Tax, such
refunds shall be allocated to the Group whose members are included in such Tax
Return, and (ii) in the case of any Tax Return relating to a Consolidated or
Combined State Income Tax, such refund shall be allocated to each Group based
upon its respective share of the Tax liability, as shown in such Tax Return and,
as was previously billed out to members of the Group by Tenneco.
(b) Any refunds received in connection with Tax Returns for Consolidated or
Combined State Income Tax for 1996 shall be for the account of Tenneco, subject
to the allocation provided in Sections 1 and 2 of this Amendment.
Section 5. Coordination With Agreement. This Amendment constitutes the
entire agreement among the parties pertaining to the subject matter of this
Amendment and supersedes anything to the contrary relating to State Income Taxes
in the Agreement, but is specifically subject to Sections 2.03(b)(ii), 6.02 and
6.03 of this Agreement. To the extent that a Tax liability is allocated under
this Amendment, such liability shall not be secondarily allocated under the
Agreement.
Section 6. Right to Review Tax Returns. The Responsible Company with
respect to any 1996 State Tax Return shall make such Tax Return and related
workpapers available for review by the other Companies, as requested.
Section 7. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
Section 8. No Other Amendments. This Amendment is limited as specified
and shall not constitute a modification, acceptance or waiver of any other
provision of the Agreement.
Section 9. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
Section 10. Governing Law. This Amendment and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the law of the State of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by the respective officers as of the date set forth above.
TENNECO INC.
By /s/ Robert G. Simpson
-----------------------------
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
By /s/ Stephen B. Clarkson
-----------------------------
Title: Vice President
NEW TENNECO INC.
By /s/ Robert G. Simpson
-----------------------------
Title: Vice President
EL PASO NATURAL GAS COMPANY
By /s/ Britton White, Jr.
-----------------------------
Title: Senior Vice President
<PAGE>
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of this 11th day of December, 1996, ("Effective Date") by
and between Tenneco Management Company, a corporation organized and existing
under the laws of the State of Delaware, whose principal place of business is
located at 1275 King St., Greenwich, CT 06831-2946, hereinafter referred to as
Licensor, and Newport News Shipbuilding Inc., a corporation organized under
the laws of the State of Virginia, whose principal place of business is
located at 4101 Washington Avenue, Newport News, Virginia 23607, hereinafter
referred to as Licensee,
Whereas, Licensor has adopted and is using the name and mark "Tenneco",
alone and in combination with other terms and/or symbols and variations
thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United
States and elsewhere throughout the world and is the owner of the U.S.
Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit
A of this Agreement, from the United States Patent and Trademark Office,
(hereinafter collectively referred to as the "Trademark"); and
Whereas, Licensee is desirous of using said Trademark with respect to the
goods and services listed on Exhibit B, to assist Licensee in its transition
to a new identity and for the limited purposes more fully described below;
Now, therefore, in consideration of the foregoing Recitals which are hereby
incorporated into the operative terms hereof, the mutual promises contained in
this Agreement and good and valuable consideration from the Licensee to the
Licensor, the receipt and sufficiency of which is hereby acknowledged by said
Licensor, the parties hereby agree as follows:
1. License. Licensor grants to Licensee and its subsidiary companies the
limited, non-exclusive right to use the Trademark under the common law and
under the auspices and privileges provided by any of the registrations
covering the same during the term of this Agreement, and Licensee hereby
undertakes to use the Trademark as follows:
a. For a period of 30 days following the Effective Date of this
Agreement, Licensee may use the Trademark in its corporate name. After 30
days following the Effective Date of this Agreement, Licensee shall change,
if necessary, its corporate name to delete the Trademark or any other word
that is confusingly similar to the Trademark (except the word "Tennessee");
b. For a period of six (6) months following the Effective Date of this
Agreement, Licensee shall be entitled to use its existing supplies and
documents which have imprinted thereon the Trademark to the extent that
such supplies and documents were existing inventory prior to the Effective
Date of this Agreement. Licensee shall not print any new supplies or
documents bearing the Trademark as of the Effective Date of this Agreement.
c. For a period of one year from the Effective Date of this Agreement,
Licensee may use the Trademark on existing signs, displays or other
identifications or advertising material (except as limited in b above).
Licensee shall not prepare or install any new signs, displays or other
identifications or advertising material bearing the Trademark. Licensee
shall remove any and all references to the Trademark from any and all
signs, displays or other identifications or advertising material by the end
of the one year period.
2. Quality of Services. Licensee agrees to maintain such quality standards
as shall be prescribed by Licensor in the conduct of the business operations
with which the Trademark is used. Licensee shall use the Trademark only with
goods and services listed in Exhibit B rendered by Licensee in accordance with
the terms of this agreement and with the guidance and directions furnished to
the Licensee by the Licensor, or its authorized representatives or agents,
from time to time, if any; but always the quality of the goods and services
shall be satisfactory to the Licensor or as specified by it.
3. Inspection. Licensee will permit duly authorized representatives of the
Licensor to inspect the premises of Licensee using the Trademarks at all
reasonable times, for the purpose of ascertaining or determining compliance
with Paragraphs 1 and 2 hereof.
<PAGE>
4. Use of Trademark. When using the Trademark under this Agreement, Licensee
undertakes to comply substantially with all laws pertaining to the Trademark.
This provision includes compliance with marking requirements. Licensee
represents and warrants that all goods and services to be sold under the
Trademark and the marketing, sales, and distribution of them shall meet or
exceed all federal, state, and local laws, ordinances, standards, regulations,
and guidelines pertaining to such products or activities, including, but not
limited to, those pertaining to product safety, quality, labeling and
propriety. Licensee agrees that it will not package, market, sell, or
distribute any goods or services or cause or permit any goods or services to
be packaged, marketed, sold, or distributed in violation of any such federal,
state, or local law, ordinance, standard, regulation, or guideline.
5. Extent of License. The license granted herein is for the sole purpose of
assisting Licensee in its transition to a new identity and is not assignable
or transferable in any manner whatsoever. Licensee has no right to grant any
sublicenses or to use the Trademark for any other purpose.
6. Indemnity. Licensee acknowledges that it will have no claims against
Licensor for any damage to property or injury to persons arising out of the
operation of Licensee's business. Licensee agrees to indemnify, hold harmless,
and defend Licensor and its subsidiaries and its authorized representatives
with legal counsel acceptable to Licensor from and against any and all
demands, claims, injuries, losses, damages, actions, suits, causes of action,
proceedings, judgments, liabilities and expenses, including attorneys' fees,
court costs and other legal expenses, arising out of or connected with:
a. Licensee's use of the Trademark; or
b. any breach by Licensee of any provision of this Agreement or of any
warranty made by Licensee in this Agreement.
No approval by Licensor of any action by Licensee shall affect any right of
Licensor to indemnification hereunder.
7. Termination. Except as otherwise provided herein, this Agreement shall
remain in full force and effect for the periods stated in Paragraph 1, above.
However, Licensor retains the right to immediately terminate this Agreement in
the event of a material breach of any term of this Agreement by Licensee, upon
written notice to the Licensee.
8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive
right, title and interest in and to the Trademark and will not at any time do
or cause to be done any act or thing contesting or in any way impairing or
tending to impair any part or all of such right, title and interest. In
connection with the use of the Trademark, Licensee shall not in any manner
represent that it has any ownership in the Trademark or registrations thereof,
and acknowledges that use of the Trademark shall enure to the benefit of the
Licensor. On termination of this Agreement or any portion thereof in any
manner provided herein, the Licensee will destroy all signs, displays or other
identifications or advertising material, supplies and documents, and any other
materials bearing the Trademark and will certify to Licensor in writing that
it has done so. Furthermore, Licensee will not at any time adopt or use
without the Licensor's prior written consent, any word or mark which is likely
to be similar to or confusing with the Trademark (except the word
"Tennessee").
9. Infringement of Trademark. If Licensee learns of any actual or threatened
infringement of the Trademark or of the existence, use, or promotion of any
mark or design similar to the Trademark, Licensee shall promptly notify
Licensor. Licensor has the right to decide at its sole discretion what legal
proceedings or other action, if any, shall be taken, by who, how such
proceedings or other action shall be conducted, and in whose name such
proceedings or other action shall be performed. Any legal proceedings
instituted pursuant to this Section shall be for the sole benefit of Licensor
and all sums recovered in such proceedings, whether by judgment, settlement,
or otherwise, shall be retained solely and exclusively by Licensor.
10. Injunctive Relief. Licensee acknowledges that any breach or threatened
breach of any of Licensee's covenants in this Agreement relating to the
Trademark, including, without limitation, Licensee's failure to cease the
manufacture, sale, marketing, or distribution of the goods bearing the
Trademark at the termination or
2
<PAGE>
expiration of this Agreement will result in immediate and irreparable damage
to Licensor and to the rights of any subsequent Licensee of them. Licensee
acknowledges and admits that there is no adequate remedy at law for failure to
cease such activities, and Licensee agrees that in the event of such breach or
threatened breach, Licensor shall be entitled to temporary and permanent
injunctive relief and such other relief as any court with jurisdiction may
deem just and proper.
11. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law or any competent government
or other authority, the remaining provisions shall be severable and
enforceable in accordance with their terms so as this Agreement without such
terms or provisions does not fail of its essential purpose or purposes. The
parties will negotiate in good faith to replace any such illegal or
unenforceable provision or provisions with suitable substitute provisions
which maintain the economic purposes and intentions of this Agreement.
12. Notice. Any notices required or permitted to be given under this
Agreement shall be deemed sufficiently given if mailed by registered mail,
postage prepaid, addressed to the party to be notified at its address shown
above, (followed by facsimile) or at such other address as may be furnished in
writing to the notifying party.
13. Miscellaneous.
a. Captions. The captions for each Section have been inserted for the
sake of convenience and shall not be deemed to be binding upon the parties
for the purpose of interpretation of this Agreement.
b. Interpretation. The parties agree that each party and its counsel has
reviewed this Agreement and the normal rule of construction that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
c. Waiver. The failure of Licensor to insist in any one or more instances
upon the performance of any term, obligation, or condition of this
Agreement by Licensee or to exercise any right or privilege herein
conferred upon Licensor shall not be construed as thereafter waiving such
term, obligation, or condition, or relinquishing such right or privilege,
and the acknowledged waiver or relinquishment by Licensor of any default or
right shall not constitute waiver of any other default or right. No waiver
shall be deemed to have been made unless expressed in writing.
d. Time of Essence. Time is of the essence with respect to the
obligations to be performed under this Agreement, and Licensee shall use
its best efforts to transition all existing materials, including signs and
displays, bearing the Trademark to a new name and mark.
e. Rights Cumulative. Except as expressly provided in this Agreement, and
to the extent permitted by law, any remedies described in this Agreement
are cumulative and not alternative to any other remedies available at law
or in equity.
f. Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR
DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
Attest: LICENSOR
/s/ James D. Gaughan /s/ Mark A. McCollum
_____________________________________ By __________________________________
Assistant Secretary Vice President
Attest: LICENSEE
/s/ James D. Gaughan /s/ Stephen B. Clarkson
_____________________________________ By __________________________________
Assistant Secretary Vice President
3
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
REGISTRATION EXPIRATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 1050475 19OC1996
Tenneco 866995 25MR2009
Tenneco 823408 31JA2007
Tenneco 786614 16MR2005
Tenneco 783055 12JA2005
Tenneco 827435 18AP2007
Tenneco 1250178 06SE2003
Tenneco 1251601 20SE2003
Tenneco 1310943 25DE2004
Tenneco 1930571 31OC2005
Tenneco 1917869 12SE2005
Tennnet 1956845 13FE2006
Tennnet 1929997 24OC2005
Tenneco & Shield 831633 14JL2007
Tenneco & Shield 857262 24SE1998
Tenneco & Shield 823409 31JA2007
Tenneco & Shield 827436 18AP2007
Tenneco & Shield 786595 16MR2005
Tenneco & Shield 786984 23MR2005
Tenneco & Shield 1250177 06SE2003
Tenneco & Shield 1236187 03MY2003
Tenneco & Shield 1310944 25DE2004
Tenneco & Shield 1614779 25SE2000
Tenn-Speed 1542283 06JU2009
Tenn-Speed 2 1841694 28JU2004
Tenn-Speed 2 1855752 27SE2004
<CAPTION>
APPLICATION APPLICATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 731906 13SE1995
Tenneco 521074 09MY1994
Tenneco & Horizon 731464 13SE1995
</TABLE>
<PAGE>
EXHIBIT B
Ships
Custom and naval shipbuilding, drydock and ship repair services.
Naval architectural design.
<PAGE>
EXHIBIT 10.12
SISCO ASSOCIATES
2517 Massachusetts Avenue, N.W.
Washington, D.C. 20008-2823
(202) 293-2400 Fax: (202) 986-2922
Joseph J. Sisco
January 6, 1997
Mr. William P. Fricks
3 Moon Creek Circle
Smithfield, Virginia 23430
Dear Bill:
On behalf of Newport News Shipbuilding Inc. (the "Company"), I am pleased
to set forth the terms and conditions of your employment.
1. Effective December 12, 1996, you are employed as the Chief Executive
Officer of the Company. Your employment under this contract will be for a
period of three years commencing on that effective date.
2. You will be paid a base salary of not less than $525,000 a year, which
shall be subject to such adjustments as may, from time to time, be approved
by the Compensation and Benefits Committee of the Company's Board of
Directors, payable according to the regular pay schedule for executives at
Newport News Shipbuilding, Inc.
3. You will be a participant in the Company's executive bonus plan and long-
term incentive plan. You will be eligible for bonus consideration in
accordance with the terms of those plans and at the discretion of the
Compensation and Benefits Committee of the Board of Directors.
4. You will receive non-cash compensation and participate in employee benefits
comparable to those currently provided to Company senior executives under
Company policy in effect at the time hereof, including but not limited to
Health Care, Thrift Plan, Long-Term Disability, and Life Insurance.
5. You will receive financial planning services of up to $15,000 per year.
6. On your separation from service with the Company you will receive career
transition assistance of up to $75,000.
7. You will have four weeks' vacation per year.
8. Your annual pension benefits from all defined benefit pension plans
maintained by the Company (qualified and non-qualified) will, at a minimum,
be equal to the benefit that would be available to you under the Company's
qualified defined benefit pension plan, absent any legally imposed limits,
but with the following adjustments: a supplemental executive retirement
plan (SERP) is established which will provide that (i) seven years
<PAGE>
Mr. William P. Fricks
Page 2
January 6, 1997
will be added to your actual service and participation credit for all
purposes; (ii) three years will be added to your age; and (iii) your final
average annual compensation for pension purposes will be deemed to equal
the total of (a) the average of your base salary over the term of this
contract (and if your employment is terminated prior to the end of the
three-year term of this contract, your base salary in effect at such
termination shall be deemed to have continued through the end of such term)
plus (b) the average of the annual bonus which you have received pursuant
to Section 3 of this contract for each year. (Notwithstanding the above,
you will receive bonus credit toward your SERP pension for the first two
years of the three-year pension calculation that is at least equal to the
amount targeted for the CEO's position under the Company's annual bonus
plan.) Your rights under this Section 8 will survive the termination of
this contract.
9. If your employment is terminated or deemed to have been constructively
terminated other than for death, disability or cause, or if your employment
is not continued after the end of the three-year term of this contract,
subject to your execution of a general release and such other documents as
the Company may specify: (a) you will be paid a severance benefit in an
amount equal to the greater of (i) the total salary for the remainder of
the three-year term of this contract assuming your base salary then in
effect or (ii) three times your then-current base salary; (b) subject to
Board approval, all outstanding restricted stock, stock option and
performance share awards will vest and/or become exercisable on the date of
your termination; and (c) vested stock options you hold will remain
exercisable for a period of not less than 90 days from your termination.
10. If your resign voluntarily you will be entitled to benefits described in
Section 9 of this contract.
11. At your separation from service from the Company, you will be deemed to
have attained the minimum age then required to qualify immediately for all
benefits at a retiree.
Sincerely,
/S/ Joseph J. Sisco
-------------------
Joseph J. Sisco
Chairman
Compensation and Benefits Committee
ACKNOWLEDGED AND ACCEPTED
/S/ William P. Frick
- -------------------------
William P. Frick
On this 16th day of January, 1997
<PAGE>
EXHIBIT 12.1
THE BUSINESSES OF NEWPORT NEWS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- --------------------------
(UNAUDITED) (UNAUDITED)
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations........................... $ 52 $ 58 $ 73 $ 95 $111 $ 143 $ 135
Add:
Interest, net of interest
capitalized........................ 25 26 29 30 36 42 23
Portion of rentals representative of
interest factor.................... 1 3 5 5 5 7 7
Preferred stock dividend
requirements of majority-owned
subsidiaries....................... 0 0 0 0 0 0 0
Income tax expense and other taxes
on income.......................... 40 41 58 75 78 64 68
Amortization of interest
capitalized........................ 0 0 0 0 0 0 0
Undistributed (earnings) losses of
affiliated companies in which less
than 50% voting interest is owned.. 0 0 0 0 0 0 0
------ ------ ---- ---- ---- ----- -----
Earnings as defined................. $ 118 $ 128 $165 $205 $230 $ 256 $ 233
====== ====== ==== ==== ==== ===== =====
Interest, net of interest capitalized. $ 25 $ 26 $ 29 $ 30 $ 36 $ 42 $ 23
Interest capitalized.................. 3 1 2 1 1 1 3
Portion of rentals representative of
interest factor...................... 1 3 5 5 5 7 7
Preferred stock dividend requirements
of majority-owned subsidiaries on a
pre-tax basis........................ 0 0 0 0 0 0 0
------ ------ ---- ---- ---- ----- -----
Fixed charges as defined............ $ 29 $ 30 $ 36 $ 36 $ 42 $ 50 $ 33
====== ====== ==== ==== ==== ===== =====
Ratio of earnings to fixed charges.... 4.07 4.27 4.58 5.69 5.48 5.12 7.06
====== ====== ==== ==== ==== ===== =====
</TABLE>
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Newport News Shipbuilding and Dry Dock Company, a Virginia corporation
NNS Delaware Management Company, a Delaware corporation
<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.
January 23, 1997
<PAGE>
================================================================================
EXHIBIT 25.1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
NEWPORT NEWS SHIPBUILDING INC.
(Exact name of obligor as specified in its charter)
Delaware 74-1541566
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4101 Washington Avenue
Newport News, Virginia 23607
(Address of principal executive offices) (Zip code)
----------------------
8 5/8% Senior Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE>
1. General Information. Furnish the following information as to the Trustee:
(A) Name and address of each examining or supervising authority to which it
is subject.
- ------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 3.)
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture act of 1939 (the "act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published pursuant
to law or to the requirements of its supervising or examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 16th day of January, 1997.
THE BANK OF NEW YORK
By:/s/ Walter N. Gitlin
---------------------------
Name: Walter N. Gitlin
Title: Vice President
-4-
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin..................... $ 4,404,522
Interest-bearing balances............. 732,833
Securities:
Held-to-maturity securities........... 789,964
Available-for-sale securities......... 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold...................... 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ...................28,728,602
LESS: Allowance for loan and
lease losses ................584,525
LESS: Allocated transfer risk
reserve..........................429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts......... 1,004,242
Premises and fixed assets (including
capitalized leases)................... 605,668
Other real estate owned................. 41,238
Investments in unconsolidated
subsidiaries and associated
companies............................. 205,031
Customers' liability to this bank on
acceptances outstanding............... 949,154
Intangible assets....................... 490,524
Other assets............................ 1,305,839
-----------
Total assets............................ $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices................... $20,441,318
Noninterest-bearing .........8,158,472
Interest-bearing ...........12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 11,710,903
Noninterest-bearing ............46,182
</TABLE>
<TABLE>
<S> <C>
Interest-bearing ...........11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased............... 1,565,288
Demand notes issued to the U.S.
Treasury.............................. 293,186
Trading liabilities..................... 826,856
Other borrowed money:
With original maturity of one year
or less............................. 2,103,443
With original maturity of more than
one year............................ 20,766
Bank's liability on acceptances exe-
cuted and outstanding................. 951,116
Subordinated notes and debentures....... 1,020,400
Other liabilities....................... 1,522,884
-----------
Total liabilities....................... 40,456,160
-----------
EQUITY CAPITAL
Common stock............................ 942,284
Surplus................................. 525,666
Undivided profits and capital
reserves.............................. 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities............................ ( 2,073)
Cumulative foreign currency transla-
tion adjustments...................... ( 8,403)
-----------
Total equity capital.................... 3,586,850
-----------
Total liabilities and equity
capital ........................... $44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
NEWPORT NEWS SHIPBUILDING INC.
(Exact name of obligor as specified in its charter)
Delaware 74-1541566
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4101 Washington Avenue
Newport News, Virginia 23607
(Address of principal executive offices) (Zip code)
----------------------
9 1/4% Senior Subordinated Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE>
1. General Information. Furnish the following information as to the Trustee:
(A) Name and address of each examining or supervising authority to which it
is subject.
- ------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 3.)
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture act of 1939 (the "act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published pursuant
to law or to the requirements of its supervising or examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 16th day of January, 1997.
THE BANK OF NEW YORK
By:/s/ Walter N. Gitlin
---------------------------
Name: Walter N. Gitlin
Title: Vice President
-4-
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin..................... $ 4,404,522
Interest-bearing balances............. 732,833
Securities:
Held-to-maturity securities........... 789,964
Available-for-sale securities......... 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold...................... 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ...................28,728,602
LESS: Allowance for loan and
lease losses ................584,525
LESS: Allocated transfer risk
reserve..........................429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts......... 1,004,242
Premises and fixed assets (including
capitalized leases)................... 605,668
Other real estate owned................. 41,238
Investments in unconsolidated
subsidiaries and associated
companies............................. 205,031
Customers' liability to this bank on
acceptances outstanding............... 949,154
Intangible assets....................... 490,524
Other assets............................ 1,305,839
-----------
Total assets............................ $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices................... $20,441,318
Noninterest-bearing .........8,158,472
Interest-bearing ...........12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 11,710,903
Noninterest-bearing ............46,182
</TABLE>
<TABLE>
<S> <C>
Interest-bearing ...........11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased............... 1,565,288
Demand notes issued to the U.S.
Treasury.............................. 293,186
Trading liabilities..................... 826,856
Other borrowed money:
With original maturity of one year
or less............................. 2,103,443
With original maturity of more than
one year............................ 20,766
Bank's liability on acceptances exe-
cuted and outstanding................. 951,116
Subordinated notes and debentures....... 1,020,400
Other liabilities....................... 1,522,884
-----------
Total liabilities....................... 40,456,160
-----------
EQUITY CAPITAL
Common stock............................ 942,284
Surplus................................. 525,666
Undivided profits and capital
reserves.............................. 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities............................ ( 2,073)
Cumulative foreign currency transla-
tion adjustments...................... ( 8,403)
-----------
Total equity capital.................... 3,586,850
-----------
Total liabilities and equity
capital ........................... $44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
- --------------------------------------------------------------------------------
