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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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TENNECO PACKAGING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-2552989
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1900 WEST FIELD COURT 60045
LAKE FOREST, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(847) 482-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAMES OF EACH EXCHANGE ON
TITLE OF CLASS TO BE SO REGISTERED WHICH CLASS IS TO BE REGISTERED
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Common Stock ($.01 Par Value) New York Stock Exchange
and associated Preferred Stock Purchase Rights
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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TENNECO PACKAGING INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN
REGISTRATION STATEMENT ON FORM 10 BY REFERENCE
Cross-reference sheet between Information Statement attached hereto as
Annex A and items of Form 10
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ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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1. Business............................. Summary; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; and Business.
2. Financial Information................ Summary; Unaudited Pro Forma Combined
Financial Statements; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; and Combined Selected
Financial Data.
3. Properties........................... Business.
4. Security Ownership of Certain
Beneficial Owners and Management... Management.
5. Directors and Executive Officers..... Management.
6. Executive Compensation............... Management.
7. Certain Relationships and Related
Transactions....................... Summary; The Spin-off; and Management.
8. Legal Proceedings.................... Business.
9. Market Price of and Dividends on
Registrant's Common Equity and
Related Stockholder Matters........ Summary; The Spin-off; and Description of
Capital Stock.
11. Description of Registrant's
Securities to be Registered........ Description of Capital Stock.
12. Indemnification of Directors and
Officers........................... Management.
13. Financial Statements and
Supplementary Data................. Summary; Unaudited Pro Forma Combined
Financial Statements; and Combined Financial
Statements of The Businesses of Tenneco
Packaging.
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II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements and Schedule.
The following is a list of financial information included in the
Information Statement and filed as a part of this Registration
Statement on Form 10:
(1) Unaudited Pro Forma Combined Financial Statements of Packaging
as of March 31, 1999, and for the three months ended March 31,
1999 and for the year ended December 31, 1998;
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(2) Combined Financial Statements of the Businesses of Tenneco
Packaging as of March 31, 1999 (unaudited), December 31, 1998
and 1997, and for the three months ended March 31, 1999 and 1998
(unaudited) and the years ended December 31, 1998, 1997 and
1996; and
(3) Schedule II -- Valuation and Qualifying Accounts.
(b)Exhibits.
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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2 -- Form of Distribution Agreement by and between Tenneco
Inc. and Tenneco Packaging Inc.*
3.1 -- Certificate of Incorporation of Tenneco Packaging Inc.,
as amended, as currently in effect.
3.2 -- Form of Restated Certificate of Incorporation of Tenneco
Packaging Inc., to be adopted prior to the spin-off.
3.3 -- Amended By-laws of Tenneco Packaging Inc. as currently in
effect.
3.4 -- Form of Amended By-laws of Tenneco Packaging Inc., to be
adopted prior to the spin-off.
4.1 -- Form of Specimen Stock Certificate of Tenneco Packaging
Inc. Common Stock.*
4.2 -- Form of Qualified Offer Plan Rights Agreement by and
between Tenneco Packaging Inc. and First Chicago Trust
Company of New York, as Rights Agent.
4.3 -- Form of Indenture by and between Tenneco Packaging Inc.
and The Chase Manhattan Bank, as Trustee.*
4.4 -- Form of Registration Rights Agreement between Tenneco
Packaging Inc. and the trustees under that certain
Tenneco Inc. Rabbi Trust dated as of August 28, 1998.*
9 -- None.
10.1 -- Form of Human Resources Agreement by and between Tenneco
Inc. and Tenneco Packaging Inc.*
10.2 -- Form of Tax Sharing Agreement by and between Tenneco Inc.
and Tenneco Packaging Inc.*
10.3 -- Form of Transition Services Agreement by and between
Tenneco Inc., and Tenneco Packaging Inc.*
10.4 -- Form of Trademark License Agreement by and between
Tenneco Inc. and Tenneco Packaging Inc.*
10.5 -- 1997 Tenneco Inc. Board of Directors Deferred
Compensation Plan (incorporated herein by reference from
Exhibit 10.11 of Tenneco Inc.'s Annual Report on Form
10-K for the year ended December 21, 1997, File No.
1-12387), to be assumed by Tenneco Packaging Inc. in
connection with the spin-off.
10.6 -- Form of Tenneco Packaging Inc. Executive Incentive
Compensation Plan, to be adopted in connection with the
spin-off.*
10.7 -- Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan, to be assumed by Tenneco Packaging Inc.
in connection with the spin-off.*
10.8 -- Form of Tenneco Packaging Inc. Change in Control
Severance Benefit Plan for Key Executives, to be adopted
in connection with the spin-off.*
10.9 -- Amended and Restated Tenneco Inc. Benefits Protection
Trust, to be assumed by Tenneco Packaging Inc. in
connection with the spin-off.*
10.10 -- Form of Tenneco Packaging Inc. Stock Ownership Plan to be
adopted in connection with the spin-off.*
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EXHIBIT
NUMBER DESCRIPTION
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10.11 -- Professional Services Agreement, dated August 22, 1996,
by and between Tenneco Business Services Inc. and Newport
News Shipbuilding Inc. (incorporated herein by reference
from Exhibit 10.28 of Tenneco Inc.'s Form 10, File No.
1-12387).
10.12 -- Amended and Restated Tenneco Inc. Rabbi Trust, to be
assumed by Tenneco Packaging Inc. in connection with the
spin-off.*
10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated
herein by reference from Exhibit 10.13 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997, File No. 1-12387), to be assumed by Tenneco
Packaging Inc. in connection with the spin-off.
10.14(a) -- Contribution Agreement, dated as of January 25, 1999, by
and among Tenneco Packaging Inc., PCA Holdings LLC, and
Packaging Corporation of America (the "Contribution
Agreement") (incorporated herein by reference from
Exhibit 10.30 of Tenneco Inc.'s Current Report on Form
8-K dated April 12, 1999, File No. 1-12387).
10.14(b) -- Letter Agreement, dated as of April 12, 1999, by and
among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America, amending the
Contribution Agreement (incorporated herein by reference
from Exhibit 10.31 of Tenneco Inc.'s Current Report on
Form 8-K dated April 12, 1999, File No. 1-12387).
10.15 -- Stockholders Agreement, as amended, dated as of April 12,
1999, among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference from Exhibit 10.32 of Tenneco Inc.'s Current
Report on Form 8-K dated April 12, 1999, File No.
1-12387).
10.16 -- Registration Rights Agreement, as amended, dated as of
April 12, 1999, among Tenneco Packaging Inc., PCA
Holdings LLC and Packaging Corporation of America
(incorporated herein by reference from Exhibit 10.33 of
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
11 -- None.
12 -- Computation of Ratio of Earnings to Fixed Charges.
16 -- None.
21 -- Subsidiaries of Tenneco Packaging Inc.
24 -- None.
27.1 -- Financial Data Schedule, December 31, 1998.
27.2 -- Financial Data Schedule, March 31, 1999.
99 -- Information Statement dated as of October , 1999
attached to this Registration Statement as Annex A.
</TABLE>
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* To be filed by amendment.
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III. SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Tenneco Packaging Inc.
By: /s/ DANA G. MEAD
Dana G. Mead
Chairman and Chief Executive
Officer
Date: July 15, 1999
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ANNEX A
INFORMATION STATEMENT
TENNECO INC.
1275 KING STREET
GREENWICH, CONNECTICUT 06831-2946
(203) 863-1000 TENNECO
October , 1999
To All Tenneco Inc. Shareowners:
On October , 1999, the Board of Directors of Tenneco declared a dividend
of shares of Tenneco Packaging Inc. ("Packaging") to Tenneco shareowners. This
spin-off will separate Tenneco's packaging business from its automotive business
and represents the final step in the transformation of Tenneco from a highly
diversified industrial corporation to independent companies focused on their
core businesses. The spin-off will provide each company with independent access
to markets for equity and debt financing and will permit investors to make
separate investment decisions about each company.
Following the spin-off, Packaging, as a new independent public company,
will own and operate the packaging business that has been owned by Tenneco.
Packaging expects, however, to sell its 43% interest in Tenneco's former
paperboard business before the spin-off. Tenneco will continue to operate its
automotive business.
We expect that the spin-off will be effective on or about October , 1999.
If you are a shareowner of Tenneco at the close of business on October , 1999,
you will receive one share of Packaging common stock for each share of Tenneco
common stock held as of that time. You do not need to take any action as a
Tenneco shareowner. You should receive your Packaging shares shortly after
October , 1999. We will apply to the New York Stock Exchange to list the
Packaging shares, which we expect will trade under the symbol " ." We expect
that regular trading in Packaging stock will begin the first business day after
the spin-off. Tenneco has requested a ruling from the IRS that the spin-off will
be tax-free to Tenneco and its shareowners.
In connection with the spin-off, Tenneco Inc. will change its name to
[ ] ("Automotive"). The spin-off will not change the number of
Tenneco shares that you own, and after the spin-off, the Tenneco stock
certificates you currently hold will represent your investment in Automotive.
Tenneco shareowners should not send in their Tenneco stock certificates.
This Information Statement contains detailed information about Packaging
and the spin-off, which we encourage you to read carefully. After you read this
Information Statement, you may have questions. Please feel free to contact the
additional sources of information that you will find on pages 3, 16 and 83.
Yours sincerely,
/s/ DANA G. MEAD
Chairman and Chief Executive Officer
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INFORMATION STATEMENT
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SPIN-OFF OF
TENNECO PACKAGING INC.
THROUGH A DISTRIBUTION OF ALL OF ITS COMMON STOCK
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Tenneco Packaging Inc. - On the spin-off date, Tenneco Inc. will distribute
1900 West Field Court all of the common stock of Tenneco Packaging Inc.
Lake Forest, Illinois 60045 to owners of Tenneco common stock as of the close
(847) 482-2000 of business on October, 1999.
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Proposed Trading Symbol:
New York Stock Exchange --
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THE SPIN-OFF AND THE OWNERSHIP OF THE STOCK OF TENNECO PACKAGING INC. INVOLVE
RISKS. YOU SHOULD READ "RISK FACTORS" BEGINNING ON PAGE 11.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
THE MATERIAL IN THIS INFORMATION STATEMENT MAY BE REVISED OR COMPLETED. WE HAVE
FILED A REGISTRATION STATEMENT RELATING TO THE COMMON STOCK OF TENNECO PACKAGING
INC. WITH THE SECURITIES AND EXCHANGE COMMISSION. WE WILL NOT ISSUE THESE
SECURITIES BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS INFORMATION
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY THESE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR ACCURATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
October , 1999
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TABLE OF CONTENTS
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SUMMARY..................................................... -1-
Questions and Answers about Packaging, the Spin-off,
and Tenneco........................................... -1-
Packaging.............................................. -4-
The Spin-off........................................... -5-
Summary Historical and Pro Forma Combined Financial
Data.................................................. -7-
RISK FACTORS................................................ -11-
Risks Relating to Our Business......................... -11-
Risks Relating to Our Stock............................ -13-
Risks Relating to the Transaction...................... -14-
THE SPIN-OFF................................................ -16-
Introduction........................................... -16-
Reasons for the Spin-off............................... -16-
Manner of Spin-off..................................... -17-
Corporate Restructuring Transactions................... -17-
Debt Realignment....................................... -18-
Conditions to the Spin-off............................. -19-
Relationship Between Automotive and Packaging After the
Spin-off.............................................. -20-
Trading of Packaging Common Stock...................... -23-
U.S. Federal Income Tax Aspects of the Spin-off........ -24-
Reasons for Furnishing the Information Statement....... -26-
CAPITALIZATION AND FINANCING................................ -27-
Capitalization......................................... -27-
Financing.............................................. -28-
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PACKAGING................................................. -29-
SUPPLEMENTAL COMBINED FINANCIAL DATA........................ -35-
COMBINED SELECTED FINANCIAL DATA............................ -37-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. -40-
BUSINESS.................................................... -55-
Industry Overview and Key Terms........................ -55-
Our Products and Markets............................... -56-
Growth Strategy........................................ -57-
Marketing, Distribution and Customers.................. -60-
Analysis of Revenues................................... -60-
Competition............................................ -61-
International.......................................... -61-
Properties............................................. -61-
Raw Materials.......................................... -62-
Environmental Matters.................................. -62-
Other.................................................. -63-
Legal Proceedings...................................... -63-
Containerboard Packaging Interest...................... -63-
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MANAGEMENT.................................................. -65-
Board of Directors..................................... -65-
Executive Officers..................................... -66-
Stock Ownership of Management.......................... -66-
Committees of the Board of Directors................... -67-
Executive Compensation................................. -67-
Liability and Indemnification of Directors and
Officers.............................................. -71-
CERTAIN SHAREOWNERS......................................... -73-
DESCRIPTION OF CAPITAL STOCK................................ -74-
Authorized Capital Stock............................... -74-
Packaging Common Stock................................. -74-
Packaging Preferred Stock.............................. -74-
Anti-takeover Effects of Certain Provisions............ -75-
ADDITIONAL INFORMATION...................................... -83-
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE OF THE
BUSINESSES OF TENNECO PACKAGING........................... F-1
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SUMMARY
This summary highlights selected information from this document, but does
not contain all the details concerning the spin-off and Packaging, including
information that may be important to you. To better understand the spin-off and
Packaging, you should carefully review this entire document.
Unless the context otherwise requires, in this document:
- The terms "Packaging," "we," "us," and "our" refer to the packaging
business of Tenneco, including Tenneco Packaging Inc., for periods before
the spin-off. For periods after the spin-off, those terms refer to
Tenneco Packaging Inc. and its subsidiaries.
- The term "Tenneco" refers to Tenneco Inc. and its subsidiaries. Before
the spin-off, this term includes Tenneco's automotive and packaging
businesses. After the spin-off it will not include Tenneco's packaging
business.
- We also use the term "Automotive" to refer to Tenneco Inc. and its
subsidiaries after the spin-off, which will own and operate its
automotive business and which will be renamed [ ].
QUESTIONS AND ANSWERS ABOUT PACKAGING, THE SPIN-OFF AND TENNECO
Q: What is Packaging?
A: We are a global supplier of specialty packaging and consumer products.
Specialty packaging is an industry term that refers to packaging that is
used by commercial customers and designed for a specific application or
product. We are currently owned by Tenneco. We will become an independent,
publicly traded company upon completion of the spin-off. Also, we own a 43%
common equity interest in a joint venture that manufactures containerboard
and related packaging products. Containerboard is made primarily from wood
pulp and recycled paper and is used to make cartons, boxes and containers.
We plan to sell our interest in the containerboard joint venture, and we
expect the sale to be completed before the spin-off. See "Business" and
"Business -- Containerboard Packaging Interest."
Q: What is the spin-off?
A: The spin-off is the final step in the transformation of Tenneco from a
diversified industrial company to independent companies focused on their
core businesses. The spin-off will separate Tenneco's remaining businesses
and create two publicly traded companies:
- Packaging -- a global manufacturer and marketer of specialty packaging
and consumer products; and
- Automotive -- a global designer, manufacturer and distributor of a
variety of automotive emissions control and ride control systems.
In connection with the spin-off, Tenneco will declare and pay to each of
its shareowners a dividend of one share of Packaging common stock for each
share of Tenneco common stock held as of the close of business on October
, 1999. Immediately after the spin-off, Tenneco's shareowners will
continue to own all of Tenneco's current businesses, but they will own them
through their investments in Automotive and Packaging.
Q: Why is this transaction structured as a spin-off?
A: The spin-off is the most tax-efficient means of separating Tenneco's
businesses. Tenneco has applied to the IRS for a letter ruling that the
spin-off will be tax-free to Tenneco and its shareowners for federal income
tax purposes.
Q: What steps must Tenneco take to accomplish the spin-off?
A: We will not do the spin-off unless Tenneco has completed its corporate
restructuring transactions and it has realigned substantially all of its
debt.
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Q: What are the corporate restructuring transactions?
A: As Tenneco is currently organized, ownership of its subsidiaries is based on
geographic location and tax considerations rather than on the businesses in
which the subsidiaries are involved. Therefore, Tenneco will need to
restructure its existing businesses so that:
- the assets, liabilities and operations of its packaging business and
administrative services operations will be owned directly and indirectly
by Packaging; and
- the assets, liabilities and operations of its automotive business will
be owned directly and indirectly by Tenneco and its non-packaging
subsidiaries.
Q: What is the debt realignment?
A: Tenneco's historical practice has been to incur debt for its consolidated
group at the parent-company level or at a limited number of its
subsidiaries, rather than at the operating-company level, and to manage
centrally various cash functions. Therefore, before the spin-off, Tenneco
will realign substantially of all of its existing debt. The purpose of the
debt realignment is to allocate the debt between Automotive and us before
the companies are separated. Tenneco expects to accomplish the debt
realignment through some combination of tender offers, exchange offers,
prepayments and other refinancings.
As part of the debt realignment, Tenneco expects to make a public offer to
exchange some of our debt for some of its outstanding public debt. Tenneco
also expects to offer to purchase its remaining public debt for cash, repay
its other non-public debt and repurchase subsidiary preferred stock. To
finance these cash payments, we and Automotive will each make borrowings
under new credit facilities and Automotive will issue new subordinated
debt.
If the debt realignment and spin-off had occurred on March 31, 1999, we
would have been allocated debt for money borrowed of about $1.9 billion on
a pro forma basis, after giving effect to the contribution of our
containerboard assets to our containerboard joint venture and the sale of
our folding carton operation. This does not give effect to the application
of any proceeds from our planned sale of our remaining interest in the
containerboard joint venture. See "The Spin-off -- Debt Realignment."
Q: Why is Tenneco separating its businesses?
A: Tenneco's board of directors determined that the spin-off is in the best
interests of Tenneco's shareowners because divergent industry trends
increasingly require Tenneco's packaging and automotive businesses to
pursue different strategies. Each business has distinct financial,
investment and operating characteristics. Separating the businesses will:
- enable each company to concentrate its attention and financial resources
on its own core business and provide each company with independent access
to markets for equity and debt financing;
- permit investors to make separate investment decisions about the two
companies, based on their performance and other characteristics, and
enhance the likelihood that each company will achieve appropriate market
valuation of each of the two businesses; and
- allow each company to create employee compensation programs
custom-tailored to the operations of their business, including an
employee stock ownership plan for Automotive and stock-based and other
incentive programs, which will more directly reward employees of each
business based on the success of that business. See "The Spin-off --
Reasons for the Spin-off."
Q: What do Tenneco shareowners have to do to participate in the spin-off?
A: Nothing. Because the spin-off of our shares is a dividend, no proxy or vote
is necessary. We expect the spin-off will occur on or about October ,
1999. If you owned Tenneco common stock as of close of business (5:00 p.m.
New York City time) on October , 1999, your brokerage account will be
credited with shares of Packaging common stock, or you will be mailed
certificates representing shares of Packaging common stock. You do not need
to mail in your certificates of Tenneco common stock to receive your
Packaging common stock certificates. The spin-off will not change the
number of
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shares of Tenneco common stock that you own. After the spin-off, your
Tenneco common stock certificates will represent your investment in
Automotive. See "The Spin-off -- Manner of Spin-off."
Q: Are there risks to owning Packaging common stock?
A: Yes. Our specialty packaging and consumer products business is subject to
general business risks relating to our operation of the business. In
addition, our separation from Tenneco presents other risks relating to the
listing of our stock for the first time and the nature of the spin-off
transaction. These risks are described in the "Risk Factors" section
beginning on page 11. We encourage you to read this section.
Q: Will Automotive and Packaging be related after the spin-off?
A: Automotive will not own any of our common stock after the spin-off, and we
will not own any Automotive common stock after the spin-off. However, each
company's benefit plans and trusts will own a limited amount of the other
company's common stock. See "The Spin-off -- Relationship Between
Automotive and Packaging After the Spin-off -- Benefit Plan Ownership of
Stock." We will also enter into agreements with Tenneco that provide for
the separation of our business from the automotive business. Additionally,
four experienced members of Tenneco's board of directors will serve on our
board of directors as well as Automotive's. See "The
Spin-off -- Relationship Between Automotive and Packaging After the
Spin-off."
Q: Where can Tenneco shareowners get more information?
A: You may contact First Chicago Trust Company of New York, the agent for the
spin-off, at First Chicago Trust Company of New York, Attn: General
Correspondence, P.O. Box 2500, Jersey City, NJ 07303-2500, telephone
number: (800) 519-3111. You may also direct questions to Tenneco Investor
Relations at Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831,
Attention: Stan March, telephone number: 203/863-1170.
3
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PACKAGING
Packaging, a Delaware corporation, is a global supplier of specialty
packaging and consumer products with 1998 revenues of approximately $2.8
billion. We operate 89 manufacturing facilities throughout the world and employ
over 15,000 people. We are currently owned by Tenneco. We will be an
independent, publicly traded company after the spin-off (NYSE: ).
OUR BUSINESS
We operate two units: (a) consumer products and food/foodservice packaging;
and (b) protective and flexible packaging. Our industry uses many terms that
refer to technical processes and products which we explain in more detail under
the section titled "Business -- Industry Overview and Key Terms" beginning on
page 55.
Consumer Products and Food/Foodservice Packaging. We manufacture, market
and sell consumer products such as plastic storage bags for food and household
items, plastic waste bags, foam and molded fiber disposable tableware, and
disposable aluminum cookware. We sell many of these products under such
recognized brand names as Hefty(R), Baggies(R), Hefty One-Zip(R), Kordite(TM)
and E-Z Foil(R).
We manufacture food packaging products for the food processing industry,
such as molded fiber egg cartons, foam meat trays, aluminum containers and
modified atmosphere packaging, which extends the shelf life of meat products. In
addition, we provide plastic zipper closures for a variety of flexible packaging
applications. We also provide food packaging products for supermarket in-store
use. These products include clear rigid display packaging, microwaveable
containers, plastic foam trays, and bags. For our foodservice customers, we
offer products that help merchandize and serve both on-premises and takeout
meals.
Protective and Flexible Packaging. We manufacture, market and sell
packaging used for cushioning, bracing, surface protection and insulation in the
automotive, computer, electronic, furniture, durable goods and building and
construction products industries. These products include our sheet foams and air
encapsulated bubble products, padded mailers and customized packaging systems.
Our flexible packaging products provide a variety of efficient and
attractive solutions for consumer, medical, pharmaceutical, chemical, hygiene
and industrial applications. These products include liners for disposable
diapers, wrap-around sleeves for glass and plastic bottles, polypropylene
medical bags used for sterile intravenous fluid delivery, modified atmosphere
films, stand-up pouches, food and hygiene packaging, and disposable surgical
kits custom designed for specific procedures.
GROWTH STRATEGY
We are pursuing a growth strategy driven by highly focused internal
programs which are comple-mented by strategic acquisitions. By effectively
implementing this growth strategy, we increased the total revenues of our
specialty packaging and consumer products business from $845 million in 1995 to
approximately $2.8 billion in 1998. During this same period, our income from
continuing operations from this business increased from $39 million to $328
million, representing a compound annualized growth rate of 103%. See "Combined
Selected Financial Data" and "Business -- Growth Strategy."
OUR CONTAINERBOARD PACKAGING INTEREST
In April 1999, we contributed our containerboard packaging business to a
new joint venture with an affiliate of Madison Dearborn Partners, Inc. We
received cash and debt assumption totaling approximately $2 billion and retained
a 45% common equity interest in the joint venture. We plan to sell our interest
in the venture, now at 43% due to subsequent equity issuances to management. We
expect the sale to be completed before the spin-off, with the net proceeds used
to retire that portion of Tenneco's debt that would otherwise be allocated to us
in Tenneco's debt realignment. See "Business -- Containerboard Packaging
Interest" and note (f) to "Unaudited Pro Forma Combined Financial Statements of
Packaging."
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THE SPIN-OFF
The spin-off will complete the separation of Tenneco's businesses and
create two independent companies -- Packaging and Automotive.
SHARES TO BE DISTRIBUTED... 171,356,195 shares of Packaging common stock (based
on Tenneco shares outstanding as of June 30, 1999).
DISTRIBUTION RATIO......... One share of Packaging common stock for each share
of Tenneco common stock held as of the close of
business on the Record Date.
RECORD DATE................ October , 1999.
SPIN-OFF DATE.............. On or about October , 1999.
TAX TREATMENT.............. Tax-free to Tenneco and Tenneco shareowners.
CORPORATE RESTRUCTURING
TRANSACTIONS............... Before the spin-off, Tenneco and its subsidiaries
will restructure Tenneco's existing businesses,
assets and liabilities so that:
- the assets, liabilities and operations of
Tenneco's packaging business and certain
corporate assets and services will be owned
directly and indirectly by Packaging; and
- the assets, liabilities and operations of
Tenneco's automotive business will be owned
directly and indirectly by Tenneco and its
non-packaging subsidiaries. See "The
Spin-off -- Corporate Restructuring
Transactions."
DEBT REALIGNMENT........... Before the spin-off, Tenneco will realign
substantially all of its existing debt. Tenneco
expects to realign its debt through some
combination of tender offers, exchange offers,
prepayments and other refinancings. To finance this
debt realignment, Packaging and Automotive each
expect to make borrowings under a new credit
facility, and Automotive expects to issue new
subordinated debt. See "The Spin-off -- Debt
Realignment."
DISTRIBUTION AND ANCILLARY
AGREEMENTS................. The distribution agreement to be entered into
between Tenneco and Packaging will establish the
terms of the spin-off. Packaging and Automotive
also will enter into four ancillary agreements,
which will facilitate the separation of Tenneco's
packaging business from its automotive business and
facilitate the operation of Automotive and
Packaging as separate companies. The four ancillary
agreements cover human resources, tax sharing,
transition services and trademark licensing. See
"The Spin-off -- Relationship Between Automotive
and Packaging After the Spin-off."
LISTING AND TRADING........ Packaging will apply for listing of its common
stock on the New York Stock Exchange under the
symbol " ". We expect that "when-issued"
trading for Packaging common stock will develop on
or about October , 1999 and continue through the
spin-off date. "When-issued" trades are completed
only if the stock is issued. We expect that normal
NYSE trading in Packaging common stock will begin
the first business day after the spin-off. Tenneco
expects that its common stock will continue to
trade on a regular basis before and after the
spin-off. See "The Spin-off -- Trading of Packaging
Common Stock."
The combined trading prices of Packaging common
stock and Automotive common stock after the
spin-off may or may not equal
5
<PAGE> 15
the trading price of Tenneco common stock before
the spin-off. In addition, the trading price of
each company's common stock may fluctuate
significantly. See "Risk Factors" and "The
Spin-off -- Trading of Packaging Common Stock."
DIVIDEND POLICY............ Packaging's dividend policy will be established by
its board of directors from time to time based on
the results of Packaging's operations, financial
condition and other business considerations that
the board of directors considers relevant.
Packaging expects that its annual dividend for the
foreseeable future will be set to approximate the
Standard & Poor's 500 average dividend yield.
Automotive's dividend policy will be established by
its board of directors from time to time based on
the results of Automotive's operations, financial
condition and other business considerations that
its board of directors deems relevant. Also,
because Automotive will be highly leveraged and
restricted with respect to the payment of
dividends, its annual dividend is expected to be
nominal.
The combined annual dividends of Packaging and
Automotive after the spin-off will be less than
Tenneco's annual dividend before the spin-off. See
"Risk Factors" and "Description of Capital Stock --
Packaging Common Stock."
CONDITIONS TO THE
SPIN-OFF................... Tenneco has requested a ruling from the Internal
Revenue Service on the tax-free nature of the
spin-off. The spin-off is subject to, among other
things, a determination that the spin-off will be
tax-free for federal income tax purposes, the
successful completion of the corporate
restructuring transactions and the debt
realignment. See "The Spin-off -- Conditions to the
Spin-off."
6
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following summary combined financial data as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997, and 1996, were derived
from the audited Combined Financial Statements of The Businesses of Tenneco
Packaging. The following summary combined financial data as of December 31,
1996, 1995, and 1994, and for the years ended December 31, 1995 and 1994, are
unaudited and were derived from Tenneco's accounting records. The following
summary combined financial data as of and for each of the three months ended
March 31, 1999 and 1998 were derived from the unaudited Combined Financial
Statements of The Businesses of Tenneco Packaging. In our opinion, the summary
combined financial data of Packaging as of December 31, 1996, 1995, and 1994,
and for the years ended December 31, 1995 and 1994, and as of and for the three
months ended March 31, 1999 and 1998, include all adjusting entries, consisting
only of normal recurring adjustments, necessary to present fairly the
information set forth. You should not regard the results of operations for the
three months ended March 31, 1999 as indicative of the results that may be
expected for the full year.
The following summary unaudited pro forma combined financial data as of and
for the three months ended March 31, 1999, and for the year ended December 31,
1998, reflect the effects of:
- the contribution of our containerboard assets to a new joint venture and
the sale of our folding carton assets;
- the debt realignment; and
- the spin-off and related transactions.
The unaudited pro forma combined statement of income data have been
prepared as if these transactions occurred on January 1, 1998; the unaudited pro
forma combined balance sheet data have been prepared as if these transactions
occurred on March 31, 1999. The summary unaudited pro forma combined financial
data are not necessarily indicative of what our results of operations would have
been had the transactions described above actually been consummated on the dates
assumed and are not necessarily indicative of the results of operations for any
future period.
Our debt balances in the summary unaudited pro forma combined financial
data do not reflect the application of any proceeds from the planned sale of our
remaining interest in the containerboard joint venture. We expect the sale to be
completed before the spin-off, with the net proceeds used to retire the Tenneco
debt that would otherwise be allocated to us in the debt realignment. If the
sale occurs after the spin-off, the net proceeds will be used to retire our
debt.
There is other information we believe is relevant to understanding our
results of operations following the spin-off. These items relate to corporate
overhead costs incurred by Tenneco and its administrative services operations
that we expect will differ following the spin-off. For further information you
should see "Supplemental Combined Financial Data" beginning on page 35 of this
document.
You should read all of this information in conjunction with the following,
each of which is included elsewhere in this document:
- Unaudited Pro Forma Combined Financial Statements (page 29);
- Combined Selected Financial Data (page 37);
- Management's Discussion and Analysis of Financial Condition and Results
of Operations (page 40); and
- Combined Financial Statements of the Businesses of Tenneco Packaging
(page F-1).
7
<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
PRO FORMA
1998 1998(A) 1997(A) 1996(A)
--------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA(B):
Net sales and operating
revenues --
Specialty............. $ 2,785 $ 2,785 $ 2,553 $ 1,987
Other................. 6 6 10 --
----------- ----------- ----------- -----------
Total............... $ 2,791 $ 2,791 $ 2,563 $ 1,987
=========== =========== =========== ===========
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 328 $ 328 $ 308 $ 249
Other(c).............. (40) (45) (2) (15)
----------- ----------- ----------- -----------
Total............... 288 283 306 234
Interest expense(d)....... 133 133 124 102
Income tax expense
(benefit)............... 69 67 75 67
Minority interest......... 1 1 1 --
----------- ----------- ----------- -----------
Income (loss) from
continuing operations... 85 82 106 65
Income (loss) from
discontinued operations,
net of income tax(e).... NA 57 21 71
Extraordinary loss, net of
income tax(f)........... NA -- -- (2)
Cumulative effect of
changes in accounting
principles, net of
income tax(g)........... NA -- (38) --
----------- ----------- -----------
Net income (loss)......... NA $ 139 $ 89 $ 134
=========== =========== ===========
Average number of shares of
common stock
outstanding(h) --
Basic..................... 168,505,573 168,505,573 170,264,731 169,609,373
Diluted................... 168,834,531 168,834,531 170,801,636 170,526,112
Earnings (loss) per average
share of common stock(h)--
Basic:
Continuing operations... $ .50 $ .49 $ .63 $ .38
Discontinued
operations(e)......... NA .34 .12 .42
Extraordinary loss(f)... NA -- -- (.01)
Cumulative effect of
changes in accounting
principles(g)......... NA -- (.23) --
----------- ----------- -----------
$ .83 $ .52 $ .79
=========== =========== ===========
Diluted:
Continuing operations... $ .50 $ .49 $ .63 $ .38
Discontinued
operations(e)......... NA .34 .12 .42
Extraordinary loss(f)... NA -- -- (.01)
Cumulative effect of
changes in accounting
principles(g)......... NA -- (.23) --
----------- ----------- -----------
$ .83 $ .52 $ .79
=========== =========== ===========
BALANCE SHEET DATA(B):
Net assets of discontinued
operations(e)........... NA $ 366 $ 423 $ 459
Total assets.............. NA 4,798 4,618 4,028
Short-term debt(d)........ NA 595 158 123
Long-term debt(d)......... NA 1,312 1,492 1,073
Debt allocated to
discontinued
operations(d)........... NA 548 473 394
Minority interest......... NA 14 15 --
Combined equity........... NA 1,776 1,839 1,843
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ------------------------------------------
PRO FORMA
1995 1994 1999 1999(A) 1998(A)
---- ---- --------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA(B):
Net sales and operating
revenues --
Specialty............. $ 845 $ 636 $ 666 $ 666 $ 630
Other................. -- -- -- -- 3
----------- ----------- ----------- ----------- -----------
Total............... $ 845 $ 636 $ 666 $ 666 $ 633
=========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 39 $ 68 $ 83 $ 83 $ 74
Other(c).............. (6) 17 (37) (38) (5)
----------- ----------- ----------- ----------- -----------
Total............... 33 85 46 45 69
Interest expense(d)....... 91 48 33 36 33
Income tax expense
(benefit)............... (3) 19 4 3 18
Minority interest......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing operations... (55) 18 9 6 18
Income (loss) from
discontinued operations,
net of income tax(e).... 224 75 NA (172) 14
Extraordinary loss, net of
income tax(f)........... -- -- NA (7) --
Cumulative effect of
changes in accounting
principles, net of
income tax(g)........... -- -- NA (32) --
----------- ----------- ----------- -----------
Net income (loss)......... $ 169 $ 93 NA $ (205) $ 32
=========== =========== =========== ===========
Average number of shares of
common stock
outstanding(h) --
Basic..................... 172,764,198 162,307,189 166,743,506 166,743,506 169,542,371
Diluted................... 173,511,654 162,912,425 167,180,597 167,180,597 170,065,712
Earnings (loss) per average
share of common stock(h)--
Basic:
Continuing operations... $ (.32) $ .11 $ .05 $ .03 $ .11
Discontinued
operations(e)......... 1.30 .46 NA (1.03) .08
Extraordinary loss(f)... -- -- NA (.04) --
Cumulative effect of
changes in accounting
principles(g)......... -- -- NA (.19) --
----------- ----------- ----------- -----------
$ .98 $ .57 $ (1.23) $ .19
=========== =========== =========== ===========
Diluted:
Continuing operations... $ (.32) $ .11 $ .05 $ .03 $ .11
Discontinued
operations(e)......... 1.29 .46 NA (1.03) .08
Extraordinary loss(f)... -- -- NA (.04) --
Cumulative effect of
changes in accounting
principles(g)......... -- -- NA (.19) --
----------- ----------- ----------- -----------
$ .97 $ .57 $ (1.23) $ .19
=========== =========== =========== ===========
BALANCE SHEET DATA(B):
Net assets of discontinued
operations(e)........... $ 393 $ 236 $ 194 $ 372 $ 394
Total assets.............. 3,358 1,630 4,685 4,671 4,673
Short-term debt(d)........ 205 49 889(i) 724 270
Long-term debt(d)......... 880 478 1,000(i) 1,337 1,496
Debt allocated to
discontinued
operations(d)........... 369 285 -- 487 492
Minority interest......... -- -- 14 14 15
Combined equity........... 1,531 703 1,448 1,470 1,833
</TABLE>
(continued on next page)
8
<PAGE> 18
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
PRO FORMA
1998 1998(A) 1997(A) 1996(A)
--------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided (used)
by operating
activities............ NA $ 577 $ 405 $ 263
Net cash provided (used)
by investing
activities............ NA (514) (654) (669)
Net cash provided (used)
by financing
activities............ NA (67) 239 399
Capital expenditures for
continuing
operations............ NA (194) (229) (216)
OTHER DATA:
EBITDA(j)................. $ 463 $ 458 $ 469 $ 365
Ratio of earnings to fixed
charges(k).............. 2.03 1.99 2.31 2.15
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ------------------------------------------
PRO FORMA
1995 1994 1999 1999(A) 1998(A)
---- ---- --------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided (used)
by operating
activities............ $ 479 $ 283 NA $ 30 $ 82
Net cash provided (used)
by investing
activities............ (1,791) (146) NA (50) (66)
Net cash provided (used)
by financing
activities............ 1,327 (142) NA 18 (18)
Capital expenditures for
continuing
operations............ (265) (134) NA (29) (46)
OTHER DATA:
EBITDA(j)................. $ 78 $ 121 $ 94 $ 93 $ 113
Ratio of earnings to fixed
charges(k).............. NM 1.72 1.35 1.23 2.00
</TABLE>
- -------------------------
(a) For a discussion of the significant items affecting comparability of the
financial information for the years ended December 31, 1998, 1997, and 1996,
and for the three months ended March 31, 1999 and 1998, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this document.
(b) During the periods presented, we completed numerous acquisitions, the most
significant of which were the acquisitions of Mobil Plastics for $1.3
billion in late 1995, Amoco Foam Products for $310 million in August 1996,
and the protective and flexible packaging business of N.V. Koninklijke KNP
BT for $380 million in April 1997. See Note 6 to the Combined Financial
Statements of The Businesses of Tenneco Packaging. See also "Business --
Growth Strategy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) Historical and pro forma income from continuing operations before interest
expense, income taxes and minority interest for "Other" includes costs which
were incurred by Tenneco's corporate and administrative services operations
which were not allocated to Tenneco's operating segments. Because these
functions will be a part of Packaging upon the spin-off, they are included
in our historical combined financial statements. We expect our costs for
these functions will differ following the spin-off. See "Supplemental
Combined Financial Data" included elsewhere in this document for further
information.
(d) 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. Accordingly, historical amounts include debt
and related interest expense allocated to Packaging from Tenneco based on
the portion of Tenneco's investment in Packaging which Tenneco deemed to be
debt. This allocation is generally based upon the ratio of Packaging's net
assets to Tenneco's consolidated net assets plus debt. An allocation of debt
and its related interest expense has also been made to Packaging's
discontinued operations based on the ratio of the discontinued operations'
net assets to Packaging's combined net assets plus debt. Management believes
that the allocation of corporate debt and related interest expense for the
historical periods is reasonable. This historical allocation, however, is
not indicative of the total amount of debt that Packaging will have upon
completion of Tenneco's realignment of its consolidated debt before the
spin-off. See "Combined Financial Statements of The Businesses of Tenneco
Packaging" included elsewhere in this document.
(e) Discontinued operations for the periods presented consist of our paperboard
packaging segment, which was discontinued in June 1999 following the
decision to sell Packaging's remaining common equity interest in its
containerboard joint venture. Loss from discontinued operations for the
three months ended March 31, 1999 includes an after-tax loss of $178
million, or $1.07 per diluted common share, resulting from the contribution
of our containerboard assets to the containerboard joint venture. See Note 7
to the Combined Financial Statements of The Businesses of Tenneco Packaging
included elsewhere in this document.
(f) Represents our costs related to prepayment of debt. See Note 7 to the
Combined Financial Statements of The Businesses of Tenneco Packaging
included elsewhere in this document.
(g) In 1999, we implemented the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." In 1997, we implemented the Financial Accounting Standards
Board's Emerging Issues Task Force Issue 97-13, "Accounting for Costs
Incurred in Connection with a Consulting Contract that Combines Business
Process Reengineering and Information Technology Transformation." See Note 3
to the Combined Financial Statements of The Businesses of Tenneco Packaging
included elsewhere in this document for additional information regarding
changes in accounting principles.
(h) In the spin-off, Tenneco shareowners will receive one share of our common
stock for each share of Tenneco common stock outstanding. Accordingly, basic
and diluted earnings per share for Packaging were calculated using Tenneco's
historical weighted average shares outstanding and weighted average shares
outstanding adjusted to include estimates of additional shares that would be
issued if potentially dilutive common shares had been issued, respectively.
(i) Our pro forma debt balances reflect debt allocated to us in the debt
realignment before application of any proceeds from the planned sale of our
remaining interest in the containerboard joint venture. We expect the sale
to be completed before the
(continued on next page)
9
<PAGE> 19
spin-off, with the net proceeds used to retire the Tenneco debt that would
otherwise be allocated to us in the debt realignment. If the sale occurs after
the spin-off, the net proceeds will be used to retire our debt. See "Unaudited
Pro Forma Combined Financial Statements."
(j) EBITDA represents income from continuing operations before interest expense,
income taxes, minority interest and depreciation and amortization. EBITDA is
not a calculation based upon generally accepted accounting principles
("GAAP"). We derived the amounts included in the EBITDA calculation,
however, from amounts included in the Combined Statements of Income of The
Businesses of Tenneco Packaging or Unaudited Pro Forma Combined Statements
of Income of Packaging included elsewhere in this document. EBITDA should
not be considered as an alternative to net income or operating income as an
indicator of our operating performance or as an alternative to operating
cash flows as a measure of liquidity. We have reported EBITDA because we
believe EBITDA is a measure commonly reported and widely used by investors
and other interested parties as an indicator of a company's ability to incur
and service debt. We believe EBITDA assists investors in comparing a
company's performance on a consistent basis without regard to depreciation
and amortization, which can vary significantly depending upon accounting
methods (particularly when acquisitions are involved) or nonoperating
factors. However, the EBITDA measure presented in this document may not
always be comparable to similarly titled measures reported by other
companies due to differences in the components of the calculation.
(k) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense, the
portion of rental expense considered representative of the interest factor
and capitalized interest. The historical ratios are based upon the amount of
interest expense on corporate debt allocated to us by Tenneco as discussed
in (d) above. We derived the pro forma ratios from the Unaudited Pro Forma
Combined Financial Statements included elsewhere in this document. For the
year ended December 31, 1995, earnings were inadequate to cover fixed
charges by $59 million.
10
<PAGE> 20
RISK FACTORS
In addition to the other information included in this Information
Statement, you should be aware of the following risk factors in connection with
the spin-off and ownership of our shares.
We also caution you that this Information Statement contains
forward-looking statements. The words "believes," "should be," "anticipates,"
"plans," "expects," "intends" and "estimates," and similar expressions, identify
these forward-looking statements. These forward-looking statements are contained
principally under the headings "Summary," "Risk Factors," "Unaudited Pro Forma
Combined Financial Statements of Packaging," "Supplemental Combined Financial
Data," "Management's Discussion and Analysis and Results of Operations," and
"Business." Although we believe that our expectations reflected in these
forward-looking statements are based on reasonable assumptions, our expectations
may not prove to be correct. Because these forward-looking statements are also
subject to risks and uncertainties, actual results may differ materially from
the expectations expressed by such forward-looking statements. Important factors
that could cause actual results to differ materially from the expectations
reflected in our forward-looking statements include those set forth below, as
well as:
- general economic, business and market conditions;
- operating hazards associated with our business;
- labor disruptions at our plants or with any of our significant customers
or suppliers;
- customer acceptance of new products;
- availability or costs of operating funds, including changes in interest
rates or market perceptions of us;
- changes by the Financial Accounting Standards Board or the Securities and
Exchange Commission of authoritative generally accepted accounting
principles or policies;
- the impact of laws and regulations, including environmental laws and
regulations; and
- the occurrence or non-occurrence of circumstances beyond our control.
RISKS RELATING TO OUR BUSINESS
COMPETITION -- A LOSS IN MARKET SHARE COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
A loss in market share for our products or competitive pricing pressures
could adversely affect our results of operations and financial condition. We
operate in markets that are highly competitive and face substantial competition
throughout all of our product lines. Our competitors range from the largest
packaging companies to small, emerging companies. Some companies that compete
with us may have greater financial and other resources than we do, while others
are significantly smaller with lower fixed costs and possibly greater operating
flexibility. In addition to price, competition with respect to many of our
products is based on quality, service supplier response time and timely and
complete order fulfillment. In addition, other packaging producers supply
alternative materials and structures and serve different geographic regions
through various distribution channels.
CYCLICAL DEMAND -- THE CYCLICAL DEMAND FOR OUR PRODUCTS COULD ADVERSELY AFFECT
OUR OPERATING RESULTS.
Demand for our products is cyclical in nature because it follows the demand
for the goods that are packaged with our products or the demand for certain
services. Accordingly, our demand is subject to general economic conditions that
affect demand in the durable goods, consumer, building, construction and
automotive markets. Growth in the economy generally stimulates demand for these
products or services, while a weakening economy tends to decrease demand.
Consequently, adverse economic conditions could have a material adverse effect
on our operating results.
11
<PAGE> 21
COST OF RAW MATERIALS -- VOLATILE RAW MATERIAL PRICES COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
Plastic resins, aluminum rollstock, linerboard and recycled fiber are the
basic raw materials used in the manufacture of most of our products. The costs
of these materials may be volatile and are a function of, among other things,
the manufacturing capacity for those materials and the costs of their
components. If we fail to obtain price increases for our products in a timely
manner following a raw material cost increase, if we reduce our product prices
without a corresponding reduction in raw material costs or if we are unable to
renegotiate favorable raw material supply contracts, our operating results could
be adversely affected. See "Business -- Raw Materials."
GROWTH STRATEGY -- WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES OR THAT FUTURE ACQUISITIONS WILL NOT ADVERSELY AFFECT OUR
OPERATING RESULTS AND FINANCIAL CONDITION.
Our growth strategy contemplates further acquisitions of specialty
packaging and consumer products businesses, as well as related businesses.
Pursuing an acquisition strategy could affect our operating results and
financial condition because of:
- unanticipated liabilities;
- the diversion of management attention;
- increased goodwill amortization;
- higher interest costs; and
- our dependence on retaining or hiring and training key personnel and
integrating the acquired business.
See "Business -- Growth Strategy."
ADVANCED TECHNOLOGY -- IF WE DO NOT ADAPT TO TECHNOLOGICAL ADVANCES IN OUR
INDUSTRY AS QUICKLY AS OUR COMPETITORS, OUR OPERATING RESULTS AND FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED.
We compete in markets and industries that require sophisticated
manufacturing systems and other advanced technology to deliver state-of-the-art
specialty packaging solutions. These systems and technologies generally have to
be refined and updated as the underlying technologies advance. We cannot assure
you that, as various systems and technologies become outdated, we will be able
to replace them, to replace them as quickly as our competitors or to develop and
market new and better products in the future.
YEAR 2000 ISSUE -- IF NOT FULLY RESOLVED, THE YEAR 2000 ISSUE COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND OUR RESULTS OF OPERATIONS.
Many of our computer software systems, as well as some hardware and
equipment utilizing date-sensitive data, were designed to use two-digit date
fields. Consequently, these systems and equipment will not be able to recognize
dates properly beyond the year 1999. We have been working on our systems and
equipment, and we believe that approximately 70 percent of our major business
applications systems and approximately 90 percent of our manufacturing equipment
had achieved Year 2000 compliance as of June 30, 1999. If we are unable to
complete on a timely and cost-efficient basis the remediation or replacement of
critical systems or equipment not yet in compliance, or develop alternative
procedures, or if our major suppliers, financial institutions or others with
whom we conduct business are unsuccessful in implementing timely solutions, Year
2000 issues could have a material adverse effect on our financial condition and
our results of operations. Possible worst case scenarios include interruptions
in our ability to manufacture our products, process and ship orders, and bill
and collect accounts receivable due to internal system failures or the system
failures of our suppliers or customers.
Based upon current estimates, we believe that costs to address Year 2000
issues and to implement the necessary changes to our existing systems and
equipment, including costs incurred to date, will range from
12
<PAGE> 22
$25 to $30 million. As of June 30, 1999, approximately $20 million of the costs
had been incurred. For more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."
INDEPENDENT PUBLIC COMPANY -- WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO
SUCCESSFULLY TRANSITION TO AN INDEPENDENT PUBLIC COMPANY.
After the spin-off, our major operations will consist of Tenneco's
packaging business. We have never operated as a stand-alone company and
historically have been able to rely, to some degree, on the earnings, assets and
cash flow of Tenneco's other businesses for capital requirements and certain
administrative services. Accordingly, our pro forma combined financial
statements included in this document may not necessarily reflect the results of
operations and financial condition that would have been achieved if we had
operated independently during the periods presented.
INTERNATIONAL OPERATIONS -- WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL
OPERATIONS.
We have manufacturing and distribution facilities in many countries,
principally in North America and Europe. International operations are subject to
various risks which could have a material adverse effect on those operations or
on our business as a whole including:
- exposure to local economic conditions;
- exposure to local political conditions (including the risk of seizure of
assets by a foreign government);
- currency exchange rate fluctuations;
- controls on the repatriation of cash; and
- export and import restrictions.
Our success will be dependent, in part, on our ability to anticipate and
effectively manage these and other risks. We cannot assure you that these and
other factors will not.
RISKS RELATING TO OUR STOCK
STOCK PRICE -- OUR STOCK PRICE COULD FLUCTUATE SIGNIFICANTLY.
Currently, there is no public market for our common stock, although we
expect that "when issued" trading will develop prior to the spin-off date. We
cannot assure you as to the trading prices for our stock after the spin-off. The
trading prices for our stock may fluctuate significantly. See "The Spin-off --
Trading of Packaging Common Stock."
MARKET VALUE -- THE COMBINED POST-SPIN-OFF VALUE OF PACKAGING AND TENNECO STOCK
MAY NOT EQUAL
OR EXCEED PRE-SPIN-OFF VALUE OF TENNECO STOCK.
We cannot assure you that the combined market value or trading prices of
Automotive common stock and Packaging common stock after the spin-off will be
equal to or greater than the market value or trading price of Tenneco common
stock before the spin-off. After completing the spin-off, you will own shares of
Automotive common stock and shares of Packaging common stock. After the
spin-off, Packaging common stock will be listed and traded on the New York Stock
Exchange. Tenneco common stock is now listed and traded on the New York,
Chicago, Pacific and London Stock Exchanges. We expect Tenneco will continue to
trade on those exchanges after the spin-off, when it will represent your
investment in Automotive. After the spin-off, Automotive will be highly
leveraged and initially restricted with respect to the payment of dividends. See
"The Spin-off -- Trading of Packaging Common Stock."
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DIVIDENDS -- THE COMBINED PACKAGING AND AUTOMOTIVE DIVIDENDS AFTER THE SPIN-OFF
WILL BE SIGNIFICANTLY LESS THAN TENNECO DIVIDENDS BEFORE THE SPIN-OFF.
Our dividend policy will be established by our board of directors from time
to time based on our results of operations and our financial condition, as well
as other business considerations. We expect that our annual dividend for the
foreseeable future will be set to approximate the Standard & Poor's 500 average
dividend yield.
Automotive's dividend policy will also be established by its board of
directors from time to time based on its results of operations and financial
condition, as well as other business considerations. Also, because Automotive
will be highly leveraged and restricted under its loan agreements with respect
to the payment of dividends, its annual dividend is expected to be nominal.
The combined annual dividends of Packaging and Automotive after the
spin-off will be less than Tenneco's annual dividend before the spin-off. See
"Description of Capital Stock -- Packaging Common Stock."
ANTI-TAKEOVER PROVISIONS -- YOUR OPPORTUNITIES TO SELL YOUR STOCK AT PRICES
ABOVE MARKET VALUE MAY BE REDUCED BECAUSE OF FEATURES OF OUR CERTIFICATE OF
INCORPORATION, BYLAWS AND QUALIFIED OFFER RIGHTS PLAN, AND RESTRICTIONS RELATING
TO THE IRS RULING THAT COULD DISCOURAGE ACQUISITION PROPOSALS.
Provisions of our Restated Certificate of Incorporation and our Amended and
Restated Bylaws, along with our Qualified Offer Rights Plan and Delaware
statutory law, could discourage potential acquisition proposals and could delay
or prevent a change in control of Packaging. In addition, provisions in the tax
sharing agreement that we will enter into with Automotive in connection with the
spin-off and restrictions relating to the IRS letter ruling could discourage
acquisition proposals. These provisions and restrictions could diminish your
opportunities to participate in tender offers, including tender offers at a
price above the then-current market value of our common stock. These provisions
and restrictions may also inhibit fluctuations in the market price of our common
stock that could result from takeover attempts. They could also make it more
difficult for third parties to cause the immediate removal and replacement of
the members of our board of directors and management without the concurrence of
our board of directors. See "Description of Capital Stock -- Anti-takeover
Effects of Certain Provisions." For more information regarding the IRS letter
ruling, see "The Spin-off -- U.S. Federal Income Tax Aspects of the Spin-off --
Tax Ruling."
RISKS RELATING TO THE TRANSACTION
U.S. FEDERAL INCOME TAX CONSIDERATIONS -- IF THE SPIN-OFF IS TAXABLE, WE COULD
BE ADVERSELY AFFECTED BY THE RESULTING CORPORATE TAX LIABILITY, AND YOU COULD BE
REQUIRED TO PAY TAX ON YOUR PACKAGING SHARES.
If the spin-off were not to qualify as a tax-free distribution for U.S.
federal income tax purposes, then, in general, a very substantial corporate tax
would be payable by the consolidated tax group of which Tenneco is the common
parent. Each member of that consolidated group, which includes Packaging, would
be severally liable for that tax. Packaging and Automotive will enter into a tax
sharing agreement in connection with the spin-off regarding the allocation and,
in some circumstances sharing, of that potential tax liability between them. See
"The Spin-off -- Relationship Between Automotive and Packaging After the
Spin-off" and "The Spin-off -- U.S. Federal Income Tax Aspects of the Spin-off."
If the spin-off occurred and it were not to qualify as a tax-free distribution,
the resulting tax liability would have a material adverse effect on Packaging
and/or Automotive, as applicable.
Tenneco has requested a letter ruling from the IRS to the effect that,
among other things, the spin-off will qualify as a tax-free distribution. The
ruling, assuming it is received, will be is based upon various factual
representations and assumptions. We are not aware of any facts or circumstances
that would cause the representations and assumptions to be untrue or incomplete
in any material respect. If, however, any of those factual representations and
assumptions were untrue or incomplete in a material respect, or the facts upon
which that ruling was based are materially different from the facts at the time
of the spin-off, the spin-off could become taxable to Tenneco and Tenneco
shareowners who receive Packaging common
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stock. In addition, the IRS letter ruling will not address the applicability or
effect of any state, local or foreign tax laws.
If the spin-off were not to qualify as a tax-free distribution, Tenneco
shareowners who receive shares of Packaging common stock in the spin-off would
be treated as if they had received a taxable distribution in an amount equal to
the fair market value of Packaging common stock received, except as described in
the next paragraph. See "The Spin-off -- U.S. Federal Income Tax Aspects of the
Spin-off."
Furthermore, if the spin-off otherwise qualifies as a tax-free distribution
but there is a change in control of Packaging or Automotive after the spin-off
that is considered part of a plan or a series of transactions related to the
spin-off, Tenneco would incur a very substantial tax liability on the
distribution of our common stock to its shareowners. Packaging would be
responsible for the resulting tax liability in the case of a Packaging change in
control, and Automotive would be responsible for the resulting tax liability in
the case of an Automotive change in control. In these circumstances, however,
Tenneco shareowners who received common stock would not recognize gain or loss
as a result of the spin-off. See "The Spin-off -- U.S. Federal Income Tax
Aspects of the Spin-off" and "The Spin-off -- Relationship Between Automotive
and Packaging After the Spin-off."
FRAUDULENT CONVEYANCE MATTERS -- POTENTIAL LIABILITIES MAY ARISE DUE TO
FRAUDULENT TRANSFER CONSIDERATIONS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND OUR RESULTS OF OPERATIONS.
In connection with the spin-off, Tenneco will undertake numerous corporate
restructuring transactions and realign its debt, which, along with the spin-off,
are subject to federal and state fraudulent conveyance laws. Under these laws,
if a court were to determine that one of the parties did not receive fair
consideration and, at the time, was insolvent, had unreasonably small capital or
was unable to pay its debts as they came due, the court could reverse the
transactions or the spin-off or impose a liability on one of the parties,
including Packaging. Before the spin-off, we expect to obtain an opinion from a
third-party financial adviser that will confirm that Packaging and Automotive
will be solvent after giving effect to the spin-off. We cannot assure you,
however, that a court would agree with the financial advisor or find the
financial advisor's opinion to be binding on any of our creditors.
LEGAL DIVIDEND -- IF THE SPIN-OFF IS NOT A LEGAL DIVIDEND, IT COULD BE HELD
INVALID BY A COURT AND ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OUR RESULTS
OF OPERATIONS.
The corporate restructuring transactions, the debt realignment and the
spin-off are subject to state corporate distribution statutes. We cannot assure
you that a court will not later determine that the spin-off, one or more of the
corporate restructuring transactions or the debt realignment was invalid under
state corporate law and reverse the transactions. The resulting complications
and cost could have a material adverse effect on our financial condition and our
results of operations. For example, under Delaware law, a corporation may only
pay dividends to its stockholders either: (a) out of its surplus, which is net
assets minus capital; or (b) if there is no surplus, out of its net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year, subject to some restrictions. Before the spin-off, we expect to obtain an
opinion from a third-party financial advisor that will confirm the
permissibility of the spin-off under Delaware corporate law. We cannot assure
you, however, that a court would agree with the financial advisor or find the
financial advisor's opinion to be binding on our creditors.
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THE SPIN-OFF
INTRODUCTION
The spin-off is the final step in the transformation of Tenneco from a
highly diversified industrial corporation to independent companies focused on
their core businesses. In July 1998, Tenneco's board of directors authorized its
management to develop a broad range of strategic alternatives which could result
in the separation of its then-remaining businesses: automotive, specialty
packaging and paperboard packaging. Earlier this year, we separated our
paperboard packaging business from the rest of Tenneco's operations. First, we
contributed our containerboard packaging business, which constituted the
majority of our paperboard packaging business, to a new joint venture for cash
and debt assumption of approximately $2 billion plus a 45% common equity
interest. We currently plan to sell our remaining 43% interest in this joint
venture. Second, we sold the balance of our paperboard packaging business, the
folding carton operation, for $72.5 million. The cash proceeds from these
transactions were used to repay some of Tenneco's consolidated lease and debt
obligations.
The spin-off will complete the separation of Tenneco's businesses and
create two independent companies -- Packaging and Automotive. We, Packaging,
will own and operate Tenneco's remaining packaging business, and Automotive will
own and operate Tenneco's automotive business.
Tenneco and we will enter into a distribution agreement which establishes
the terms of the spin-off and governs various aspects of our post-spin-off
relationship with Tenneco (Automotive, after the spin-off). Until the spin-off,
Tenneco may terminate the distribution agreement without our approval. In
addition, Tenneco and we will enter into ancillary agreements to facilitate
further the separation of Tenneco's automotive and packaging businesses and to
govern additional aspects of our ongoing relationship with Automotive.
In this document, descriptions of provisions of the distribution agreement
and the ancillary agreements are only summaries and do not purport to be
complete. These descriptions are qualified in their entirety by references to
the complete text of the agreements. The form of the distribution agreement and
the form of each of the ancillary agreements are included as an exhibit to our
Registration Statement on Form 10 under the Securities Exchange Act of 1934, as
amended, relating to our common stock.
Tenneco shareowners with inquiries relating to the spin-off should contact
First Chicago Trust Company of New York at First Chicago Trust Company of New
York, Attn: General Correspondence, P.O. Box 2500, Jersey City, NJ 07303-2500,
telephone number: (800) 519-3111, or Tenneco Investor Relations, 1275 King
Street, Greenwich, Connecticut 06831, Attention: Stan March, telephone number:
203/863-1170.
REASONS FOR THE SPIN-OFF
The spin-off is designed to separate Tenneco's packaging business from its
automotive business, each of which have distinct financial, investment and
operating characteristics, so that each can adopt strategies and pursue
objectives appropriate to its specific needs.
Business Focus and Access to Capital Markets
As a result of the spin-off, each of Packaging and Automotive will be able
to focus all of its attention and financial resources on its own core business
and on exploring and implementing the most appropriate growth opportunities.
Through independent access to equity and debt financing markets, the companies
expect to have greater financial flexibility to pursue acquisitions, joint
ventures, alliances and internal growth.
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Investor Understanding; Public Relations
After the spin-off, investors should be able to better evaluate the
financial performance, strategies and other characteristics of each of the
companies. This will permit investors to make investment decisions based on each
company's performance and potential, and enhance the likelihood that each
company will achieve appropriate market valuation. In addition, each company
will be able to focus its public relations efforts on cultivating a separate
identity.
Employee Incentives
The spin-off will allow each company's executive management team to develop
compensation systems for employees that are custom-tailored to the different
businesses, including an employee stock ownership plan for Automotive and
stock-based and other incentive programs. These programs will more directly
reward employees based on each company's individual success.
MANNER OF SPIN-OFF
Tenneco will accomplish the spin-off by distributing the common stock of
Packaging to Tenneco shareowners as a dividend. On October , 1999, the Tenneco
board of directors formally declared the dividend necessary to effect the
spin-off. Each Tenneco shareowner of record as of the close of business on
October , 1999, which is the "record date," will be entitled to participate in
the spin-off. On the spin-off date, those same Tenneco shareowners will each
receive one share of Packaging common stock for each share of Tenneco common
stock that they hold as of the record date. Although the spin-off will not occur
unless certain conditions are satisfied, we expect that the spin-off will take
place on or about October , 1999. See "-- Conditions to the Spinoff."
Before the spin-off date, Tenneco will deliver all of the outstanding
shares of Packaging common stock to the spin-off agent for transfer and
distribution to Tenneco common stock shareowners as of the close of business on
the record date. As soon as possible on or after the spin-off date, Tenneco will
deliver to the spin-off agent, as agent for those Tenneco shareowners,
certificates representing shares of Packaging common stock. The spin-off agent
will then mail, on or about the spin-off date, certificates representing the
shares of Packaging common stock to Tenneco common stock shareowners as of the
close of business on the record date.
No Tenneco shareowner will be required to pay cash or other consideration
for the shares of Packaging common stock to be received in the spin-off, or to
surrender or exchange shares of Tenneco common stock in order to receive
Packaging common stock.
Our board of directors will adopt a Qualified Offer Rights Plan before the
spin-off, which will entitle each Tenneco shareowner, as of the close of
business on October , 1999, to one preferred share purchase right for every
share of Packaging common stock he or she receives in the spin-off. Certificates
evidencing the number of shares of Packaging common stock issued also will
represent the same number of rights issued under the Qualified Offer Rights
Plan. See "Description of Capital Stock -- Anti-takeover Effects of Certain
Provisions -- Qualified Offer Rights Plan." Unless the context otherwise
requires, references in this Information Statement to Packaging's common stock
include the related rights issued under our Qualified Offer Rights Plan.
CORPORATE RESTRUCTURING TRANSACTIONS
Before the spin-off, Tenneco will effect various corporate restructuring
transactions designed to restructure its existing businesses so that, in
general, the assets, liabilities and operations of (a) its packaging business
and administrative services operations will be owned and operated, directly or
indirectly, by us and (b) its automotive business will be owned and operated,
directly and indirectly, by Tenneco and its non-packaging subsidiaries.
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Packaging's assets upon completion of these corporate restructuring
transactions generally will be:
- those related to the conduct of Tenneco's past and current packaging
business and administrative services operations, as reflected on the
unaudited pro forma combined balance sheet of Packaging as of March 31,
1999, see "Unaudited Pro Forma Combined Financial Statements of
Packaging;"
- those assets that were acquired after March 31, 1999 and are of a nature
or type that would have been included on our March 31, 1999 pro forma
balance sheet had they been acquired earlier; and
- all rights expressly allocated to Packaging and its subsidiaries under
the distribution agreement or any of the ancillary agreements.
Automotive's assets upon completion of the corporate restructuring
transactions generally will be:
- all of Tenneco's assets not expressly allocated to us or our subsidiaries
as described above.
Packaging's liabilities generally will include:
- those liabilities related to the packaging assets described above and the
current and past conduct of Tenneco's packaging and administrative
services operations including liabilities reflected on our March 31, 1999
pro forma balance sheet that remain outstanding as of the spin-off date,
plus subsequently incurred or accrued liabilities determined on a basis
consistent with the determination of liabilities on the pro forma balance
sheet;
- liabilities for possible violations of securities laws in connection with
the spin-off; and
- those liabilities expressly allocated to Packaging or its subsidiaries
under the distribution agreement or any ancillary agreement.
Automotive's liabilities generally will include:
- those liabilities related to the automotive assets described above and
the current and past conduct of Tenneco's automotive business, including
liabilities that are reflected on the March 31, 1999 unaudited pro forma
balance sheet of Tenneco that remain outstanding as of the spin-off date,
plus subsequently incurred or accrued liabilities determined on a basis
consistent with the determination of liabilities on that pro forma
balance sheet;
- those liabilities expressly allocated to Automotive or its subsidiaries
under the distribution agreement or any ancillary agreement; and
- all other liabilities of Tenneco or any of its subsidiaries which do not
constitute packaging liabilities.
DEBT REALIGNMENT
After the spin-off, Automotive and Packaging each will, in general, be
responsible for the debts, liabilities and obligations related to the business
or businesses that it owns and operates following completion of the corporate
restructuring transactions. See "-- Corporate Restructuring Transactions."
Tenneco's historical practice, however, has been to incur debt for its
consolidated group at the parent-company level or at a limited number of its
subsidiaries, rather than at the operating-company level, and to manage
centrally various cash functions. Accordingly, the distribution agreement will
provide for the realignment of Tenneco's debt pursuant to a debt realignment
plan.
The specific goal of the debt realignment will be to reach approximately
the relative allocation between Packaging and Automotive of Tenneco's debt at
the time of the spin-off (after giving effect to the repurchase of subsidiary
preferred stock and payment of transaction fees and expenses) that is reflected
in the March 31, 1999 pro forma balance sheets of Packaging and Tenneco that are
included elsewhere in this document. See "Unaudited Pro Forma Combined Financial
Statements of Packaging" and "-- Corporate Restructuring Transactions." These
pro forma balance sheets will also be attached to the distribution agreement as
exhibits. Packaging and Automotive will agree in the distribution agreement to
use their respective reasonable commercial efforts to achieve this relative
allocation.
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If the debt realignment and spin-off had occurred on March 31, 1999, we
would have had pro forma indebtedness for money borrowed of $1.9 billion, after
giving effect to the contribution of our containerboard assets to our
containerboard joint venture and the sale of our folding carton operation. We
intend to use the net proceeds of our planned sale of our containerboard joint
venture interest to retire our debt, although this sale is not part of the debt
realignment. If this sale is completed before the spin-off, the net proceeds
will be used to retire Tenneco debt that otherwise would be allocated to us in
the debt realignment. See "Unaudited Pro Forma Combined Financial Statements of
Packaging."
The debt realignment is expected to be accomplished through some
combination of tender offers, exchange offers, prepayments and other
refinancings. As part of the debt realignment, the following is expected to
occur before the spin-off: (1) Tenneco will offer to purchase for cash
approximately $ million of its public debt (the "Tenneco Debt Tender
Offer"); and (2) Tenneco and its subsidiaries will repay in cash other existing
non-public debt; and (3) Tenneco will repurchase outstanding subsidiary
preferred stock. These payments are expected to be financed by (a) internally
generated cash, (b) borrowings by Automotive under a new credit facility and new
subordinated debt financing to be entered into by Automotive in connection with
the spin-off, and (c) borrowings by Packaging under a new credit facility to be
entered into by Packaging in connection with the spin-off. See "Capitalization
and Financing."
Also before the spin-off, Tenneco expects to make a public offer to
exchange up to $ million of aggregate principal amount of new Packaging debt
for an equal amount of certain Tenneco public debt pursuant to a debt exchange
offer (the "Debt Exchange Offer"). Our debt is expected to have similar
maturities to the Tenneco public debt for which it is being exchanged. Assuming
all of the Tenneco public debt subject to the Debt Exchange Offer is tendered
and accepted for exchange, upon completion of the Debt Exchange Offer we expect
to have approximately $ million aggregate principal amount of public debt
outstanding, bearing interest at a weighted average of approximately % and
with a weighted average maturity of approximately years. The public
offering of our debt in the Debt Exchange Offer is expected to be made by means
of a separate prospectus that constitutes a part of our Registration Statement
on Form S-4 (File No. 333- ) which has been filed with the SEC.
As part of the Tenneco Debt Tender Offer and Debt Exchange Offer, Tenneco
expects to solicit consents from the holders of the Tenneco public debt to
amendments to the indenture under which Tenneco issued its public debt. These
amendments would, among other things, specifically permit Tenneco to consummate
the spin-off without compliance with any covenants contained in the indenture.
Consummation of the Tenneco Debt Tender Offer and Debt Exchange Offer is
conditioned on, among other things, acceptance of the Debt Exchange Offer and
the Tenneco Debt Tender Offer by holders of at least a majority of the aggregate
principal amount of the Tenneco public debt of all series taken together so that
the requested amendments to the indenture are approved.
Accordingly, after giving effect to the debt realignment and the spin-off,
Tenneco (in other words, Automotive) will be responsible for all of Tenneco's
public debt that remains outstanding and any borrowings under the new Automotive
credit facility and subordinated debt financing described above. We will be
responsible for our public debt and any borrowings under our new credit
facility. Completion of the debt realignment is a condition to the obligation of
Tenneco to complete the spin-off, although Tenneco may substitute one or more
different financing transactions for any of the components of the debt
realignment described above.
CONDITIONS TO THE SPIN-OFF
The spin-off is conditioned on, among other things, formal declaration of
the spin-off by the Tenneco board of directors. Other conditions to the spin-off
will include:
- execution and delivery of the ancillary agreements and completion of
various pre-spin-off transactions, such as the corporate restructuring
transactions and the debt realignment;
- a determination to the effect that for federal income tax purposes, (1)
the spin-off will be tax-free to Tenneco and its shareowners under
Section 355(a) and Section 361(c)(1) of the Internal Revenue Code, and
(2) certain internal restructuring transactions involving Tenneco or its
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subsidiaries to be effected pursuant to the corporate restructuring
transactions will also be tax-free (Tenneco has requested a letter ruling
from the IRS);
- approval for listing on the NYSE of our common stock;
- registration of our common stock under the Exchange Act;
- receipt of all material consents to the corporate restructuring
transactions, the spin-off and transactions contemplated in the
distribution agreement; and
- the absence of any prohibition of the spin-off by any law or governmental
authority.
We have requested that the IRS issue a letter ruling which will satisfy the
condition referred to above. Even if all the conditions to the spin-off are
satisfied, Tenneco has reserved the right to, under certain circumstances, amend
or terminate the distribution agreement and the related transactions. The
Tenneco board of directors has not attempted to identify or establish objective
criteria for evaluating the particular types of events or conditions that would
cause the Tenneco board of directors to consider amending or terminating the
spin-off. See "-- Relationship Between Automotive and Packaging After the
Spin-off -- Distribution Agreement." Although the conditions described above may
be waived by Tenneco to the extent permitted by law, the Tenneco board of
directors presently has no intention to proceed with the spin-off unless each of
these conditions is satisfied.
RELATIONSHIP BETWEEN AUTOMOTIVE AND PACKAGING AFTER THE SPIN-OFF
Below are descriptions of the distribution agreement and principal
ancillary agreements that Tenneco and Packaging will enter into in connection
with the spin-off as well as a description of the stock arrangements that will
exist between Automotive and Packaging after the spin-off. These agreements are
intended to facilitate the separation of Tenneco's packaging business from its
automotive business and to facilitate the operation of each of Automotive and
Packaging as separate companies.
Distribution Agreement
In addition to providing for the terms of the spin-off and the various
actions to be taken before the spin-off, the distribution agreement will contain
other provisions governing the relationship between Automotive and Packaging
before and after the spin-off.
Responsibility for Liabilities. The distribution agreement will provide
that after the spin-off date: (a) Automotive will assume, pay, perform and
discharge its allocated liabilities according to their terms, and (b) Packaging
will assume, pay, perform and discharge all its allocated liabilities according
to their terms. See "--Corporate Restructuring Transactions." The distribution
agreement will provide for cross-indemnities so that: (a) Automotive must
indemnify Packaging (and its respective subsidiaries, directors, officers,
employees and agents, and other related parties) against all losses arising out
of or in connection with Automotive's allocated liabilities or the breach of the
distribution agreement or any ancillary agreement by Automotive; and (b)
Packaging must indemnify Automotive (and its respective subsidiaries, directors,
officers, employees and agents, and other related parties) against all losses
arising out of or in connection with Packaging's liabilities or the breach of
the distribution agreement or any ancillary agreement by Packaging.
Further Assurances. Automotive and Packaging have each agreed to use all
reasonable efforts to take or cause to be taken all action reasonably necessary
or advisable to consummate the transactions contemplated by and carry out the
purposes of the distribution agreement.
Information Sharing. The distribution agreement will provide for the
transfer and sharing of books and records between Automotive and Packaging and
grants to each party access to specified information in the other's possession,
subject to confidentiality requirements and legal privilege issues.
Insurance. Before the spin-off, Tenneco will restructure its insurance
programs so that coverage is provided to Automotive and Packaging after the
spin-off separately under two different programs. The
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restructured programs will provide separate coverage for Automotive and
Packaging retroactively to December 1996. The distribution agreement will
provide coverage for Packaging and Automotive for the period before December
1996 through Tenneco's pre-existing policies. Automotive and Packaging will each
be responsible for administering their respective insurance programs after the
spin-off.
Amendment and Termination. Before the spin-off, the distribution agreement
may be amended or terminated by Tenneco in its discretion. After completion of
the spin-off, the distribution agreement may be amended or terminated only by a
written agreement signed by Automotive and Packaging. Some amendments or
terminations after the spin-off also will require the consent of third-party
beneficiaries to the extent that the distribution agreement has expressly
guaranteed them rights.
Intercompany Accounts. According to the distribution agreement, in general
all intercompany receivables, payables and loans between Tenneco's automotive
business, on the one hand, and its packaging business and administration
services operations, on the other hand, that did not arise from ordinary trading
transactions will be settled, capitalized or converted into ordinary trade
obligations as of the close of business on the spin-off date. Further, all
intercompany agreements between these businesses, other than those contemplated
in connection with the spin-off and certain trade supply agreements will be
terminated.
Expenses. Each of Tenneco (that is, Automotive) and Packaging has agreed to
pay the fees, costs and expenses associated with the spin-off that are incurred
by it before the spin-off. Because a majority of these expenses will be incurred
directly by Tenneco, Tenneco will use a portion of the funds borrowed by Tenneco
and Packaging as part of the debt realignment to fund the payments. Accordingly,
the allocation of debt described above under "-- Debt Realignment" includes
additional debt incurred to fund these fees, costs and expenses.
Benefit Plan Ownership of Stock
After the spin-off, a number of benefit plans or trusts maintained by us
will own stock in Automotive. The General Employee Benefit Trust ("GEBT"), which
will fund all U.S. defined benefit pension plans maintained by us will own at
the time of the spin-off approximately 4,100,000 shares of Automotive common
stock. The Packaging thrift plans will own at the time of the spin-off
approximately 3,000,000 shares of Automotive common stock. The Tenneco Inc.
Rabbi Trust (the "Rabbi Trust"), which is designed to assure the payment of
deferred compensation and supplemental pension benefits, will own at the time of
the spin-off approximately 2,900,000 shares of Automotive common stock. We will
succeed to the rights and obligations of Tenneco Inc. under the Rabbi Trust.
Also, the Automotive thrift plan will own some Packaging stock at the time of
the spin-off.
Human Resources Agreement
The human resources agreement to be entered into between Tenneco and
Packaging will govern labor, employment, compensation and benefit matters in
connection with the spin-off. Under the human resources agreement, after the
spin-off date, each of Automotive and Packaging will:
- continue employment of each of their respective retained employees
(subject to their rights to terminate employees) with the same
compensation as before the spin-off date;
- continue to honor all related existing collective bargaining agreements;
- recognize related incumbent labor organizations; and
- continue sponsorship of hourly employee benefit plans.
We will become the sponsor of the Tenneco Inc. Retirement Plan (the "TRP")
and of the Tenneco Inc. Thrift Plan (the "Tenneco Thrift Plan") on the spin-off
date. Automotive will establish a thrift plan similar to the Tenneco thrift plan
to which the account balances of retained and former employees of Automotive in
the Tenneco Thrift Plan will be transferred. The benefits accrued by Automotive
employees in the TRP will be frozen as of the last day of the calendar month
including the spin-off date, and we will
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amend the TRP to provide that all benefits accrued through that day by
Automotive employees are fully vested and non-forfeitable. Automotive will
retain and assume employment contracts with specified individuals related to
Tenneco's automotive business. We will assume all liabilities under the Tenneco
Inc. Supplemental Executive Retirement Plan under the human resources agreement;
provided, however, that Automotive will reimburse us for certain payments we
make under that plan for the benefit of Automotive employees. Generally, each of
Automotive and Packaging will retain liabilities with respect to the welfare
benefits of its current and former employees and their dependents. In addition,
as of the spin-off date, participation by retained and former employees of
Automotive in the Tenneco Inc. Deferred Compensation Plan will be discontinued.
See "Management -- Executive Compensation."
Under the human resources agreement, before the spin-off, Tenneco will
cause all outstanding restricted stock and performance share equivalent unit
awards to become fully earned and vested. Tenneco common stock options held by
Packaging employees will be replaced by options to purchase shares of our common
stock on terms economically equivalent to the old Tenneco options.
Tax Sharing Agreement
The tax sharing agreement to be entered into between Automotive and
Packaging will provide for the allocation of tax liabilities between the parties
arising before, as a result of and after the spin-off. As a general rule,
Automotive will be liable for all taxes not specifically allocated to us under
the terms of the tax sharing agreement. Generally, we will be liable for taxes
imposed exclusively on us and our affiliates engaged in the packaging and
administrative services business (the "Packaging Group"). In the case of U.S.
federal income taxes imposed on the combined activities of Automotive and the
Packaging Group, we will generally be liable to Automotive for federal income
taxes attributable to the activities of the Packaging Group. Liability for
foreign income taxes and non-income taxes will generally be allocated to the
legal entity on which the taxes are imposed. In the case of state income taxes
imposed on the combined activities of the business groups, we will generally be
liable for the tax that would be imposed if the Packaging Group had filed
combined returns for its group.
In general, and except as provided below, any taxes imposed on or resulting
from any or all of the spin-off, the corporate restructuring transactions and
the debt realignment ("transaction taxes") shall be the responsibility of the
legal entity on which the taxes are imposed. However, if any transaction taxes
arise due to any action taken or permitted by Automotive or Packaging that is
inconsistent with any representations or warranties made in connection with the
IRS letter ruling request by Tenneco in connection with the spin-off, that
entity (Automotive or Packaging) will be responsible for the resulting tax
liability. Additionally, if any transaction taxes arise under Section 355(e) of
the Internal Revenue Code of 1986, as amended (the "Code"), as a result of a 50%
Ownership Shift (as defined in the section below titled "-- U.S. Federal Income
Tax Aspects of the Spin-off"), then the resulting corporate tax burden will be
borne by the entity (Automotive or Packaging) that experienced the 50% Ownership
Shift. Any income tax liability that results from the spin-off, corporate
restructuring transactions or debt realignment, but which is not due to either a
50% Ownership Shift or an action that is inconsistent with the tax treatment
contemplated in the IRS letter ruling request will be shared equally by
Automotive and Packaging.
Each of Automotive and Packaging will covenant and agree not to take or
permit certain actions inconsistent or partially inconsistent with the IRS
letter ruling request on or before the period ending two calendar years from the
date of the spin-off, unless the action has been consented to by the other.
These agreements could restrict the ability of Automotive or Packaging to engage
in certain corporate transactions, redeem stock, dispose of assets except in the
ordinary course of business, or be the target of an acquisition transaction
during that period.
Transition Services Agreement
Tenneco's administrative services operations currently provide a number of
services to Tenneco's operating units. These services include (a) financial
accounting services; (b) employee benefits
22
<PAGE> 32
administration for all major salaried and hourly benefit plans; (c) human
resources and payroll services; (d) mainframes and distributed systems
operations; (e) telecommunications and network operations and management; (f)
help desk support; and (g) disaster recovery support. When the spin-off is
complete, Tenneco's administrative services operations will be a part of
Packaging. Accordingly, Automotive and Packaging will enter into a transition
services agreement under which Packaging will continue to provide Automotive
with specified administrative services for an initial period of years
beginning on the date of the spin-off. After the initial year period,
Automotive may elect to have Packaging continue to provide specified services
for up to additional -year periods at a price to be negotiated by the
parties. During any extension, Automotive may discontinue using and paying for
any or all of the services on 120 days notice to Packaging. Because Automotive
will retain a portion of the administrative support for Tenneco's European
operations, however, Automotive will also agree to provide Packaging with
specified administrative services for its European operations for an initial
period of six months beginning on the date of the spin-off. After the initial
six-month period, Packaging may elect to have Automotive continue to provide
specified services for up to six additional months on a month to month basis.
The price for all services will be negotiated between the parties and be based
on the full cost for the services.
Trademark License Agreement
After the spin-off, we, or one of our subsidiaries, will hold the rights to
various trademarks, servicemarks, tradenames and similar intellectual property,
including rights in the marks "Tenneco," "Ten" and "Tenn" alone and in
combination with other terms and/or symbols (collectively, the "Trademarks"), in
the United States and throughout the world. In connection with the spin-off,
Automotive will enter into a trademark license agreement. Under this agreement,
we, or one of our subsidiaries, will grant to Automotive a perpetual, exclusive,
royalty-free license to use the Trademarks with respect to automotive
businesses, subject to quality standards and other conditions.
Directors
When the spin-off is completed, Packaging and Automotive will share four
common directors, Dana G. Mead, Paul T. Stecko, Mark Andrews and Roger B.
Porter. Each company will adopt policies and procedures for its board of
directors to limit the involvement of Messrs. Mead, Stecko, Andrews and Porter
in situations that could give rise to potential conflicts of interest, including
requesting them to abstain from voting as a director of either Packaging or
Automotive on matters which present a conflict of interest between the
companies. We believe that the number of these conflict situations will be
minimal.
TRADING OF PACKAGING COMMON STOCK
See "Risk Factors" for a discussion of certain considerations relating to
the market for and trading prices of our common stock following the spin-off.
A regular public market for our common stock has not existed prior to the
date of this Information Statement. Shares of our common stock have been
approved for listing on the NYSE under the symbol " ," and "regular" trading
will begin on the first business day after the spin-off date. In addition, we
expect that "when-issued" trading for our common stock will develop on or about
the record date and continue through the spin-off date. "When-issued" trading
means that shares are traded prior to the time stock certificates are actually
available or issued. None of these trades, however, will settle until after the
spin-off date, when regular trading in our common stock has begun. If the
spin-off does not occur, all when-issued trading will be null and void.
Tenneco expects that its common stock will continue to trade on a regular
basis through and after the spin-off date, but the symbol under which it trades
will change from "TEN" to " " after the spin-off. Any shares of common stock
of Tenneco sold between the record date and the spin-off date will be
accompanied by a due bill attached representing our common stock to be
distributed in the spin-off. In addition, between the record date and the
spin-off date, the common stock of Tenneco may also trade on a when-issued
basis, reflecting an assumed post-distribution value for Tenneco common stock.
23
<PAGE> 33
Shares of our common stock received by Tenneco shareowners in connection
with the spin-off will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of Packaging under the Securities
Act of 1933, as amended. Persons who are affiliates of Packaging will be
permitted to sell their shares of our common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act. There would not, however, be
any 90-day waiting period before sales could be made by affiliates under Rule
144 of the Securities Act, as long as the other provisions of Rule 144 are met.
U.S. FEDERAL INCOME TAX ASPECTS OF THE SPIN-OFF
General
The following is a summary description of the material federal income tax
aspects of the spin-off. This summary is for general informational purposes only
and is not intended as a complete description of all of the tax consequences of
the spin-off or the other transactions contemplated in connection with the
spin-off and does not discuss tax consequences under the laws of state, local or
foreign governments or any other jurisdiction. Moreover, the tax treatment of a
shareowner may vary, depending upon his, her or its particular situation. In
this regard, certain shareowners (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign trusts or estates, as defined for United States
federal income tax purposes, shareowners that hold shares as part of a position
in a "straddle" or as part of a "hedging" or "conversion" transaction for United
States federal income tax purposes and shareowners with a "functional currency"
other than the United States dollar) may be subject to special rules not
discussed below. In addition, this summary applies only to shares which are held
as capital assets. The following discussion may not be applicable to a
shareowner who acquired his, her or its shares pursuant to the exercise of stock
options or otherwise as compensation.
The following discussion is based on currently existing provisions of the
Code, existing, proposed and temporary treasury regulations thereunder and
current administrative rulings and court decisions. All of the foregoing are
subject to change, which may or may not be retroactive, and any such changes
could affect the validity of the following discussion.
Each shareowner is urged to consult his, her or its own tax advisor as to
the particular tax consequences to him, her or it of the spin-off described
herein, including the applicability and effect of any state, local or foreign
tax laws, and the possible effects of changes of applicable tax laws.
Tax Ruling
Tenneco has requested that the IRS issue a letter ruling to the effect,
among other things, that:
- no gain or loss will be recognized by (and no amount will otherwise be
included in the income of) any holder of Tenneco common stock as a
result of the spin-off;
- the aggregate basis of the Automotive common stock (after giving effect
to the spin-off) and the Packaging common stock in the hands of each
holder of Automotive common stock will be the same as the basis of the
Tenneco common stock held by such holder immediately before the spin-
off, allocated in proportion to the fair market value of the Tenneco
common stock (after giving effect to the spin-off) and the Packaging
common stock on the spin-off date;
- the holding period of the Packaging common stock received in the
spin-off by each holder of Tenneco's common stock will include the
period during which such holder held Tenneco common stock with respect
to which the distribution of Packaging common stock is made, provided
that the Tenneco common stock is held as a capital asset by such holder
on the spin-off date; and
- no gain or loss will be recognized by Tenneco on its distribution of
Packaging common stock to its shareowners.
A letter ruling from the IRS, while generally binding on the IRS, may under
certain circumstances be retroactively revoked or modified by the IRS. The
rulings obtained from the IRS are based on certain facts, representations and
assumptions. Generally, an IRS letter ruling would not be revoked or modified
24
<PAGE> 34
retroactively provided that there has been no misstatement or omission of
material facts, the facts at the time of the transaction are not materially
different from the facts upon which the IRS letter ruling was based and there
has been no change in the applicable law. We are not aware of any facts or
circumstances that would cause the representations and assumptions to be untrue
or incomplete in any material respect. Automotive and Packaging will agree to
certain restrictions on their further actions to help preserve the tax-free
nature of the spin-off. See "-- Relationship Between Automotive and Packaging
After the Spin-off."
The Spin-off
We expect that the spin-off will qualify as a tax-free distribution under
Section 355 of the Code. Assuming that the spin-off so qualifies:
- the holders of Tenneco common stock will not recognize gain or loss upon
receipt of shares of Packaging common stock;
- each holder of Tenneco common stock will allocate his, her or its
aggregate tax basis in the Tenneco common stock immediately before the
spin-off among Tenneco common stock (after giving effect to the
spin-off) and Packaging common stock in proportion to their respective
fair market values on the spin-off date;
- the holding period of each holder of Tenneco common stock for Packaging
common stock will include the holding period for his, her or its Tenneco
common stock, provided that Tenneco common stock is held as a capital
asset at the time of the spin-off; and
- Tenneco will not recognize any gain or loss on its distribution of
Packaging common stock to its shareowners.
If the spin-off were not to qualify as a tax-free distribution under
Section 355 of the Code, then in general a corporate level federal income tax
would be payable by the consolidated group of which Tenneco is the common
parent, which tax would be based upon the gain (computed as the difference
between the fair market value of the Packaging common stock and Tenneco's
adjusted basis in such stock) realized by Tenneco upon its distribution of the
Packaging common stock to its shareowners in the spin-off. If Tenneco were to
recognize gain on the spin-off, such gain and the resulting tax liability likely
would be very substantial.
Furthermore, if the spin-off were not to qualify as a tax-free distribution
under Section 355 of the Code, then each holder of Tenneco common stock who
receives shares of Packaging common stock in the spin-off would be treated as if
such shareowner received a taxable distribution in an amount equal to the fair
market value of Packaging common stock received, which would result in: (a) a
dividend to the extent paid out of Tenneco's current and accumulated earnings
and profits; then (b) a reduction in such shareowner's basis in Tenneco's common
stock to the extent the amount received exceeds the amount referenced in clause
(a); and then (c) gain from the sale or exchange of Tenneco common stock to the
extent the amount received exceeds the sum of the amounts referenced in clauses
(a) and (b). Each shareowner's basis in his, her or its Packaging common stock
would be equal to the fair market value of such stock at the time of the
spin-off.
Section 355(e) of the Code, which was enacted in 1997, generally provides
that a company that distributes shares of a subsidiary in a spin-off that is
otherwise tax-free will incur federal income tax liability if 50% or more, by
vote or value, of the capital stock of either the company making the
distribution or the spun-off subsidiary is acquired (a "50% Ownership Shift") by
one person or more than one person acting together pursuant to a plan or series
of related transactions that includes the spin-off. This provision can be
triggered by certain reorganizations involving the acquisition of the assets of
the company making the distribution or the spun-off subsidiary. There is a
presumption that any 50% ownership shift that occurs within two years before or
after the spin-off is pursuant to a plan that includes the spin-off. However,
the presumption may be rebutted by establishing that the spin-off and the
acquisitions are not part of a plan or series of related transactions. Among the
representations made by Tenneco and Packaging to the IRS in connection with the
request for the IRS letter ruling is the representation that the spin-off is not
part of such a plan or series of related transactions. If Automotive or
25
<PAGE> 35
Packaging were to undergo a 50% Ownership Shift, particularly if it occurred
within two years after the spin-off date, there can be no assurance that the IRS
would not assert that the ownership shift occurred pursuant to a plan or series
of related transactions and therefore that the spin-off is taxable under Code
Section 355(e).
If the spin-off is taxable solely under Code Section 355(e), Tenneco will
recognize gain equal to the difference between the fair market value of
Packaging's common stock and Tenneco's adjusted tax basis in that stock.
However, holders of Tenneco common stock would not recognize gain or loss as a
result of the spin-off. If Tenneco were to recognize gain in the spin-off, that
gain and the resulting tax liability likely would be very substantial.
The tax sharing agreement to be entered into between Packaging and
Automotive will allocate responsibility for the possible corporate tax burden
resulting from the spin-off. In the event the spin-off is taxable under Code
Section 355(e) as a result of a 50% Ownership Shift, then the resulting
corporate tax burden will be borne by that entity (Automotive or Packaging) with
respect to which the 50% Ownership Shift has occurred. Similarly, if the
spin-off is taxable due to any other action taken or permitted by Tenneco or
Packaging that is inconsistent with the factual representations or assumptions
on which the IRS letter ruling is based, that entity (Automotive or Packaging)
will be responsible for the resulting tax liability. Any income tax liability
that results from the spin-off, but which is not due to either a 50% Ownership
Shift or any action taken or permitted by either company that is inconsistent
with the IRS letter ruling, will be shared equally by Automotive and Packaging.
Current Treasury regulations require each holder of Tenneco common stock
who receives Packaging common stock pursuant to the spin-off to attach to his,
her or its federal income tax return for the year in which the spin-off occurs a
detailed statement setting forth such information as may be appropriate in order
to show the applicability of Code Section 355(a) to the spin-off. Automotive
will convey the appropriate information to each holder of record of Tenneco
common stock as of the record date.
Back-up Withholding Requirements
United States information reporting requirements and backup withholding at
the rate of 31% may apply with respect to dividends paid on, and proceeds from
the taxable sale, exchange or other disposition of, Packaging common stock
unless the shareowner: (a) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates these facts; or (b) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A shareowner who does not supply Packaging with
his, her or its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
creditable against the shareowner's federal income tax liability. Shareowners
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption. If
information reporting requirements apply to a shareowner, the amount of
dividends paid with respect to such shares will be reported annually to the IRS
and to such shareowner.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Tenneco and Packaging
solely to provide information to Tenneco shareowners who will receive Packaging
common stock in the spin-off. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of Tenneco or
Packaging. The information contained in this Information Statement is believed
by Tenneco and Packaging to be accurate as of the date set forth on its cover.
Changes may occur after that date, and neither Packaging nor Tenneco will update
the information except in the normal course of their respective public
disclosure practices.
26
<PAGE> 36
CAPITALIZATION AND FINANCING
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
Packaging as of March 31, 1999, and unaudited pro forma capitalization of
Packaging as of March 31, 1999 after giving effect to the contribution of
Packaging's containerboard assets to a new joint venture, the sale of
Packaging's folding carton assets, the debt realignment and the spin-off and
related transactions, each as if they occurred on that date. The pro forma
capitalization reflects debt allocated to Packaging in the debt realignment
before application of any proceeds from Packaging's planned sale of its
remaining interest in its containerboard joint venture. You should read this
table in conjunction with the "Combined Financial Statements of The Businesses
of Tenneco Packaging" and related notes, the "Unaudited Pro Forma Combined
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Packaging, each contained elsewhere in
this document.
<TABLE>
<CAPTION>
PACKAGING
------------------------
MARCH 31, 1999
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Allocated from Tenneco.................................... $ 713(a) $ --
Borrowings under new Packaging credit facility............ -- 878
Other..................................................... 11 11
------ ------
724 889(b)
------ ------
Long-term debt:
Allocated from Tenneco.................................... 1,317(a) --
New securities............................................ -- 980(c)
Other..................................................... 20 20
------ ------
1,337 1,000(b)
------ ------
Total debt before allocation to discontinued operations... 2,061 1,889
Debt allocated to discontinued operations................. 487(a) --
------ ------
Total debt.................................................. 2,548 1,889(b)
------ ------
Minority Interest........................................... 14 14
------ ------
Common stock................................................ -- 2
Paid-in capital............................................. -- 1,446
Retained earnings........................................... -- --
Combined equity............................................. 1,470 --
------ ------
Total equity......................................... 1,470 1,448
------ ------
Total capitalization........................................ $4,032 $3,351
====== ======
</TABLE>
- -------------------------
(a) Represents debt allocated to Packaging from Tenneco based on the portion of
Tenneco's investment in Packaging which Tenneco deemed to be debt. This
allocation is generally based on the ratio of Packaging's net assets to
Tenneco's consolidated net assets plus debt. Tenneco's historical practice
has been to incur debt 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 is reasonable.
This historical allocation, however, is not indicative of the total amount
of debt that Packaging will have upon completion of the debt realignment or
of the debt that may be incurred by Packaging as a separate public entity.
(b) Represents debt allocated to Packaging in the debt realignment before
application of any proceeds from Packaging's planned sale of its remaining
interest in its containerboard joint venture. Packaging expects the sale to
be completed before the spin-off, with the net proceeds used to retire the
Tenneco debt that would otherwise be allocated to Packaging in the debt
realignment. If the sale occurs after the spin-off, the net proceeds will be
used to retire Packaging debt.
(c) Represents the $ million aggregate principal amount of new securities
assumed to be exchanged pursuant to the exchange offers, which will be
recorded based on the net carrying amount of the original securities upon
consummation of the exchange offers. At this time, Packaging and Tenneco
cannot determine the ultimate amount of original securities that will be
exchanged, and that amount could vary significantly. The pro forma
capitalization assumes that 100% of the original securities are exchanged
for new securities in the exchange offers.
27
<PAGE> 37
FINANCING
In connection with the spin-off, we intend to enter into a revolving credit
facility which will allow us to borrow money, repay the borrowings, and borrow
again up to the maximum amount of the facility. We expect that a syndicate of
banks will commit to provide up to $ million of financing for the revolving
credit facility on an unsecured basis. Bank of America will arrange the facility
with the bank syndicate and will act as administrative agent for the banks. We
expect that the credit facility will terminate in .
We plan to make our initial borrowings under the credit facility shortly
before the spin-off. See "Unaudited Pro Forma Combined Financial Information"
for a description of how we intend to use the proceeds of the initial
borrowings. Tenneco and Packaging intend to use the proceeds of these initial
borrowings to fund a portion of Tenneco's debt realignment. See "The
Spin-off -- Debt Realignment." After the spin-off, additional borrowings may be
used for general corporate purposes.
Packaging expects borrowings under the revolving credit facility will bear
interest at . The credit facility will contain customary representations
and warranties. It also will include typical covenants and default provisions,
including .
Also, in connection with the debt realignment, Tenneco expects to offer to
exchange up to [$ ] million of aggregate principal amount of Tenneco public
debt for an equal amount of our public debt pursuant to the debt exchange offer.
Our public debt is expected to have similar maturities to the Tenneco public
debt for which it is being exchanged. Assuming all of the Tenneco public debt
subject to the debt exchange offer is tendered and accepted for exchange, we
will have [$ ] million aggregate principal amount of public debt outstanding
bearing interest at a weighted average of approximately [ %] and with a
weighted average maturity of approximately [ ] years.
28
<PAGE> 38
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF PACKAGING
The following Unaudited Pro Forma Combined Balance Sheet of Packaging as of
March 31, 1999, and the Unaudited Pro Forma Combined Statements of Income for
the three months ended March 31, 1999 and the year ended December 31, 1998,
reflect the effects of:
- the contribution of Packaging's containerboard assets to a new joint
venture and the sale of Packaging's folding carton assets (collectively,
the "Paperboard Transactions");
- the debt realignment; and
- the spin-off of Packaging and related transactions.
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if
these transactions occurred on March 31, 1999; the Unaudited Pro Forma Combined
Statements of Income have been prepared as if these transactions occurred as of
January 1, 1998. The Unaudited Pro Forma Combined Financial Statements are not
necessarily indicative of the results that would have actually occurred if these
transactions had been consummated as of March 31, 1999 or January 1, 1998, or
results which may be attained in the future.
The Unaudited Pro Forma Combined Financial Statements were derived from the
historical Combined Financial Statements of The Businesses of Tenneco Packaging
included elsewhere in this document. Net assets included in these historical
financial statements that are not already owned directly or indirectly by us
will be transferred to us before the spin-off as part of the corporate
restructuring transactions. The accounting for the transfer of assets and
liabilities pursuant to the corporate restructuring transactions represents a
reorganization of companies under common control and, accordingly, all assets
and liabilities are reflected at their historical cost in our historical
combined financial statements.
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. Our pro forma
debt and interest expense balances do not give effect to the application of any
proceeds from the planned sale of our remaining interest in our containerboard
joint venture. We expect the sale to be completed before the spin-off, with the
net proceeds used to retire the Tenneco debt that would otherwise be allocated
to us in the debt realignment. If the sale occurs after the spin-off, the net
proceeds will be used to retire our debt. You should also read the Unaudited Pro
Forma Combined Financial Statements in conjunction with the Combined Financial
Statements of The Businesses of Tenneco Packaging, and related notes, included
elsewhere in this document.
29
<PAGE> 39
PACKAGING
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------
SPIN-OFF PACKAGING
PACKAGING PAPERBOARD DEBT AND RELATED PRO FORMA
HISTORICAL TRANSACTIONS REALIGNMENT TRANSACTIONS COMBINED
ASSETS ---------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and temporary cash
investments..................................... $ 7 $ 781(a) $ -- $ -- $ 7
(781)(a)
73(b)
(73)(b)
Receivables....................................... 385 -- -- 88(d) 473
Inventories....................................... 440 -- -- -- 440
Prepayments and other............................. 49 -- -- -- 49
------ ------ ------ ------- ------
Total current assets.......................... 881 -- -- 88 969
Plant, property, and equipment, net................. 1,495 -- -- -- 1,495
Goodwill and intangibles, net....................... 1,034 -- -- -- 1,034
Other assets and deferred charges................... 889 -- 19(c) 85(h) 993
Net assets of discontinued
operations........................................ 372 (359)(a) -- -- 194
194(a)
(13)(b)
------ ------ ------ ------- ------
Total assets.................................. $4,671 $ (178) $ 19 $ 173 $4,685
====== ====== ====== ======= ======
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt................................... $ 724 $ -- $ 165(c) $ -- $ 889(f)
Trade payables.................................... 282 -- -- -- 282
Other current liabilities......................... 378 15(b) -- -- 393
------ ------ ------ ------- ------
Total current liabilities..................... 1,384 15 165 -- 1,564
Long-term debt...................................... 1,337 482 (819)(c) -- 1,000(f)
Deferred income taxes............................... 263 159(a) -- 34(h) 456
Other liabilities and deferred credits.............. 203 -- -- -- 203
Minority interest................................... 14 -- -- -- 14
Equity:
Combined equity................................... 1,470 (73)(b) 673(c) 88(d) --
20(b) 51(h)
(781)(a) (1,448)(e)
Common stock...................................... -- -- -- 2(e) 2
Paid-in capital................................... -- -- -- 1,446(e) 1,446
Retained earnings................................. -- -- -- --(e) --
------ ------ ------ ------- ------
Total liabilities and equity.................. $4,671 $ (178) $ 19 $ 173 $4,685
====== ====== ====== ======= ======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
30
<PAGE> 40
PACKAGING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
SPIN-OFF PACKAGING
PACKAGING DEBT AND RELATED PRO FORMA
HISTORICAL REALIGNMENT TRANSACTIONS COMBINED
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues.......... $ 666 $-- $-- $ 666
Other income, net......................... (15) -- -- (15)
------------ --- --- ------------
651 -- -- 651
------------ --- --- ------------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below)........................... 444 -- -- 444
Engineering, research, and development.... 7 -- -- 7
Selling, general, and administrative...... 107 -- (1)(h) 106
Depreciation and amortization............. 48 -- -- 48
------------ --- --- ------------
606 -- (1) 605
------------ --- --- ------------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST.............. 45 -- 1 46(j)
Interest expense............................ 36 (3)(g) -- 33(f)
Income tax expense.......................... 3 1(i) -- 4
Minority interest........................... -- -- -- --
------------ --- --- ------------
INCOME FROM CONTINUING OPERATIONS........... $ 6 $ 2 $ 1 $ 9(f)
============ === === ============
EARNINGS PER SHARE
Average shares of common stock --
Basic................................ 166,743,506 166,743,506
Diluted.............................. 167,180,597 167,180,597
Income from continuing operations
Basic................................ $ 0.03 $ 0.05
Diluted.............................. $ 0.03 $ 0.05
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
31
<PAGE> 41
PACKAGING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------
SPIN-OFF PACKAGING
PACKAGING DEBT AND RELATED PRO FORMA
HISTORICAL REALIGNMENT TRANSACTIONS COMBINED
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues.... $ 2,791 $ -- $ -- $ 2,791
Other income, net................... (3) -- -- (3)
------------ ---- ---- ------------
2,788 -- -- 2,788
------------ ---- ---- ------------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)........ 1,870 -- -- 1,870
Engineering, research, and
development...................... 33 -- -- 33
Selling, general, and
administrative................... 427 -- (5)(h) 422
Depreciation and amortization....... 175 -- -- 175
------------ ---- ---- ------------
2,505 -- (5) 2,500
------------ ---- ---- ------------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST........ 283 -- 5 288(j)
Interest expense...................... 133 --(g) -- 133
Income tax expense.................... 67 -- 2(i) 69
Minority interest..................... 1 -- -- 1
------------ ---- ---- ------------
INCOME FROM CONTINUING OPERATIONS..... $ 82 $ -- $ 3 $ 85
============ ==== ==== ============
EARNINGS PER SHARE
Average shares of common stock --
Basic.......................... 168,505,573 168,505,573
Diluted........................ 168,834,531 168,834,531
Income from continuing operations --
Basic.......................... $ 0.49 $ 0.50
Diluted........................ $ 0.49 $ 0.50
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
32
<PAGE> 42
PACKAGING
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(a) To reflect the contribution of Packaging's containerboard assets to a new
joint venture in exchange for cash and debt assumption totaling
approximately $2 billion plus a 45 percent common equity interest in the
joint venture (now 43 percent due to subsequent management equity
issuances). Before the transaction, Packaging: (1) borrowed $1,760 million
and used a portion of those borrowings to acquire assets used by the
containerboard business under operating leases and timber cutting rights
($1,108 million) and to purchase containerboard business accounts receivable
that had previously been sold to a third party ($118 million); and (2)
contributed the containerboard business assets (including those acquired as
described in (1) above) to the joint venture subject to the new indebtedness
and the containerboard business liabilities in exchange for $247 million in
cash and an interest in the joint venture valued at $194 million. Cash
proceeds received by Packaging totaled $781 million, consisting of the $247
million cash payment above and $534 million of proceeds remaining from the
new borrowings after the acquisition of the assets described in (1) above.
The proceeds were remitted to Tenneco and used to repay a portion of
Tenneco's short-term debt. The contribution and assumption of liabilities is
subject to a post-closing adjustment based on the net working capital of the
containerboard business as of the contribution date.
(b) To reflect the sale of the folding carton assets and the remittance of the
proceeds from the sale to Tenneco. Tenneco used the net proceeds to repay a
portion of its short-term debt.
(c) To reflect debt allocated to Packaging in the debt realignment. Pro forma
long-term debt includes $980 million of new securities ($ million
aggregate principal amount) assumed to be exchanged in the exchange offers,
and $20 million of long-term debt of Packaging subsidiaries. Pro forma
short-term debt includes $878 million borrowed under Packaging's new credit
facility to be entered into as part of this debt realignment. At this time,
Packaging and Tenneco cannot determine the ultimate amount of the original
securities which will be exchanged into new securities, and this amount
could vary significantly. These pro forma adjustments assume that 100% of
the original securities subject to the exchange offers will be exchanged for
new securities and the new securities will be recorded at the net carrying
amount of the original securities. Other costs will be incurred by Packaging
in connection with the corporate restructuring transactions and the spin-off
which Packaging estimates will be approximately $20 million after-tax. The
effects on Packaging's debt of these costs has been reflected in this pro
forma adjustment. However, these charges have not been included in the
unaudited pro forma combined statement of income.
(d) To reflect the purchase of Packaging accounts receivable at fair value which
had previously been sold to a third party.
(e) To reflect the spin-off of Packaging common stock to holders of Tenneco
common stock at an exchange ratio of one share of Packaging common stock for
each share of Tenneco common stock.
(f) The Packaging pro forma debt balances do not give effect to the application
of any proceeds from the planned sale of Packaging's remaining interest in
Packaging's containerboard joint venture. Packaging expects the sale to be
completed before the spin-off, with the proceeds used to repay the Tenneco
debt that would otherwise be allocated to Packaging in the debt realignment.
If the sale occurs after the spin-off, the net proceeds will be used to
retire Packaging debt. For each $50 million of after-tax proceeds received
from the sale, pro forma interest expense would be reduced by approximately
$3 million on an annual basis and pro forma income from continuing
operations would be increased by approximately $2 million on an annual
basis, or $0.01 per diluted common share.
(g) To reflect the adjustment to interest expense from the allocation of Tenneco
debt to Packaging in the debt realignment. For purposes of this pro forma
adjustment, the new securities and Packaging's new credit facility to be
entered into as part of the debt realignment are assumed to bear interest at
a weighted average annual effective interest rate of 7 3/4% and 6 1/4%,
respectively. In addition, the pro forma adjustment to interest expense
includes commitment fees on the unused borrowing capacity of
33
<PAGE> 43
PACKAGING
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Packaging's new credit facility and amortization of the deferred debt
financing costs related to the original securities and Packaging's new
credit facility. A 1/8% change in the assumed interest rates would change
annual pro forma interest expense by approximately $3 million, before the
effect of income taxes.
(h) To reflect the transfer to Packaging of prepaid pension costs attributable
to Automotive employees and the corresponding reduction in net periodic
pension costs and the increase in prepaid pension cost attributable to the
curtailment of the pension benefits related to Automotive employees.
Automotive employees will no longer participate in the Tenneco Inc.
Retirement Plan following the spin-off and Packaging will become the sponsor
of this plan. These prepaid pension costs will be transferred to Packaging
in connection with the corporate restructuring transactions. Packaging
estimates that a curtailment gain of approximately $30 million will be
recognized relating to the freezing of Automotive employees' pension
benefits in connection with the spin-off. This gain has not been included in
the unaudited pro forma combined statements of income.
(i) To reflect the income tax expense effects of pro forma adjustments at an
assumed statutory tax rate of 40%.
34
<PAGE> 44
SUPPLEMENTAL COMBINED FINANCIAL DATA
RESULTS OF OPERATIONS
Packaging's historical and pro forma earnings before interest expense,
income taxes and minority interest ("EBIT") include certain costs which Tenneco
incurred at the corporate level but did not allocate to its operating divisions.
These included administrative services costs, corporate overhead costs, and
other costs related to Tenneco's operation as a public company. Packaging
believes that costs incurred following the spin-off will differ from those costs
reflected in its historical combined statements of income. The following
adjustments do not qualify as pro forma adjustments under Article 11 of
Regulation S-X. However, Packaging believes this analysis is important in
understanding Packaging's results of operations following the spin-off.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
(MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro forma EBIT......................................... $288 $ 46
Adjustments:
Incremental billing to Automotive for administrative
services(a)....................................... 28 7
Non-recurring restructuring charge(b)................ 32 29
Tenneco corporate overhead reductions and cost
savings from restructuring(c)..................... 25 5
---- -----
Adjusted pro forma EBIT................................ 373 87
Depreciation and amortization.......................... 175 48
---- -----
Adjusted pro forma EBITDA(d)........................... $548 $ 135
==== =====
Adjusted pro forma earnings from continuing operations
per share --
Basic................................................ $.80 $ .20
==== =====
Diluted.............................................. $.80 $ .20
==== =====
</TABLE>
(a) Packaging's historical combined financial statements include costs
associated with Tenneco's administrative services operations.
Although the Tenneco administrative services operations currently
provide a number of services to Tenneco's operating units, some of
these corporate level costs were not previously allocated to
Tenneco's operating segments. Packaging and Tenneco (that is
Automotive) will enter into a transition services agreement under
which Packaging will continue to provide Automotive with specified
administrative services for an initial period of [ ] years
beginning on the date of the spin-off. Although the price for all
services has not yet been negotiated between the parties, Packaging
estimates that it would have billed Automotive an additional $28
million for services rendered in 1998 based on the full cost for
providing the services.
(b) During 1998 and the first quarter of 1999, Packaging adopted
restructuring plans to eliminate production lines at two plants,
exit four joint ventures and reduce costs associated with
Packaging's businesses and corporate functions. Charges of $32
million and $29 million were recorded in the fourth quarter 1998 and
first quarter 1999, respectively, for severance benefits, exit
costs, and asset impairments. These charges are reflected in
Packaging's historical combined operating income. Packaging believes
these charges should be added back in analyzing recurring EBIT.
(c) Packaging's historical combined financial statements also include
certain costs incurred by Tenneco related to corporate functions,
including public company costs and costs resulting from Tenneco's
holding company structure which were not previously allocated to
Tenneco's operating segments. On an annualized basis, Packaging
currently estimates that stand-alone corporate overhead costs will
be approximately $12 million less than those reflected in the
historical combined financial statements resulting from a smaller
and less complex corporate
35
<PAGE> 45
structure. Also, the restructuring described in footnote (2) above
is expected to result in reduced cost of sales and selling, general,
and administrative expenses.
(d) EBITDA represents income from continuing operations before interest
expense, income taxes, minority interest and depreciation and
amortization. EBITDA is not a calculation based upon GAAP. The
amounts included in this EBITDA calculation, however, are derived
from amounts included in the Unaudited Pro Forma Combined Statements
of Income, adjusted for the items listed above. EBITDA should not be
considered as an alternative to income from continuing operations as
an indicator of the operating performance of Packaging, or as an
alternative to operating cash flows as a measure of liquidity.
Packaging has reported EBITDA because it believes EBITDA is a
measure commonly reported and widely used by investors and other
interested parties as an indicator of a company's ability to incur
and service debt. Packaging believes EBITDA assists investors in
comparing a company's performance on a consistent basis without
regard to depreciation and amortization, which can vary
significantly depending upon accounting methods (particularly when
acquisitions are involved) or nonoperating factors. However, the
EBITDA measure presented in this document may not always be
comparable to similarly titled measures reported by other companies
due to differences in the components of the calculation.
We believe that opportunities exist to reduce the costs associated with our
administrative services operations and corporate overhead expenses. We are
formulating plans designed to achieve these cost reductions over the next two
years.
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of
Packaging as of March 31, 1999 after giving effect to the contribution of
Packaging's containerboard assets to a new joint venture, the sale of
Packaging's folding carton assets, the debt realignment and the spin-off and
related transactions, each as if they occurred on that date. The pro forma
capitalization reflects Tenneco's debt allocated to Packaging in the debt
realignment before application of any proceeds from Packaging's planned sale of
its remaining interest in its containerboard joint venture.
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
PRO FORMA
(IN MILLIONS)
<S> <C>
Short-term debt:
Borrowings under new Packaging credit facility............ $ 878
Other..................................................... 11
------
889(a)
------
Long-term debt:
New securities............................................ 980
Other..................................................... 20
------
1,000(a)
------
Total debt.................................................. 1,889
------
Minority interest........................................... 14
------
Common stock................................................ 2
Paid-in capital............................................. 1,446
Retained earnings........................................... --
------
Total equity......................................... 1,448
------
Total capitalization........................................ $3,351
======
</TABLE>
- -------------------------
(a) Represents debt allocated to Packaging in the debt realignment before
application of any proceeds from Packaging's planned sale of its remaining
interest in its containerboard joint venture. Packaging expects the sale to
be completed before the spin-off, with the net proceeds used to retire the
Tenneco debt that would otherwise be allocated to Packaging in the debt
realignment. If the sale occurs after the spin-off, the net proceeds will be
used to retire Packaging debt.
36
<PAGE> 46
COMBINED SELECTED FINANCIAL DATA
The following combined selected financial data as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997, and 1996, were derived
from the audited Combined Financial Statements of The Businesses of Tenneco
Packaging. The following combined selected financial data as of December 31,
1996, 1995, and 1994, and for the years ended December 31, 1995 and 1994, are
unaudited and were derived from Tenneco's accounting records. The following
combined selected financial data as of and for each of the three months ended
March 31, 1999 and 1998 were derived from the unaudited Combined Financial
Statements of The Businesses of Tenneco Packaging.
In the opinion of Packaging's management, the combined selected financial
data of Packaging as of December 31, 1996, 1995, and 1994, and for the years
ended December 31, 1995 and 1994, and as of and for the three months ended March
31, 1999 and 1998, include all adjusting entries, consisting only of normal
recurring adjustments, necessary to present fairly the information set forth.
You should not regard the results of operations for the three months ended March
31, 1999 as indicative of the results that may be expected for the full year.
There is other information Packaging believes is relevant to understanding
its results of operations following the spin-off. These items relate to
corporate overhead incurred by Tenneco and its administrative services
operations that Packaging expects will differ following the spin-off. For
further information you should see "Supplemental Combined Financial Data"
included elsewhere in this document. You should read all of this information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements, and related
notes, included elsewhere in this document.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1998(A) 1997(A) 1996(A) 1995 1994
------- ------- ------- ---- ----
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA(B):
Net sales and operating
revenues --
Specialty............. $ 2,785 $ 2,553 $ 1,987 $ 845 $ 636
Other................. 6 10 -- -- --
------------ ------------ ------------ ------------ ------------
Total............... $ 2,791 $ 2,563 $ 1,987 $ 845 $ 636
============ ============ ============ ============ ============
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 328 $ 308 $ 249 $ 39 $ 68
Other(c).............. (45) (2) (15) (6) 17
------------ ------------ ------------ ------------ ------------
Total............... 283 306 234 33 85
Interest expense(d)....... 133 124 102 91 48
Income tax expense
(benefit)............... 67 75 67 (3) 19
Minority interest......... 1 1 -- -- --
------------ ------------ ------------ ------------ ------------
Income (loss) from
continuing operations... 82 106 65 (55) 18
Income (loss) from
discontinued operations,
net of income tax(e).... 57 21 71 224 75
Extraordinary loss, net of
income tax(f)........... -- -- (2) -- --
Cumulative effect of
changes in accounting
principles, net of
income tax(g)........... -- (38) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss)......... $ 139 $ 89 $ 134 $ 169 $ 93
============ ============ ============ ============ ============
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------------------
1999(A) 1998(A)
------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENTS OF INCOME
DATA(B):
Net sales and operating
revenues --
Specialty............. $ 666 $ 630
Other................. -- 3
------------ ------------
Total............... $ 666 $ 633
============ ============
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 83 $ 74
Other(c).............. (38) (5)
------------ ------------
Total............... 45 69
Interest expense(d)....... 36 33
Income tax expense
(benefit)............... 3 18
Minority interest......... -- --
------------ ------------
Income (loss) from
continuing operations... 6 18
Income (loss) from
discontinued operations,
net of income tax(e).... (172) 14
Extraordinary loss, net of
income tax(f)........... (7) --
Cumulative effect of
changes in accounting
principles, net of
income tax(g)........... (32) --
------------ ------------
Net income (loss)......... $ (205) $ 32
============ ============
(continued on next page)
</TABLE>
37
<PAGE> 47
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1998(A) 1997(A) 1996(A) 1995 1994
------- ------- ------- ---- ----
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Average number of shares of
common stock
outstanding(h) --
Basic..................... 168,505,573 170,264,731 169,609,373 172,764,198 162,307,189
Diluted................... 168,834,531 170,801,636 170,526,112 173,511,654 162,912,425
Earnings (loss) per average
share of common
stock(h) --
Basic:
Continuing operations... $ .49 $ .63 $ .38 $ (.32) $ .11
Discontinued
operations(e)......... .34 .12 .42 1.30 .46
Extraordinary loss(f)... -- -- (.01) -- --
Cumulative effect of
changes in accounting
principles(g)......... -- (.23) -- -- --
------------ ------------ ------------ ------------ ------------
$ .83 $ .52 $ .79 $ .98 $ .57
============ ============ ============ ============ ============
Diluted:
Continuing operations... $ .49 $ .63 $ .38 $ (.32) $ .11
Discontinued
operations(e)......... .34 .12 .42 1.29 .46
Extraordinary loss(f)... -- -- (.01) -- --
Cumulative effect of
changes in accounting
principles(g)......... -- (.23) -- -- --
------------ ------------ ------------ ------------ ------------
$ .83 $ .52 $ .79 $ .97 $ .57
============ ============ ============ ============ ============
BALANCE SHEET DATA(B):
Net assets of discontinued
operations(e)........... $ 366 $ 423 $ 459 $ 393 $ 236
Total assets.............. 4,798 4,618 4,028 3,358 1,630
Short-term debt(d)........ 595 158 123 205 49
Long-term debt(d)......... 1,312 1,492 1,073 880 478
Debt allocated to
discontinued
operations(d)........... 548 473 394 369 285
Minority interest......... 14 15 -- -- --
Combined equity........... 1,776 1,839 1,843 1,531 703
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided (used)
by operating
activities.............. $ 577 $ 405 $ 263 $ 479 $ 283
Net cash provided (used)
by investing
activities.............. (514) (654) (669) (1,791) (146)
Net cash provided (used)
by financing
activities.............. (67) 239 399 1,327 (142)
Capital expenditures for
continuing operations... (194) (229) (216) (265) (134)
OTHER DATA:
EBITDA(i)................. $ 458 $ 469 $ 365 $ 78 $ 121
Ratio of earnings to fixed
charges(j).............. 1.99 2.31 2.15 NM 1.72
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------------------
1999(A) 1998(A)
------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Average number of shares of
common stock
outstanding(h) --
Basic..................... 166,743,506 169,542,371
Diluted................... 167,180,597 170,065,712
Earnings (loss) per average
share of common
stock(h) --
Basic:
Continuing operations... $ .03 $ .11
Discontinued
operations(e)......... (1.03) .08
Extraordinary loss(f)... (.04) --
Cumulative effect of
changes in accounting
principles(g)......... (.19) --
------------ ------------
$ (1.23) $ .19
============ ============
Diluted:
Continuing operations... $ .03 $ .11
Discontinued
operations(e)......... (1.03) .08
Extraordinary loss(f)... (.04) --
Cumulative effect of
changes in accounting
principles(g)......... (.19) --
------------ ------------
$ (1.23) $ .19
============ ============
BALANCE SHEET DATA(B):
Net assets of discontinued
operations(e)........... $ 372 $ 394
Total assets.............. 4,671 4,673
Short-term debt(d)........ 724 270
Long-term debt(d)......... 1,337 1,496
Debt allocated to
discontinued
operations(d)........... 487 492
Minority interest......... 14 15
Combined equity........... 1,470 1,833
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided (used)
by operating
activities.............. $ 30 $ 82
Net cash provided (used)
by investing
activities.............. (50) (66)
Net cash provided (used)
by financing
activities.............. 18 (18)
Capital expenditures for
continuing operations... (29) (46)
OTHER DATA:
EBITDA(i)................. $ 93 $ 113
Ratio of earnings to fixed
charges(j).............. 1.23 2.00
</TABLE>
- -------------------------
(a) For a discussion of the significant items affecting comparability of the
financial information for 1998, 1997, and 1996, and for the three months
ended March 31, 1999 and 1998, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
document.
(b) During the periods presented, Packaging completed numerous acquisitions, the
most significant of which were the acquisitions of Mobil Plastics for $1.3
billion in late 1995, Amoco Foam Products for $310 million in August 1996,
and the protective and flexible packaging business of N.V. Koninklijke KNP
BT for $380 million in April 1997. See Note 6 to the Combined Financial
Statements of The Businesses of Tenneco Packaging. See also, "Business --
Growth Strategy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) Income from continuing operations before interest expenses, income taxes and
minority interest for "Other" includes costs which were incurred by
Tenneco's corporate and administrative services operations which were not
allocated to Tenneco's operating segments. Because those functions will be a
part of Packaging upon the spin-off, they are included in Packaging's
historical
(continued on next page)
38
<PAGE> 48
combined financial statements. Packaging expects its costs will differ following
the spin-off. See "Supplemental Combined Financial Data included elsewhere in
this document for further information.
(d) 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. Accordingly, historical amounts include debt
and related interest expense allocated to Packaging from Tenneco based on
the portion of Tenneco's investment in Packaging which Tenneco deemed to be
debt. This allocation is generally based upon the ratio of Packaging's net
assets to Tenneco's consolidated net assets plus debt. An allocation of debt
and its related interest expense has also been made to Packaging's
discontinued operations based on the ratio of the discontinued operations'
net assets to Packaging's combined net assets plus debt. Management believes
that the historical allocation of corporate debt and interest expense is
reasonable. This historical allocation is not, however, indicative of the
total amount of debt that Packaging will have upon completion of the debt
realignment or of the debt and interest that may be incurred by Packaging as
a separate public entity. See the Combined Financial Statements of The
Businesses of Tenneco Packaging included elsewhere in this document.
(e) Discontinued operations for the periods presented consist of Packaging's
paperboard packaging segment, which was discontinued in June 1999 following
the decision to sell Packaging's remaining interest in Packaging's
containerboard joint venture. Loss from discontinued operations for the
three months ended March 31, 1999 included an after-tax loss of $178
million, or $1.07 per diluted common share, resulting from the contribution
of Packaging's containerboard assets to the joint venture. See Note 7 to the
Combined Financial Statements of the Businesses of Tenneco Packaging
included elsewhere in this document.
(f) Represents Packaging's costs related to prepayment of debt. See Note 7 to
the Combined Financial Statements of The Businesses of Tenneco Packaging
included elsewhere in this document.
(g) In 1999, Packaging implemented the American Institute of Certified Public
Accountants Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities." In 1997, Packaging implemented the Financial
Accounting Standards Board's Emerging Issues Task Force Issue No. 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." See Note 3 to the Combined Financial Statements of The
Businesses of Tenneco Packaging included elsewhere in this document for
additional information regarding changes in accounting principles.
(h) In the spin-off, Tenneco stockholders will receive one share of Packaging
common stock for each share of Tenneco common stock outstanding.
Accordingly, basic and diluted earnings per share for Packaging were
calculated using Tenneco's historical weighted average shares outstanding
and weighted average shares outstanding adjusted to include estimates of
additional shares that would be issued if potentially dilutive common shares
had been issued, respectively.
(i) EBITDA represents income from continuing operations before interest expense,
income taxes, minority interest and depreciation and amortization. EBITDA is
not a calculation based upon GAAP. The amounts included in the EBITDA
calculation, however, are derived from amounts included in the Combined
Statements of Income of The Businesses of Tenneco Packaging included
elsewhere in this document. EBITDA should not be considered as an
alternative to net income or operating income as an indicator of the
operating performance of Packaging, or as an alternative to operating cash
flows as a measure of liquidity. Packaging has reported EBITDA because it
believes EBITDA is a measure commonly reported and widely used by investors
and other interested parties as an indicator of a company's ability to incur
and service debt. Packaging believes EBITDA assists investors in comparing a
company's performance on a consistent basis without regard to depreciation
and amortization, which can vary significantly depending upon accounting
methods (particularly when acquisitions are involved) or nonoperating
factors. However, the EBITDA measure presented in this document may not
always be comparable to similarly titled measures reported by other
companies due to differences in the components of the calculation.
(j) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense, the
portion of rental expense considered representative of the interest factor
and capitalized interest. The historical ratios are based upon the amount of
interest expense on corporate debt allocated to Packaging by Tenneco as
discussed in (d) above. For the year ended December 31, 1995, earnings were
inadequate to cover fixed charges by $59 million.
39
<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following review of Packaging's financial condition and results of
operations should be read in conjunction with the Combined Financial Statements
of The Businesses of Tenneco Packaging, and the related notes, presented on
pages F-1 through F-30. Packaging includes the assets, liabilities and
operations of Tenneco's specialty packaging and paperboard packaging businesses
as well as Tenneco's corporate and administrative service operations.
STRATEGIC ALTERNATIVES ANALYSIS
In July 1998, Tenneco's Board of Directors authorized management to develop
a broad range of strategic alternatives which could result in the separation of
the automotive, paperboard packaging, and specialty packaging businesses. As
part of that strategic alternatives analysis, Tenneco has taken the following
actions:
- In January 1999, Packaging reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture with an affiliate of Madison Dearborn Partners, Inc. The
contribution to the joint venture was completed in April 1999. Packaging
received consideration of cash and debt assumption totaling approximately
$2 billion and a 45 percent common equity interest in the joint venture
(now 43 percent due to subsequent management equity issuances) valued at
approximately $200 million.
- In April 1999, Packaging reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and packaging businesses into
two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in the containerboard joint venture.
Packaging expects the sale to be completed before the spin-off discussed
below.
The containerboard assets contributed to the new joint venture represented
substantially all of the assets of Packaging's paperboard packaging segment and
included four mills, 67 corrugated products plants, and an ownership or
leasehold interest in approximately 950,000 acres of timberland. Before the
transaction, Packaging borrowed approximately $1.8 billion and used
approximately $1.2 billion of those borrowings to acquire assets used by the
containerboard business under the operating leases and timber cutting rights and
to purchase containerboard business accounts receivable that had previously been
sold to a third party. The remainder of the borrowings was remitted to Tenneco
and used to repay short-term debt. Packaging then contributed the containerboard
business assets (subject to the new indebtedness and the containerboard business
liabilities) to the joint venture in exchange for $247 million in cash and the
45 percent interest in the joint venture. As a result of the sale transaction,
Packaging recognized a pre-tax loss of $293 million ($178 million after-tax, or
$1.07 per diluted common share) in the first quarter of 1999.
As a result of the decision to sell Packaging's remaining interest in the
containerboard joint venture, Packaging's paperboard packaging segment is
presented as a discontinued operation in the Combined Financial Statements of
The Businesses of Tenneco Packaging contained elsewhere in this document. Refer
to Note 7 for further information.
The separation of Tenneco's automotive and packaging businesses will be
accomplished by the spin-off of the common stock of Packaging to Tenneco
shareowners. At the time of the spin-off, Packaging will include Tenneco's
specialty packaging business ("Speciality"), Tenneco's administrative services
operations, and the remaining interest in the containerboard joint venture if
the sale has not been completed. Tenneco and Packaging are, however, currently
analyzing the alternatives with respect to the administrative services
operations.
40
<PAGE> 50
Before the spin-off, Tenneco will realign substantially all of its existing
debt through some combination of tender offers, exchange offers, prepayments and
other refinancings. This debt realignment will be financed by internally
generated cash, borrowings by Automotive under a new credit facility, the
issuance by Automotive of subordinated debt, and borrowings by Packaging under a
new credit facility. Tenneco currently expects that, subject to discussions with
debt rating agencies, Packaging's debt will be rated investment grade and
Automotive's debt will be rated non-investment grade.
The spin-off is subject to conditions, including formal declaration of the
spin-off by the Tenneco Board of Directors, a favorable determination that the
spin-off will be tax-free for U.S. federal income tax purposes, and the
successful completion of the debt realignment and corporate restructuring
transactions.
RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in every part of Tenneco's business. As a result, Packaging
recorded a pre-tax charge to income from continuing operations of $32 million
($20 million after-tax or $.12 per diluted common share). Of the pre-tax charge,
$10 million relates to operational restructuring plans and $22 million relates
to a staff and cost reduction plan.
The operational restructuring plans provide for Packaging to eliminate
production lines at two plants, exit four joint ventures and eliminate 104
positions. The staff and cost reduction plan for Packaging involves the
elimination of 184 administrative positions in Packaging's business operations
and in Packaging's corporate operations including Tenneco's corporate operations
that will become a part of Packaging in connection with the spin-off.
The fixed assets for the production lines to be eliminated, as well as the
joint venture investments, were written down to their estimated fair value in
the fourth quarter of 1998. Packaging does not expect to receive any significant
cash proceeds from the ultimate disposal of these assets.
As of December 31, 1998 and March 31, 1999, approximately 158 and 201
employees, respectively, had been terminated. This restructuring is being
executed according to Packaging's initial plan and Packaging expects to complete
all restructuring actions by the fourth quarter of 1999.
In the first quarter of 1999, in connection with Packaging's contribution
of its containerboard assets to a new joint venture, Tenneco adopted a plan to
realign its headquarters functions that will become a part of Packaging in
connection with the spin-off. This plan involves the severance of approximately
40 employees, and the closing of the Greenwich, Connecticut, headquarters
facility. The charge for this plan was recorded in Packaging's corporate
operations in the amount of $29 million pre-tax ($17 million after-tax or $.10
per diluted common share). Assets were written down to net realizable value.
Packaging collected approximately $30 million in the second quarter of 1999
related to the sale of these assets.
Amounts related to the restructuring plans described above are shown in the
following table:
<TABLE>
<CAPTION>
CHARGED BALANCE AT CHARGED BALANCE AT
RESTRUCTURING CASH TO ASSET DECEMBER 31, RESTRUCTURING CASH TO ASSET MARCH 31,
CHARGE PAYMENTS ACCOUNTS 1998 CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- -------- ------------ ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance............... $20 $5 $-- $15 $16 $3 $-- $28
Asset impairments....... 12 -- 12 -- 13 -- 13 --
--- -- --- --- --- -- --- ---
$32 $5 $12 $15 $29 $3 $13 $28
=== == === === === == === ===
</TABLE>
41
<PAGE> 51
FIRST QUARTER 1999 VERSUS 1998
RESULTS OF CONTINUING OPERATIONS
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
FIRST QUARTER
------------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Specialty........................................... $ 666 $ 630 6%
Intergroup sales and other.......................... -- 3 NM
------ ------
$ 666 $ 633 5%
====== ======
</TABLE>
The Specialty segment experienced a 6 percent increase in revenue over last
year's first quarter. Of the increase, approximately three-fourths was
attributable to acquisitions, including the acquisitions of Richter
Manufacturing, a producer of protective packaging for the Western United States,
in May 1998 and Sentinel Products, a North American producer of specialty
polyolefin foams, in December 1998. Other factors driving the first quarter
revenue increase were an 11 percent increase in foodservice packaging unit
volume and a 12 percent increase in unit volume of Hefty(R) products. These
volume increases were partially offset by changes in product pricing reflecting
raw material pricing changes.
Income Before Interest Expense, Income Taxes and Minority Interest
(Operating Income)
<TABLE>
<CAPTION>
FIRST QUARTER
--------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Specialty.............................................. $ 83 $ 74 12%
Other.................................................. (38) (5) NM
---- ----
$ 45 $ 69 (35)%
==== ====
</TABLE>
Operating income in the Specialty segment increased by $9 million versus
the prior year quarter due to favorable sales volume of foodservice packaging,
Hefty(R) products and protective packaging products as discussed above. The 1998
acquisitions of Richter Manufacturing and Sentinel Products contributed $3
million in operating income in the first quarter of 1999, which was offset by
Year 2000 and systems implementation costs.
The increased loss in Packaging's "Other" segment primarily relates to the
first quarter 1999 charge of $29 million described in "Restructuring and Other
Charges" above. In addition, Packaging's "Other" segment for both periods
includes costs related to the administrative services operations and its related
data center expenses for the Specialty segment.
Interest Expense (net of interest capitalized)
Interest expense for the first quarter of 1999 was $3 million, or 9 percent
higher than in the first quarter of 1998. 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. Accordingly, interest expense in each
period includes an allocation of interest on Tenneco corporate debt. This
allocation was based, in general, on the ratio of Packaging's net assets to
Tenneco's consolidated net assets plus debt. See Note 5 to the Combined
Financial Statements of The Businesses of Tenneco Packaging for a further
discussion of the allocation of Tenneco consolidated debt and interest expense
to Packaging.
Income Taxes
Packaging's effective tax rate for the first quarter of 1999 was 33
percent, compared to 50 percent in the first quarter last year.
42
<PAGE> 52
DISCONTINUED OPERATIONS AND EXTRAORDINARY CHARGE
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in the containerboard joint venture. Packaging
expects the sale to be completed before the spin-off. As a result, Packaging's
paperboard packaging segment is reflected as a discontinued operation.
Loss from discontinued operations in the first quarter of 1999 was $172
million (net of an income tax benefit of $111 million), or $1.03 per diluted
common share. This included a loss on the contribution of the containerboard
assets of $178 million (net of an income tax benefit of $115 million), or $1.07
per diluted common share.
Discontinued operations generated income of $14 million (net of income tax
expense of $10 million), or $.08 per diluted common share, during the first
quarter of 1998.
The current year's quarter also includes an extraordinary charge to cover
the cost of early retirement of debt in connection with the contribution of the
containerboard assets of $7 million (net of income tax expense of $4 million),
or $.04 per diluted common share.
See Note 7 to the Combined Financial Statements of The Businesses of
Tenneco Packaging for a further discussion of discontinued operations.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement requires prospective
application, for fiscal years beginning after December 15, 1998. Packaging
adopted SOP 98-1 on January 1, 1999. The impact of this new standard did not
have a significant effect on Packaging's financial position or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement was effective for fiscal years beginning after
December 15, 1998. This statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Packaging previously
capitalized certain costs related to the start-up of certain new foreign
operations and its administrative service operations. Packaging adopted SOP 98-5
on January 1, 1999, and recorded an after-tax charge for the cumulative effect
of this change in accounting principle upon adoption of $32 million (net of a $9
million tax benefit), or $.19 per diluted common share. The change in accounting
principle decreased the loss before cumulative effect of change in accounting
principle by $2 million (net of $1 million in income tax expense), or $.01 per
diluted common share, for the three months ended March 31, 1999. If the new
accounting method had been applied retroactively, net income for the three
months ended March 31, 1998, and the years ended December 31, 1998, 1997, and
1996, would have been lower by $3 million (net of a $2 million income tax
benefit), or $.02 per diluted common share, $14 million, (net of an $8 million
tax benefit), or $.08 per diluted common share, $7 million, (net of a $3 million
tax benefit), or $.04 per diluted common share, and $7 million (net of a $4
million tax benefit), or $.04 per diluted share, respectively.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment. This
statement cannot be applied retroactively and is effective for all fiscal years
beginning after June 15, 2000.
43
<PAGE> 53
Packaging is currently evaluating the new standard but has not yet determined
the impact it will have on its financial position or results of operations.
EARNINGS PER SHARE
Packaging's income from continuing operations was $.03 per diluted common
share for the first quarter of 1999, compared to $.11 per diluted common share
for last year's quarter. All references to earnings per share in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are on a diluted basis unless otherwise noted. The current year's
quarter also included a loss from discontinued operations of $1.03 per diluted
common share, a $.04 per share extraordinary loss on early retirement of debt in
connection with the contribution of the containerboard assets, and $.19 per
diluted common share of charges related to the cumulative effect of changes in
accounting principles noted above. First quarter 1998 included $.08 per diluted
common share of income from discontinued operations. Net income per diluted
common share was $.19 in the first quarter of 1998, as compared to a loss of
$1.23 per diluted common share in this year's quarter.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, %
1999 1998 CHANGE
--------- ------------ ------
<S> <C> <C> <C>
Short-term debt and current maturities......... $ 724 $ 595 22%
Long-term debt................................. 1,337 1,312 2
Debt allocated to discontinued operations...... 487 548 (11)
Minority interest.............................. 14 14 --
Combined equity................................ 1,470 1,776 (17)
------ ------
Total capitalization...................... $4,032 $4,245 (5)%
====== ======
</TABLE>
Equity declined primarily as a result of the net loss for the quarter,
which included the loss on the containerboard assets as well as the charge
associated with the plan to realign the Greenwich, Connecticut headquarters
facility. See the Statements of Changes in Combined Equity in the Combined
Financial Statements of The Businesses of Tenneco Packaging contained elsewhere
in this document for a description of factors affecting equity.
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Packaging
expects the sale to be completed before the spin-off, with the net proceeds used
to retire Tenneco debt that would otherwise be allocated to Packaging in the
debt realignment. If the sale occurs after the spin-off, the net proceeds will
be used to retire Packaging debt.
Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ 30 $ 82
Investing activities...................................... (50) (66)
Financing activities...................................... 18 (18)
</TABLE>
Cash flow from operating activities decreased by $52 million from first
quarter 1998 to first quarter 1999. Cash flow from continuing operations
decreased by $73 million due primarily to lower income from continuing
operations and higher working capital levels associated with higher revenues.
Cash flow from discontinued operations was $21 million higher in the
current year's quarter than in the first quarter of 1998.
44
<PAGE> 54
Investing activities used $16 million less cash during the first quarter of
1999 as a result of a lower level of capital spending.
Cash flow from financing activities increased by $36 million from the first
quarter of 1998 to the first quarter of 1999. Increased retirements of debt were
more than offset by contributions from Tenneco.
Capital Commitments
Packaging estimates that expenditures aggregating approximately $185
million will be required after December 31, 1998, to complete facilities and
projects authorized at that date, and substantial commitments have been made in
connection with those projects.
Liquidity
Historically, Packaging's excess net cash flows from operating and
investing activities have been used by its parent, Tenneco, to meet consolidated
debt and other obligations. Conversely, when Packaging's cash requirements have
been in excess of cash flows from operations, Tenneco has utilized its
consolidated credit facilities to fund Packaging's obligations. Also, depending
on market and other conditions, Packaging has utilized external sources of
capital to meet specific funding requirements. Packaging's management believes
that, after the spin-off, Packaging's cash flows from operations and available
borrowing capacity will generally be sufficient to meet its anticipated future
capital requirements for the following year.
Before the spin-off Tenneco intends to initiate a realignment of its debt.
The debt realignment will be accomplished through a combination of tender and
exchange offers, prepayments and refinancings. The following will occur before
the spin-off as part of the debt realignment: (1) Tenneco will offer to exchange
up to $ million of aggregate principal amount of its public debt for an equal
amount of Packaging public debt; (2) Tenneco will offer to purchase for cash
approximately $ million of its public debt (pursuant to the cash tender
offers); and (3) Tenneco and its subsidiaries will repay in cash other existing
non-public debt and preferred stock obligations. These payments will be financed
by internally generated cash, borrowings by Automotive under a new credit
facility, the issuance by Automotive of subordinated debt, and borrowings by
Packaging under a new credit facility.
ENVIRONMENTAL MATTERS
Packaging and certain of its subsidiaries and affiliates are parties to
environmental proceedings. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws and regulations
taking into consideration the likely effects of inflation and other societal and
economic factors. All available evidence is considered including prior
experience in remediation of contaminated sites, other companies' clean-up
experience and data released by the United States Environmental Protection
Agency or other organizations. These estimated liabilities are subject to
revision in future periods based on actual costs or new information. These
liabilities are included in the combined balance sheet at their undiscounted
amounts. Recoveries are evaluated separately from the liability and, when
assured, are recorded and reported separately from the associated liability in
the combined financial statements.
As of July 1, 1999, Packaging has been designated as a potentially
responsible party at three "Superfund" sites and it has estimated its share of
the liability at these sites to be approximately $2 million in the aggregate. In
addition, Packaging also may have liability to remediate several current or
former facilities and it has estimated its share of the remediation costs at
these facilities to be approximately $4 million in the aggregate. For both the
"Superfund" sites and its current and former facilities, Packaging has
established reserves that it believes are adequate for these costs. Although
Packaging believes its estimates of remediation costs are reasonable and based
on the latest information,
45
<PAGE> 55
the clean-up costs are estimates and are subject to revision as more information
becomes available about the extent of remediation required. At certain sites,
Packaging expects that other parties will contribute to the remediation costs.
In addition, at the Superfund sites, the Comprehensive Environmental Response,
Compensation and Liability Act provides that Packaging's liability could be
joint and several meaning that Packaging could be required to pay in excess of
its share of remediation costs. Packaging's understanding of the financial
strength of other potentially responsible parties at both the Superfund sites
and at its current and former facilities has been considered, where appropriate,
in Packaging's determination of its estimated liability. Packaging believes that
any adjustment to the costs associated with its current status as a potentially
responsible party at the Superfund sites or as a liable party at its current or
former facilities will not be material to its consolidated financial position or
results of operations.
Packaging estimates that its capital expenditures for environmental matters
for 1999 and 2000 will not be material.
DERIVATIVE FINANCIAL INSTRUMENTS
Foreign Currency Exchange Rate Risk
Packaging currently manages its exposure to changes in foreign currency
rates by making loans with a Tenneco affiliate in the functional currency of the
operating company concerned. The Tenneco affiliate then integrates all of
Tenneco's foreign currency denominated intercompany loans and enters into
foreign currency forward purchase and sale contracts to mitigate its net
exposure to changes in foreign exchange rates. This reduces Packaging need to
enter into forward contracts with third parties. Packaging expects that,
following the spin-off, its use of foreign currency forward purchase and sale
contracts will increase.
Additionally, Packaging from time to time enters into foreign currency
forward purchase and sale contracts to mitigate its exposure to changes in
exchange rates on intercompany and third party trade receivables and payables.
Packaging does not currently enter into derivative financial instruments for
speculative purposes.
The administration of these activities is concentrated at a London-based
Tenneco affiliate. This affiliate enters into forward purchase and sell
contracts with Tenneco's operating divisions to hedge the divisions' exposure to
changes in foreign currency exchange rates. The affiliate then enters into
contracts with third parties to hedge Tenneco's consolidated exposure. At
December 31, 1998, Packaging had purchase contracts with this affiliate of
approximately one million dollars, primarily in U.S. dollars, and sell contracts
of approximately one million dollars, primarily in British pounds. At December
31, 1997, Packaging had purchase contracts of approximately two million dollars,
primarily in Belgian francs and German marks, and sell contracts of
approximately two million dollars, primarily in British pounds and French
francs. Packaging's purchase and sell contracts as of March 31, 1999 and
December 31, 1998 were not materially different.
Interest Rate Risk
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. Tenneco's financial instruments that are sensitive to market risk
for changes in interest rates are its debt securities. Tenneco primarily uses
commercial paper to finance its short-term capital requirements. Since
commercial paper generally matures in three months or less, Tenneco pays a
current market rate of interest on these borrowings. Tenneco finances its
long-term capital requirements with long-term debt with original maturity dates
ranging up to 30 years. All of Tenneco's existing long-term debt obligations
have fixed interest rates. Consequently, Tenneco is not exposed to cash flow or
fair value risk from market interest rate changes on its long-term debt
portfolio.
Packaging's interest expense in each period includes an allocation of
interest on Tenneco corporate debt. The allocated interest expense carries with
it exposure to Tenneco's interest rate risk. The table
46
<PAGE> 56
below provides information about Tenneco's financial instruments that are
sensitive to interest rate risk as of December 31, 1998.
<TABLE>
<CAPTION>
FAIR VALUE
ESTIMATED MATURITY DATES AT
-------------------------------------------------- DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL(B) 1998(A)
---- ---- ---- ---- ---- ---------- -------- ------------
(MILLIONS EXCEPT EFFECTIVE INTEREST RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term (excluding current
maturities)......................... $821 $-- $ -- $ -- $-- $ -- $ 821 $ 821
Average effective interest rate..... 5.9% --% --% --% --% --%
Long-term debt (including current
maturities)......................... $250 $10 $187 $498 $ 7 $1,583 $2,535 $2,606
Average effective interest rate..... 6.4% 12.0% 6.8% 6.8% 11.2% 7.6%
</TABLE>
- -------------------------
(a) Fair value of short term debt was considered to be the same as or was not
determined to be materially different from the carrying amount. The fair
value of fixed-rate long term debt was generally based on the market value
of Tenneco debt offered in open market exchanges at December 31, 1998.
(b) At December 31, 1998, short-term and long-term Tenneco debt allocated to
Packaging was $583 million and $1,291 million, respectively.
Tenneco's financial instruments that are sensitive to interest rate risk as
of March 31, 1999 are not materially different from the table presented above.
In connection with the debt realignment, Packaging will enter into a new credit
facility which will be subject to interest rate risks.
The statements and other information (including the tables) in this
"Derivative Financial Instruments" section constitute "forward-looking
statements."
YEAR 2000
Many computer software systems, as well as some hardware and equipment
utilizing date-sensitive data, were designed to use a two-digit date fields.
Consequently, these systems will not be able to properly recognize dates beyond
the year 1999 (the "Year 2000 issue"). Packaging's significant technology
transformation projects have addressed the Year 2000 issue in those areas where
replacement systems are being installed for other business reasons. Where
existing systems and equipment are expected to remain in place beyond 1999,
Packaging has a detailed process in place to identify and assess Year 2000
issues and to remediate, replace or establish alternative procedures addressing
non-Year 2000 compliant systems, hardware and equipment.
Packaging has substantially completed inventorying its systems and
equipment, including computer systems and business applications, as well as
date-sensitive technology embedded in its equipment and facilities. Packaging
continues to plan for and undertake remediation, replacement or establishment of
alternative procedures for non-compliant Year 2000 systems and equipment; and
test remediated, replaced or alternative procedures for systems and equipment.
Packaging believes that approximately 70 percent of its major business
applications systems and approximately 90 percent of its manufacturing equipment
had achieved Year 2000 compliance as of June 30, 1999. Packaging has confirmed
that none of its products are date-sensitive. Remediation, replacement or
establishment of alternative procedures for systems and equipment are being
undertaken on a business priority basis. This is ongoing and was completed at
some locations in 1998 with the remainder expected to be completed through the
third quarter of 1999. Testing will occur in the same time frame.
Packaging has also contacted its major suppliers, financial institutions,
and others with whom it conducts business to determine whether they will be able
to resolve in a timely manner Year 2000 problems possibly affecting Packaging. A
majority of these entities, including all critical suppliers, have responded by
advising as to the status of their efforts to become Year 2000 compliant. This
process is ongoing. Packaging intends to continue corresponding with critical
high risk third parties to obtain updates
47
<PAGE> 57
on their Year 2000 efforts and to assess new suppliers, financial institutions
and others with whom it begins to conduct business.
Based upon current estimates, Packaging believes that costs to address Year
2000 issues and implement the necessary changes to its existing systems and
equipment, including costs incurred to date, will range from $25 to $30 million.
As of June 30, 1999, approximately $20 million of the costs had been incurred.
These costs are being expensed as they are incurred, except that in some
instances Packaging may determine that replacing existing computer systems or
equipment may be more effective and efficient, particularly where additional
functionality is available. These replacements would be capitalized and would
reduce the estimated expense associated with Year 2000 issues.
If Packaging is unable to complete on a timely and cost-effective basis the
remediation or replacement of critical systems or equipment not yet in
compliance, or develop alternative procedures, or if those with whom Packaging
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on Packaging's financial condition
or results of operations. Possible worst case scenarios include interruptions in
Packaging's ability to manufacture its products, process and ship orders, and
bill and collect accounts receivable due to internal system failures or the
system failures of its suppliers or customers. Packaging believes it will be
able to timely resolve its own Year 2000 issues.
As part of its planning and readiness activities, Packaging is developing
Year 2000 contingency plans for critical business processes such as banking,
data center operations and just-in-time manufacturing operations. Contingency
plans are being developed on a business unit basis, where needed, to respond to
previously undetected Year 2000 problems and business interruption from
suppliers. Contingency plans will include alternative suppliers, as necessary,
as well as assuring the availability of key personnel at year end to address
unforeseen Year 2000 problems.
Prior to the spin-off, Tenneco's administrative services operation has been
assisting both Packaging and Automotive with their Year 2000 remediation,
replacement and testing activities. Except for mainframe testing, substantially
all of these Year 2000 assistance activities have been completed for Automotive.
Shortly after the spin-off, Packaging is scheduled to assist Automotive with the
completion of the mainframe testing.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the "Euro," among eleven European nations. The Euro is being adopted over a
three-year transition period beginning January 1, 1999. In October 1997, Tenneco
established a cross-functional Euro Committee, comprised of representatives of
Tenneco's operational divisions, including Packaging, as well as its corporate
offices. That committee had two principal objectives: (1) to determine the
impact of the Euro on Tenneco's business operations, and (2) to recommend and
facilitate implementation of those steps necessary to ensure that Tenneco would
be fully prepared for the Euro's introduction. As of January 1, 1999, Packaging
had implemented those Euro conversion procedures that it had determined to be
necessary and prudent to adopt by that date, and is on track to becoming fully
"Euro ready" on or before the conclusion of the three-year Euro transition
period. Packaging believes that the costs associated with transitioning to the
Euro will not be material to its combined financial position or the results of
its operations.
YEARS 1998 AND 1997
RESULTS OF CONTINUING OPERATIONS
Packaging reported income from continuing operations of $82 million for the
year ended December 31, 1998, compared to $106 million for the same period in
1997. The 1998 figure includes a $20 million after-tax charge to reduce overhead
and manufacturing costs throughout every part of Packaging's business. Excluding
the restructuring charge, Packaging's income from continuing operations for the
1998 period was $102 million. The decline resulted from costs related to
Packaging's data center
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<PAGE> 58
consolidation effort, offset by record results in the Specialty segment. Higher
interest expense and a higher tax rate also contributed to the earnings decline.
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Specialty................................................... $2,785 $2,553 9%
Intergroup sales and other.................................. 6 10 (40%)
------ ------
$2,791 $2,563 9%
====== ======
</TABLE>
Packaging's revenue increase in its Specialty segment of $232 million
resulted primarily from full-year inclusion of the protective and flexible
packaging businesses acquired from NV Koninklijke KNP BT ("KNP") in 1997 and
from the May 1998 acquisition of Richter Manufacturing. The KNP businesses
contributed $160 million of incremental revenue in 1998 measured through the
first anniversary of their acquisition in late April 1997. Richter Manufacturing
revenue during 1998 was $39 million. The remaining revenue increase reflects
higher unit volumes in numerous product lines which more than offset lower
pricing.
Income Before Interest Expense, Income Taxes, and Minority Interest
(Operating Income)
As described earlier in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, Packaging recorded a pre-tax
restructuring charge to income from continuing operations of $32 million ($20
million after-tax) in the fourth quarter of 1998. The restructuring charge
affected Packaging's segments as follows: Specialty -- $18 million and
Other -- $14 million.
Excluding these restructuring charges, a comparison of Packaging's 1998 and
1997 operating income is as follows:
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
---- ---- ------
<S> <C> <C> <C>
Specialty................................................ $346 $308 12%
Other.................................................... (31) (2) NM
---- ----
$315 $306 3%
==== ====
</TABLE>
Packaging's operating income increase in its Specialty segment reflected
$24 million from acquired businesses measured through the one-year anniversary
of their acquisitions, as well as higher unit volumes, primarily in Hefty
One-Zip(R), food service foam, and consumer tableware products. Lower raw
material costs approximately offset price reductions to customers. In addition,
Specialty incurred approximately $7 million in one-time costs related to an
information systems project in North America.
Packaging's operating loss in its "Other" segment increased in 1998 over
1997 levels primarily as a result of higher costs related to Packaging's data
center consolidation effort, which more than offset lower unabsorbed costs at
Packaging's administrative services operation.
Interest Expense (net of interest capitalized)
Interest expense for 1998 was $9 million, or 7 percent, higher than for
1997. As described above, interest expense in each period includes an allocation
of interest on Tenneco corporate debt. This allocation was based, in general, on
the ratio of Packaging's net assets to Tenneco consolidated net assets plus
debt. See Note 5 to the Combined Financial Statements of The Business of Tenneco
Packaging contained elsewhere in this document for a further discussion of the
allocation of Tenneco consolidated debt and interest expense to Packaging.
49
<PAGE> 59
Income Taxes
Packaging's effective tax rate for 1998 was 45 percent, compared to 41
percent for 1997. The effective tax rate was higher than the statutory rate in
both periods primarily as a result of state and local income taxes.
DISCONTINUED OPERATIONS
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Packaging
expects the sale to be completed before the spin-off. As a result, Packaging's
paperboard packaging segment is reflected as a discontinued operation.
Discontinued operations generated income of $57 million, net of income tax
expense of $38 million, or $.34 per diluted common share, for 1998.
Discontinued operations generated income of $21 million, net of income tax
expense of $14 million, or $.12 per diluted common share, during 1997.
Fourth quarter 1998 results from discontinued operations for the paperboard
packaging business includes a pre-tax charge of $14 million related to
Packaging's restructuring plan to reduce administrative and operational overhead
costs. The paperboard packaging restructuring plan involves closing four box
plants and the elimination of 78 positions at those plants.
Income from the discontinued paperboard packaging business in 1998 also
included a $15 million pre-tax gain on the sale of its remaining 20 percent
interest in a recycled paperboard joint venture with Caraustar Industries and a
$17 million pre-tax gain on the sale of non-strategic timberland assets. In
1997, income from discontinued operations included a $38 million pre-tax gain on
refinancing of two containerboard mill leases and a $5 million pre-tax gain from
a timberland management transaction.
See Note 7 to the Combined Financial Statements of The Businesses of
Tenneco Packaging contained elsewhere in this document for a further discussion
of discontinued operations.
CHANGES IN ACCOUNTING PRINCIPLES
As required by the FASB's Emerging Issues Task Force ("EITF") Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation)," Packaging recorded an after-tax charge of $38 million (net of
a tax benefit of $24 million), or $.23 per diluted common share, in the fourth
quarter of 1997. EITF Issue 97-13 establishes the accounting treatment and an
allocation methodology for certain consulting and other costs incurred in
connection with information technology transformation efforts. This charge was
reported as a cumulative effect of change in accounting principle.
EARNINGS PER SHARE
Income from continuing operations was $.49 per diluted common share for
1998, compared to $.63 per diluted common share in 1997. Discontinued operations
provided income of $.34 and $.12 per diluted common share, for 1998 and 1997,
respectively. In 1997, Packaging also recorded a charge for the cumulative
effect of a change in accounting principle noted above of $.23 per diluted
common share, resulting in net income of $.52 per diluted common share, compared
to $.83 per diluted common share in 1998.
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<PAGE> 60
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
---- ---- ------
<S> <C> <C> <C>
Short-term debt and current maturities............... $ 595 $ 158 277%
Long-term debt....................................... 1,312 1,492 (12)
Debt allocated to discontinued operations............ 548 473 16
Minority interest.................................... 14 15 (7)
Combined equity...................................... 1,776 1,839 (3)
------ -------
Total capitalization.......................... $4,245 $ 3,977 7%
====== =======
</TABLE>
Packaging's debt to capitalization ratio was 57.8 percent at December 31,
1998, compared to 53.4 percent at December 31, 1997. The increase in the ratio
is attributable to additional corporate debt allocated to Packaging from Tenneco
during 1998, as well as a decline in equity. See Note 5 to the Combined
Financial Statements of The Businesses of Tenneco Packaging for a further
discussion of the allocation of Tenneco consolidated debt and interest expense
to Packaging. See the Statements of Changes in Combined Equity of The Businesses
of Tenneco Packaging for a description of factors affecting equity.
Cash Flows
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ 577 $ 405
Investing activities...................................... (514) (654)
Financing activities...................................... (67) 239
</TABLE>
Cash flow from operating activities increased by $172 million from 1997 to
1998. Of this amount, $74 million was produced by continuing operations and $98
million was produced by discontinued operations. The increase from continuing
operations was primarily attributable to working capital, which increased
significantly during 1997 to support the growth in revenues over 1996 levels.
Working capital decreased slightly during 1998 as revenue growth moderated. Cash
flow from discontinued operations improved due to higher earnings in 1998
resulting from improved containerboard pricing.
Investing activities used $140 million less cash during 1998 than in 1997.
A significantly reduced level of acquisitions was partially offset by a higher
level of capital spending for discontinued operations. This increased spending
was primarily to acquire certain leased timberlands in contemplation of the
separation of the containerboard assets from Packaging's other businesses.
Acquisitions in 1998 included: Champion International's dual-ovenable paperboard
tray manufacturing facility in Belvidere, Illinois; Richter Manufacturing, and
Sentinel Products. In 1997, acquisitions related primarily to the protective and
flexible packaging businesses of KNP.
Financing activities used $67 million in 1998, compared to providing $239
million in 1997, a change of $306 million. Packaging retired $81 million less
debt during 1998. During 1998, Packaging remitted $56 million to Tenneco. During
1997, Tenneco contributed $331 million to Packaging.
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<PAGE> 61
YEARS 1997 AND 1996
RESULTS OF CONTINUING OPERATIONS
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Specialty............................................ $2,553 $1,987 28%
Intergroup sales and other........................... 10 -- NM
------ ------
$2,563 $1,987 29%
====== ======
</TABLE>
Packaging experienced increases in revenues from its Specialty segment of
$566 million during 1997 over 1996. This growth was primarily generated by unit
volume sales growth and revenues earned by companies acquired in 1996 and 1997.
The protective and flexible packaging businesses acquired from KNP in late April
1997, along with revenues from the Amoco Foam products business calculated
through the first anniversary of its August 1996 acquisition, contributed $491
million to this revenue growth during 1997. Unit volume sales increases,
primarily in the consumer markets and clear plastic containers, accounted for
significant revenue increases as well. Partially offsetting revenue growth from
acquisitions and volumes was lower product pricing, reflecting lower raw
material prices, which negatively impacted revenues by $53 million.
Income Before Interest Expense, Income Taxes, and Minority Interest
(Operating Income)
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Specialty............................................... $308 $249 24%
Other................................................... (2) (15) NM
---- ----
$306 $234 31%
==== ====
</TABLE>
Packaging's higher operating income from its Specialty segment in 1997
resulted primarily from $76 million in operating income generated by the
protective and flexible packaging businesses acquired from KNP in late April
1997 and the Amoco Foam products acquisition calculated through the first
anniversary of its August 1996 acquisition. A portion of the 1997 earnings
increase from the foam products acquisition resulted from cost savings realized
by the integration of the acquired company into the Specialty segment's existing
business.
Packaging's operating loss in its "Other" segment increased in 1997
compared to 1996 before a charge of $17 million related to the acceleration of
certain employee benefits in connection with Tenneco's December 1996 corporate
reorganization. The increase resulted from a higher level of unallocated
administrative costs related to Packaging's administrative services operations,
which began operation in late 1996.
Interest Expense (net of interest capitalized)
Interest expense for 1997 was $22 million or 22 percent higher than for
1996. As described above, interest expense in each period includes an allocation
of interest on Tenneco corporate debt. This allocation was based, in general, on
the ratio of Packaging's net assets to Tenneco consolidated net assets plus
debt. See Note 5 to the Combined Financial Statements of The Businesses of
Tenneco Packaging included elsewhere in this document for a further discussion
of the allocation of Tenneco consolidated debt and interest to Packaging.
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<PAGE> 62
Income Taxes
Packaging's effective tax rate for 1997 was 41 percent, compared to 51
percent for 1996. The 1997 and 1996 effective tax rate was higher than the
statutory rate as a result of state and local income taxes.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in the containerboard joint venture. Packaging
expects the sale to be completed before the spin-off. As a result, Packaging's
paperboard packaging segment is reflected as a discontinued operation.
Discontinued operations generated income of $21 million (net of income tax
expense of $14 million), or $.12 per diluted common share, during 1997.
Discontinued operations generated income of $71 million (net of income tax
expense of $47 million), or $.42 per diluted common share, for 1996.
Income from discontinued operations in 1997 included a $38 million pre-tax
gain which resulted from the refinancing of two containerboard mill leases.
Income from the discontinued paperboard packaging business in 1996 included a
$50 million pre-tax gain on the sale of certain recycled paperboard assets to a
joint venture with Caraustar Industries and a pre-tax charge of $6 million to
reorganize Packaging's folding carton operations.
The extraordinary loss reported in 1996 of $2 million (net of an income tax
benefit of $1 million), or $.01 per diluted common share, relates to premium
paid on early retirement of debt in anticipation of the corporate reorganization
effected in the fourth quarter of 1996.
See Note 7 to the Combined Financial Statements of The Businesses of
Tenneco Packaging included elsewhere in this document for a further discussion
of discontinued operations.
EARNINGS PER SHARE
Income from continuing operations was $.63 per diluted common share in
1997, up from $.38 per diluted common share in 1996. Discontinued operations
produced income of $.12 and $.42 per diluted common share, for 1997 and 1996,
respectively. Packaging recorded the cumulative effect of a change in accounting
principle discussed above of $.23 per diluted common share, resulting in net
income of $.52 per diluted common share for 1997. Packaging also recorded an
extraordinary loss of $.01 per diluted common share in 1996, related to early
retirement of debt, resulting in net income per diluted common share of $.79.
Average shares of common stock outstanding increased slightly during 1997. For
further information regarding the calculation of earnings per share, see Note 3
to the Combined Financial Statements of The Businesses of Tenneco Packaging.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
---- ---- ------
<S> <C> <C> <C>
Short-term debt and current maturities................ $ 158 $ 123 28%
Long-term debt........................................ 1,492 1,073 39
Debt allocated to discontinued operations............. 473 394 20
Minority interest..................................... 15 -- NM
Combined equity....................................... 1,839 1,843 --
------ ------
$3,977 $3,433 16%
====== ======
</TABLE>
Packaging's debt to capitalization ratio was 53.4 percent at December 31,
1997, compared to 46.3 percent at December 31, 1996. The increase in the ratio
is attributable to additional corporate debt
53
<PAGE> 63
allocated to Packaging from Tenneco during 1997. See Note 5 to the Combined
Financial Statements of The Businesses of Tenneco Packaging for a further
discussion of the allocation of Tenneco consolidated debt and interest expense
to Packaging.
Cash Flows
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ 405 $ 263
Investing activities...................................... (654) (669)
Financing activities...................................... 239 399
</TABLE>
Operating activities provided $405 million in 1997 and $263 million in
1996. Discontinued operations provided $110 million of the increase. Continuing
operations benefited from higher income and cash flow benefits from tax refunds
during 1997, resulting primarily from tax benefits derived from the December
1996 reorganization and debt realignment, and a 1996 tax net operating loss,
which was carried back to earlier years. These positive benefits were largely
offset by increased working capital associated with higher revenue levels and
increased cash outflows associated with the fourth quarter 1996 restructuring
initiatives.
Investing activities used $15 million less cash in 1997 than in 1996. Lower
capital expenditures for discontinued operations and lower acquisitions for both
continuing and discontinued operations were largely offset by lower proceeds
from the sale of discontinued operations.
Financing activities generated $160 million less cash in 1997 than in 1996.
Packaging retired $69 million more debt and Tenneco contributed $91 million less
cash to Packaging in 1997 than in 1996.
54
<PAGE> 64
BUSINESS
We are a global supplier of specialty packaging and consumer products with
1998 revenues of approximately $2.8 billion. We operate 89 manufacturing
facilities throughout the world and employ over 15,000 people. We manufacture
and sell plastic, aluminum and paper-based consumer products, such as disposable
tableware, plastic food storage and waste bags. Our food packaging products
include molded fiber cartons, and foam, clear plastic, aluminum and pressed
paperboard containers as well as zipper closures and modified atmosphere
packaging. We also offer (a) protective packaging designed to protect and
cushion products made and shipped by various manufacturers; and (b) flexible
packaging, such as polypropylene medical bags, surgical drapes and printed
barrier films used for disposable diaper liners and other products. We pursue a
growth strategy driven by highly focused internal programs which are
complemented by strategic acquisitions.
INDUSTRY OVERVIEW AND KEY TERMS
Many of the markets we serve are growing faster than the overall growth of
the United States gross domestic product. Most of our revenue comes from
products made from different types of plastics, with the balance coming from
paper and aluminum products. According to A.C. Nielsen, the unit volume growth
trend as of June 12, 1999 for the zippered food storage bag market is 6.0% per
year. Additionally, unit volume in the market for foam disposable foodservice
packaging is projected to grow 6-7% annually for the next five years, according
to a study prepared by a market research group. Several markets within the
protective packaging industry are growing 6-8% per year in sales according to
U.S. Industry and Trade Outlook '99.
Specialty packaging is an industry term which generally refers to packaging
used by commercial customers that is designed and manufactured for a specific
application or product. Examples include:
- rigid, clear plastic containers used in supermarkets to display bakery
goods;
- sponge-like foam plastic packaging used to cushion and protect computers,
TVs and stereos; and
- flexible plastic bags used for sterile intravenous fluid delivery.
The specialty packaging industry may be divided into sub-categories based on the
characteristics of the packaging, the industry in which the packaging is used,
or the primary function of the packaging. Examples include flexible packaging,
foodservice packaging and protective packaging. Individual packaging products
may fall into more than one sub-category of specialty packaging.
Protective packaging is the industry term used to describe specialty
packaging that satisfies the protection and transportation needs of commercial
customers. Protective packaging is designed and manufactured to ensure the
integrity and safety of the customer's product from the point it leaves the
manufacturing floor until it reaches its final destination. Flexible packaging
is an industry term used to describe the sub-category of specialty packaging for
customers whose products or distribution channels require a custom-designed
flexible plastic package. Food/foodservice packaging describes specialty
packaging designed and manufactured for customers in the food industry. This
includes customers who process and prepare food for consumption, known as food
packers and processors. It also includes other customers in the food
distribution channel such as wholesalers and supermarkets.
Specialty packaging generally is constructed from plastic or paper which is
engineered, designed and manufactured to meet the customer's specific need in a
particular product or application. The basic raw materials used to make plastic
specialty packaging are different types of plastics obtained from chemical
companies, often in pelletized form, known as plastic resins. Plastic resins
come in three general forms based on their chemical composition: polyolefins,
polystyrenes and polyvinyl chloride. Polyolefins include polyethylene and
polypropylene.
The plastic resins are subjected to various manufacturing processes that
result in intermediate forms of the plastic. It may be solid or a sponge-like
material called foam. Depending on its thickness, the material may be called
film, sheet or plank.
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<PAGE> 65
The plastic films, sheets and planks are then combined, shaped and cut to
produce different specialty packaging:
- polypropylene medical bags -- layered plastic films combined to produce
plastic bags that hold fluid for intravenous delivery;
- printed barrier films -- flexible printed packaging designed to protect a
wide range of products from chemicals to foods;
- modified atmosphere packaging -- packaging that is principally used with
foods to preserve freshness and designed to protect the contents from
penetration by oxygen;
- foam containers -- lightweight containers designed to package individual
servings of food, often in the fast-food, take-out food, or other
foodservice context;
- engineered foam plank and foam sheet -- packaging material of different
shapes and thicknesses designed to protect and cushion goods, primarily
while in transit;
- polyethylene stretch film -- strong, puncture-resistant packaging used to
contain and protect goods for transportation, often used to secure
individual goods on pallets; and
- polyolefin foam -- foam packaging that is stronger and more resilient
than conventional plastic foam and which may be formed into a soft,
rubber-like material that is flexible, elastic and resilient.
- converted protective packaging -- packaging designed and configured for a
specific product application, such as the plastic foam used to secure
home electronics inside the boxes in which they are shipped and foam pipe
insulation.
Many of our packaging products are manufactured using paperboard or other
materials created from wood pulp or recycled paper:
- paperboard honeycomb -- paperboard box material designed and engineered
using geometrically shaped paperboard between flat layers of linerboard
to enhance the cushioning characteristics of the container;
- customized packaging systems -- refers to paper or plastic packaging
combined with a unique machine or device to package a specific product or
type of products.
- linerboard -- paperboard used for the flat outer face of containerboard
packaging.
- molded fiber -- a material created from recycled paper that may be formed
into various shapes, such as egg cartons;
- pressed paperboard -- plastic coated paperboard used to make food
containers; and
- dual-ovenable paperboard -- plastic coated paperboard that may be heated
in either a microwave or a conventional oven.
OUR PRODUCTS AND MARKETS
We manufacture, market and sell plastic and paper-based consumer products
and food/foodservice packaging as well as protective and flexible packaging.
Approximately 80% of our revenue comes from products made from different types
of plastics, with the balance from paper and aluminum products.
Consumer Products and Food/Foodservice Packaging
We manufacture, market and sell consumer products, such as plastic storage
bags for food and household items, plastic waste bags, foam and molded fiber
disposable tableware and disposable aluminum cookware. We sell many of these
products under such recognized brand names as Hefty(R), Baggies(R), Hefty
One-Zip(R), Kordite(TM) and E-Z Foil(R). These products are typically used by
consumers in their homes, and we market and sell them through a variety of
retailers, including supermarkets, mass merchandisers and other stores where
consumers purchase household goods.
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<PAGE> 66
Our food packaging products protect food during distribution, assist
retailers in merchandising food and help customers prepare and serve meals in
their homes. For food processors, we offer dual-ovenable paperboard products,
molded fiber egg cartons, foam meat trays, aluminum containers and modified
atmosphere packaging, which extends the shelf life of meat products.
In addition, we provide plastic zipper closures for a variety of flexible
packaging applications. Our food packaging products for supermarket in-store use
include clear rigid display packaging used in produce, deli and bakery
applications, microwaveable containers used for prepared, ready-to-eat meals,
plastic foam trays for meat and produce, and bags for produce and bakery
applications.
For our foodservice customers, we offer products that help merchandize and
serve both on-premises and takeout meals. These products include tableware
products, such as plates, bowls and cups, and a broad line of takeout service
containers made from clear plastic, microwaveable plastic, molded fiber,
paperboard, foam and aluminum.
Protective and Flexible Packaging
We manufacture, market and sell protective packaging for use in the
automotive, computer, electronic, furniture, durable goods, building and
construction products industries. Our sheet foams and air encapsulated bubble
products, for example, are used for cushioning and surface protection. Our
paperboard honeycomb and engineered foam plank products protect against shock,
vibration and thermal damage. We also offer other converted protective packaging
products, including padded mailers, a variety of laminated protective coverings
and customized packaging systems.
Our flexible packaging products provide a variety of cost-effective,
efficient and attractive solutions for consumer, medical, pharmaceutical,
chemical, hygiene and industrial applications. These products include liners for
disposable diapers, wrap-around sleeves for glass and plastic bottles,
polypropylene medical bags used for sterile intravenous fluid delivery, modified
atmosphere films, stand-up pouches, food and hygiene packaging, and disposable
surgical kits custom designed for specific procedures.
We also offer polyethylene stretch film, specialty aluminum materials and
film and foam products for use in the construction industry.
GROWTH STRATEGY
We have grown, and plan to continue to grow, by pursuing internal growth
and strategic acquisitions. By pursuing this growth strategy, we increased the
total revenues of our specialty packaging and consumer products business from
$845 million in 1995 to approximately $2.8 billion in 1998. During this same
period, our income from continuing operations from this business, before
interest, income taxes and minority interest, increased from $39 million to $328
million, representing a compound annualized growth rate of 103%. See "Combined
Selected Financial Data."
As a separate, publicly traded company, we expect to have greater
flexibility to pursue our growth strategy. The increased flexibility will come
from greater focus on a single enterprise and the enhanced access to capital
markets that comes from the ability of investors and lenders to analyze and
understand a single business platform. We expect growth opportunities will come
from additional product development and expansion initiatives, additional
strategic acquisitions, joint ventures and strategic alliances.
Internal Growth
Since 1995, we have executed a strategy that focuses our business on
markets that have strong underlying growth characteristics and attractive
margins. We offer our customers "material neutral" solutions. In other words,
our goal is not to sell customers a particular product line. Rather, through our
custom design centers and broad product line, we strive to create the best
packaging solutions for our customers, tailored precisely to their needs. With
this approach and our worldwide geographical coverage, we have become a primary
supplier to national and international manufacturers and distributors and have
developed long-term relationships with key players in the consolidating
packaging and food service
57
<PAGE> 67
distribution sector. We intend to use these relationships to quickly identify
and capture new growth markets with attractive margins as they develop, which
should expand our customer base and our market share.
We seek to add to our base business by developing new packaging solutions
for markets where we believe our experience and familiarity give us a
competitive advantage. In addition, we grow market share for our existing
products by taking advantage of (a) our broad product line of superior quality
products and our long-term relationships with key manufacturers and
distributors, (b) our product development and design services, (c) our
investment in developing state-of-the-art service capabilities, and (d) our
ongoing effort focused on reducing costs and improving the productivity of our
operations. Both of our businesses have shown significant recent internal
growth.
Product Breadth/Relationships With Key Manufacturers and Distributors
Our ability to provide "one-stop shopping" through our broad product line
is an important selling point with customers. In addition, we have cultivated
long-term relationships with key manufacturers and distributors who recognize
our strong positions in multiple product categories. These relationships,
coupled with our complete product line, are allowing us to grow our market share
for existing products. For example, in foodservice packaging, we hold the number
one market share position in the United States and Canada in each of our main
product categories (based on unit volume). Products representing 80% of sales in
our protective packaging business hold the number one or number two market share
position in North America (based on sales revenue).
New Products/Design Services
We further fuel our internal growth by developing and commercializing
proprietary new products and by designing value-added product-line extensions.
In 1998, our consumer products and food/foodservice packaging business
introduced over 80 new products and product-line extensions. In our protective
and flexible packaging business, where custom design services drive revenues, we
developed over 500 custom product application in 1998. We believe our new
product innovation and design services will remain a key factor in driving
future internal growth.
- Consumer Products and Food/Foodservice Packaging. During the last twelve
months, in our consumer products and food/foodservice packaging
business, we added jumbo two-gallon bags and sandwich bags to our
existing Hefty One-Zip(R) quart and half-gallon food storage and freezer
bag offerings. We are also leveraging our patented One-Zip(R) closure
system by expanding into other zipper closure applications, such as
SlideRite(TM) retail packaging for baby wipes, fresh produce,
supermarket deli bags and other recloseable flexible packaging. We have
the leading market share with Hefty(R) disposable tableware, and our E-Z
Foil(R) brand disposable aluminum cookware line leads its competition by
a wide margin in both sales and market share.
Our new product innovations include ActiveTech(TM) packaging, a
proprietary modified atmospheric package used by food processors for
case-ready meat. ActiveTech(TM) packaging extends the shelf life of
fresh, unfrozen red meat in a package that maintains the appearance of
freshly packaged meat.
- Protective and Flexible Packaging. In our protective and flexible
packaging business, new protective packaging products include engineered
foams, and Profiles(R), a foam-based material used in various markets,
such as building products and furniture, and custom designed to provide
many benefits, including insulation, cushioning and surface protection.
Recent flexible packaging innovations include high-end graphic stand-up
pouches for soups and detergents and the Propyflex(R) medical bag for
fluids, a non-polyvinyl chloride barrier film that both satisfies the
requirements for flexibility and transparency even after sterilization,
and provides a cost-effective package by eliminating the need for a
secondary wrap.
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<PAGE> 68
State-of-the-Art Service Capabilities
To further take advantage of our broad product line offering and strong
alignment with national distributors, we have developed and implemented our
Customer Linked Manufacturing system ("CLM"). CLM is a state-of-the-art
production planning and order fulfillment system which enables our customers to
do business with us easily and efficiently. CLM eliminates costs from the entire
supply chain and provides both our customers and us with a competitive
advantage.
Productivity/Cost Reduction
Our strong focus on improving productivity and reducing costs in our
manufacturing and logistics operations is key to supporting the growth of our
base business. For example, the manufacturing costs have continuously declined
(net of inflation) for some of our products, such as our foam products, rigid
display packaging and performance films. This has allowed us to maintain or
improve our profit margins.
Strategic Acquisitions
Strategic acquisitions have been, and will continue to be, an important
element of Packaging's overall growth strategy. Our management has a proven
record of identifying and acquiring businesses and rapidly integrating them into
one of our business groups. We pursue acquisitions that offer synergies through,
among other things, rationalizing product lines, reconfiguring and upgrading
manufacturing capabilities and reducing operating, selling, distribution,
purchasing and administrative costs. We also pursue acquisitions that strengthen
our brand presence and expand our product offerings and markets.
Consumer Products and Food/Foodservice Packaging. We plan to grow our
consumer products and food/foodservice packaging business by acquiring similar
businesses whose products and markets will complement our own. We will focus on
acquiring specialized engineering and manufacturing capabilities that augment
and enhance our existing processes and allow us to produce top-quality products
efficiently. Since the beginning of 1995, our consumer products and
food/foodservice packaging business has grown through the following
acquisitions:
- In 1995, we more than doubled our sales with the acquisition of Mobil
Plastics. This acquisition expanded our product offerings to include
foam containers, meat and poultry trays, disposable plates and bowls,
polyethylene film products, produce bags and stretch film, as well as
the well-known consumer products Baggies(R) food bags and Hefty(R) waste
bags and tableware. This acquisition also added state-of-the-art
manufacturing capabilities and new product technologies, including the
One-Zip(R) closure system.
- In August 1996, we acquired Amoco Foam Products Company, which enhanced
our distribution capabilities and market coverage, especially among food
processors. Amoco Foam's product portfolio included foam tableware,
hinged lid containers, food trays and residential and commercial
insulation products.
- In September 1998, we augmented our dual-ovenable paperboard
manufacturing capacity by acquiring a Champion International facility in
Belvidere, Illinois. As a result, we have the capability to manufacture
this product, which may be heated in a conventional or a microwave oven,
for a broad spectrum of uses in various products.
Protective and Flexible Packaging. We intend to continue our global growth
strategy of acquiring custom engineering and design capabilities that will
provide multi-material packaging solutions to markets with strong underlying
growth characteristics. This strategy has made us one of the largest producers
of protective packaging in the United States. Since the beginning of 1995, our
protective and flexible packaging business has grown through the following
acquisitions:
- In 1995, continuing our growth strategy of acquiring specialty packaging
applications, we entered the protective packaging sector by buying
Hexacomb, a manufacturer of paperboard honeycomb products.
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<PAGE> 69
- In 1997, we acquired the protective and flexible packaging businesses of
KNP BT, which operated in Europe and North America. With this
acquisition, we entered the European protective and flexible packaging
markets and enhanced our global specialty packaging position. This
acquisition also broadened the scope of our protective packaging
business to include sheet foam, engineered foam and air encapsulated
bubble and mailer applications. We also acquired two honeycomb plants in
1997.
- In April 1998, we acquired Richter Manufacturing, a West Coast
manufacturer and distributor of protective packaging products. This
acquisition expanded the geographical coverage of our North American
protective packaging operation.
- In December 1998, we acquired the foam packaging assets of Sentinel
Products, a North American producer of specialty polyolefin foams. This
acquisition further diversified our protective packaging product
offering and increased our manufacturing capacity. We also formed a
global joint venture with Sentinel (Sentinel Polyolefin LLC) to produce
and market chemically blown polyolefin foam applications in a wide
variety of non-packaging markets, including the automotive, sports and
leisure, medical and adhesive tape markets.
MARKETING, DISTRIBUTION AND CUSTOMERS
Our sales and marketing staff of 500 people is organized along three main
product groups: consumer products, foodservice and supermarket products, and
protective and flexible packaging products.
The consumer product group sells waste bags, food storage bags, disposable
plates and bowls and disposable aluminum cookware primarily to grocery stores
and mass merchandisers. These products are sold through a direct sales force and
a national network of brokers' and manufacturers' representatives.
The foodservice, supermarket and food packer and processor sales
organizations sell a broad array of disposable, rigid and flexible packaging
made from plastic, aluminum, molded fiber and pressed paperboard materials. The
products include disposable plates and bowls, carry out containers, rigid
display containers, microwavable and dual-ovenable food containers, food and
specialty retail bags and foil wrap. Our foodservice and supermarket sales are
made primarily through a network of independent distributors. Food packer and
processor sales are made primarily direct to large processors, with some sales
through distributors.
The protective and flexible packaging group sells to distributors,
fabricators and directly to end-users worldwide.
No material portion of our business is dependent upon a single customer or
even a few customers and no one customer accounted for more than 10% of our
aggregate net sales for the fiscal year ended December 31, 1998. In general, the
backlog of orders is not significant or material to an understanding of our
business.
ANALYSIS OF REVENUES
The following tables set forth for each of the years 1996 through 1998, and
for the three months ended March 31, 1999, information relating to our sales
from continuing operations:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
--------------------------------------------
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
MARCH 31, 1999 1998 1997 1996
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Disposable plastic, fiber, and aluminum packaging
products............................................. $480 $2,126 $2,105 $1,862
Plastic and fiber protective/flexible packaging
products............................................. 160 607 399 78
Other.................................................. 26 52 49 47
---- ------ ------ ------
Total............................................. $666 $2,785 $2,553 $1,987
==== ====== ====== ======
</TABLE>
60
<PAGE> 70
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
MARCH 31, 1999 1998 1997 1996
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
TOTAL SALES
Disposable plastic, fiber, and aluminum packaging
products............................................ 72% 76% 83% 94%
Plastic and fiber protective/flexible packaging
products............................................ 24 22 15 4
Other................................................. 4 2 2 2
--- --- --- ---
Total............................................ 100% 100% 100% 100%
=== === === ===
SALES BY GEOGRAPHIC AREA(A)
United States......................................... 79% 80% 83% 89%
European Union........................................ 17 17 15 8
Canada................................................ 2 1 1 2
Other areas........................................... 2 2 1 1
--- --- --- ---
Total............................................ 100% 100% 100% 100%
=== === === ===
</TABLE>
- -------------------------
(a) See Note 14 to the Combined Financial Statements of The Businesses of
Tenneco Packaging included elsewhere in this document for certain
information about foreign and domestic operations.
COMPETITION
We operate in markets that are highly competitive and face substantial
competition throughout all of our product lines from numerous global, national
and regional companies, ranging from the largest packaging companies to small,
emerging companies. Certain companies that compete with us may have greater
financial and other resources than we do, while others are significantly smaller
with lower fixed costs and possibly greater operating flexibility. In addition
to price, competition with respect to many of our products is based on quality,
service supplier response time and timely and complete order fulfillment. In
addition, other packaging producers supply alternative materials and structures
and serve different geographic regions through various distribution channels.
INTERNATIONAL
Packaging operates facilities and sells products in countries throughout
the world. As a result, Packaging is subject to risks associated with selling
and operating in foreign countries, including devaluations and fluctuations in
currency exchange rates, imposition of limitations on conversion of foreign
currencies into U.S. dollars or remittance of dividends and other payments by
foreign subsidiaries, impositions or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, hyperinflation in
certain foreign countries, and imposition or increase of investment and other
restrictions by foreign governments.
PROPERTIES
Headquarters Locations
We lease our executive offices at 1900 West Field Court, Lake Forest,
Illinois 60045, and our telephone number at that address is (847) 482-2000.
Manufacturing and Engineering Facilities
In North America, we operate 65 facilities in 18 states, Canada and Mexico.
Plastic and aluminum disposable foodservice and consumer products, stretch films
and building products are manufactured at 25 plants. The protective packaging
operations convert paperboard into honeycomb products at 12 plants. An
additional 13 plants apply extrusion, foaming and converting technologies to
produce clear, foamed, flexible or rigid plastic protective packaging from
polystyrene, polyolefins (such as polyethylene and
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<PAGE> 71
polypropylene) and kraft papers. Molded fiber packaging is produced at seven
locations, and an eighth location manufactures tooling for the molded fiber
plants. Finally, ovenable paperboard products are manufactured at two
facilities. A research and development center for food packaging and process
development is located in a new facility in Canandaigua, New York. Design
centers for protective and flexible packaging and process development are
located in Buffalo Grove, Illinois, Grand Rapids and Troy, Michigan and Santa Fe
Springs, California. In addition, we participate in two North American joint
ventures, Sentinel Polyolefin LLC and Tenneco Packaging de Mexico.
We own 24 international manufacturing operations. Eleven protective
packaging plants in Belgium, England, France, Germany, Italy, The Netherlands,
Poland, Spain and Hungary make plastic air encapsulated bubble and foam sheet
products, including mailers. Five flexible products plants in Egypt and Germany
make high quality flexible films, bags, labels and pouches, printed and
converted paper bags and disposable medical packaging. Omni-Pac is a European
subsidiary operation that manufactures molded fiber and cushion packaging with
manufacturing facilities in Elsfleth, Germany and Great Yarmouth, England. Our
Alupak subsidiary operation in Belp, Switzerland produces smoothwall aluminum
portion packs and specialty food packaging applications. Single-use thermoformed
plastic food containers and films are manufactured at four facilities in
England, Scotland and Wales. We also have a wood products operation in Romania.
In addition, we operate or participate in several international joint ventures,
including a folding carton plant in Dongguan, China, a recycling venture in
Budapest, Hungary and a corrugated converting facility in Shaoxing, China.
We believe that substantially all of our 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.
We are of the opinion that we, or our subsidiaries, have generally
satisfactory title to the properties owned and used in our businesses, subject
to liens for current taxes and easements, restrictions and other liens which do
not materially detract from the value of the properties or our interest in the
properties or the use of those properties in our businesses.
RAW MATERIALS
Plastic resins (such as polystyrene, polyethylene, polypropylene and
polyvinyl chloride), aluminum rollstock, linerboard and recycled fiber
constitute the principal raw materials used in the manufacture of most of our
products. Generally, these raw materials are readily available from a wide
variety of suppliers. The costs of these materials may be volatile, and are a
function of, among other things, the manufacturing capacity for those materials
and the costs of their components, which may also vary. Costs for our plastic
resin and recycled fiber tend to fluctuate with economic factors which generally
affect us and our competitors. The availability of raw materials was adequate in
1998 and the first three months of 1999 and is expected to remain adequate
throughout the remainder of 1999.
ENVIRONMENTAL MATTERS
We estimate that our capital expenditures for environmental matters for
1999 and 2000 will not be material.
The packaging industry, in general, and we are subject to existing and
potential federal, state, local and foreign legislation designed to reduce air
emissions. In addition, various consumer and special interest groups have
lobbied from time to time for the implementation of these and other similar
measures. Although we believe that the legislation and regulations promulgated
to date and the initiatives to date have not had a material adverse effect on
us, we cannot assure you that any such future legislative or regulatory efforts
or future initiatives would not have a material adverse effect on us.
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<PAGE> 72
OTHER
As of July 1, 1999, we employed approximately 15,000 people, 14% of whom
were covered by collective bargaining agreements. Four of those agreements,
covering a total of 247 employees, are scheduled for renegotiation before
December 31, 1999. In Europe, approximately 2,240 employees are governed by
works councils. We regard our employee relations as generally satisfactory. We
own a number of domestic and foreign patents and trademarks and other
intellectual property relating to our products which are important to the
manufacture, marketing and distribution of our products. In addition, our
administrative services operations hold numerous software licenses and own
computer equipment.
Our administrative services operations design, implement and administer
administrative service programs and data processing, providing the following
services: (a) financial accounting services; (b) employee benefits
administration for all major salaried and hourly benefit plans; (c) human
resources and payroll services; (d) mainframes and distributed systems
operations; (e) telecommunications and network operations and management; (f)
help desk support; and (g) disaster recovery support. After the spin-off,
Packaging will continue to provide some of these services to Automotive. See
"The Spin-off -- Relationship Between Automotive and Packaging After the
Spin-off." We are currently analyzing our alternatives with respect to this
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LEGAL PROCEEDINGS
Potential Environmental Liability
As of July 1, 1999, Packaging has been designated as a potentially
responsible party at three "Superfund" sites and it has estimated its share of
the liability at these sites to be approximately $2 million in the aggregate. In
addition, Packaging also may have liability to remediate several current or
former facilities and it has estimated its share of the remediation costs at
these facilities to be approximately $4 million in the aggregate. For both the
"Superfund" sites and its current and former facilities, Packaging has
established reserves that it believes are adequate for these costs. Although
Packaging believes its estimates of remediation costs are reasonable and based
on the latest information, the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required. At certain sites, Packaging expects that other parties will contribute
to the remediation costs. In addition, at the Superfund sites, the Comprehensive
Environmental Response, Compensation and Liability Act provides that Packaging's
liability could be joint and several meaning that Packaging could be required to
pay in excess of its share of remediation costs. Packaging's understanding of
the financial strength of other potentially responsible parties at both the
Superfund sites and at its current and former facilities has been considered,
where appropriate, in Packaging's determination of its estimated liability.
Packaging believes that any adjustment to the costs associated with its current
status as a potentially responsible party at the Superfund sites or as a liable
party at its current or former facilities will not be material to its combined
financial position or results of operations.
Other Proceedings
Packaging and its subsidiaries are parties to various other legal
proceedings arising from their operations. We believe that the outcome of these
other proceedings, individually and in the aggregate, will not have a material
adverse effect on our financial position or results of operations.
CONTAINERBOARD PACKAGING INTEREST
On April 12, 1999, we contributed all of our containerboard packaging
business which constituted the majority of our paperboard packaging business to
a new joint venture with an affiliate of Madison Dearborn Partners Inc. We
received as consideration cash and debt assumption totaling approximately $2
billion and retained a 45 percent common equity interest in the joint venture,
which is known as Packaging Corporation of America. As a result of subsequent
equity issuances to management, we now own a 43 percent common equity interest
in the joint venture.
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<PAGE> 73
Packaging Corporation of America manufactures corrugated containers,
containerboard, and lumber and related wood products. It has four mills and 67
corrugated products facilities. It also participates in the wood products
business and has access to approximately 950,000 acres of timberland in the
United States through both owned and leased properties. Revenues from the
containerboard business in 1998 were $1.57 billion.
We currently plan to sell our interest in the joint venture. We expect the
sale to be completed before the spin-off, with the net proceeds used to retire
the Tenneco debt that would otherwise be allocated to us in the debt
realignment. If the sale occurs after the spin-off, the net proceeds will be
used to retire our debt. See "Unaudited Pro Forma Combined Financial Statements
of Packaging" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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<PAGE> 74
MANAGEMENT
BOARD OF DIRECTORS
Upon completion of the spin-off, our Board of Directors will consist of six
members. Each director will serve an annual term that will expire at our annual
shareowners' meeting in each year and until his or her successor has been
elected and qualified. Information concerning the individuals who will serve as
our directors as of the date of the spin-off is provided below.
DANA G. MEAD, CHAIRMAN OF THE BOARD -- Mr. Mead is currently the Chairman
and Chief Executive Officer of Tenneco and has served as an executive officer of
Tenneco since April 1992, when he joined Tenneco as Chief Operating Officer.
Prior to joining Tenneco, Mr. Mead served as an Executive Vice President of
International Paper Company, a manufacturer of paper, pulp, and wood products,
from 1988, and served as Senior Vice President of that company from 1981. He is
also a director of Packaging Corporation of America, Textron Inc., Zurich Allied
AG, Pfizer Inc. and Newport News Shipbuilding Inc. Mr. Mead is 63 years old and
has been a director of Tenneco since 1992. Upon completion of the spin-off, he
will resign as Chief Executive Officer of Tenneco, but will continue, on a
non-executive basis, as the Chairman of the Board of Automotive and Packaging
through March 2000.
MARK ANDREWS -- Mr. Andrews has been Chairman of Andrews Associates, Inc.,
a government consulting firm, since February 1987. From 1963 to 1980, he served
in the U.S. House of Representatives, and from 1980 to 1986 he served in the
U.S. Senate. He is also a director of Union Storage Co. Mr. Andrews is 72 and
has been a director of Tenneco since 1987. Mr. Andrews will continue as a
director of Automotive upon the spin-off.
LARRY D. BRADY -- Mr. Brady was President of FMC Corporation, a producer of
chemicals and machinery for industry, agriculture, and government, from 1993 to
June 1999. Before 1993, Mr. Brady served in various executive capacities with
FMC Corporation for more than five years. Mr. Brady is 56 years old and has been
a director of Tenneco since January 1998. Mr. Brady will not be continuing as a
director of Automotive after the spin-off.
ROGER B. PORTER -- Mr. Porter is Director of the Center for Business and
Government at Harvard University and is the IBM Professor of Business and
Government. Mr. Porter has served on the faculty at Harvard University since
1977. Mr. Porter also held senior economic policy positions in the Ford, Reagan
and Bush White Houses, serving as special assistant to the President and
executive secretary of the Economic Policy Board from 1974 to 1977, as deputy
assistant to the President and director of the White House Office of Policy
Development from 1981 to 1985, and as assistant to the President for economic
and domestic policy from 1989 to 1993. He is also a director of RightCHOICE
Managed Care, Inc., National Life Insurance Company, and Zions Bancorporation.
Mr. Porter is 52 years old and has been a director of the Tenneco since January
1998. He will continue as a director of Automotive upon the spin-off.
PAUL T. STECKO -- Mr. Stecko became the Chief Executive Officer of
Packaging Corporation of America, Packaging's containerboard joint venture, in
connection with the April 1999 formation of that venture. From November 1998 to
April 1999, Mr. Stecko served as President and Chief Operating Officer of
Tenneco. From January 1997 to that time, Mr. Stecko served as President and
Chief Executive Officer of Packaging. Prior to joining Tenneco, Mr. Stecko spent
16 years with International Paper Company. He is also a director of State Farm
Mutual Insurance Company and the Chairman of the Board of Packaging Corporation
of America. Mr. Stecko is 54 years old and has been a director of Tenneco since
November 1998. He will continue as a director of Automotive upon the spin-off.
RICHARD L. WAMBOLD -- Mr. Wambold will be the Chief Executive Officer of
Packaging upon the spin-off and has been serving as its President since June
1999. From June 1997 to May 1999, he was Executive Vice President and General
Manager of Packaging's specialty packaging and consumer products units. Prior to
joining Packaging in 1994, Mr. Wambold was Executive Vice President of Case
Corporation's construction equipment and worldwide parts business.
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EXECUTIVE OFFICERS
The following table provides information concerning the persons who will
serve as our executive officers upon completion of the spin-off. Each of the
named persons has been, or before the spin-off will be, elected to the office
indicated opposite his name. The executive officers will serve at the discretion
of our Board. Officers are elected at the annual meeting of directors held
immediately following the annual meeting of shareowners.
<TABLE>
<CAPTION>
AGE AT
NAME JUNE 30, 1999 POSITION
---- ------------- --------
<S> <C> <C>
Richard L. Wambold............. 47 Chief Executive Officer
Paul Griswold.................. 47 Senior Vice President -- Protective and Flexible
Packaging
James V. Faulkner, Jr. ........ 55 Vice President and General Counsel
James Morris................... 45 Vice President and GM Operations
Peter Lazaredes................ 47 Vice President -- Supermarket and Foodservice
Packaging
[To be provided by
amendment]................... Chief Financial Officer
</TABLE>
RICHARD L. WAMBOLD -- See "-- Directors," above, for information concerning
Mr. Wambold.
PAUL J. GRISWOLD -- Mr. Griswold was named Senior Vice
President -- Protective and Flexible Packaging in May 1997. Since joining
Packaging in 1994, he has held various senior management positions in
Packaging's protective and flexible packaging units. With over 20 years of
packaging-related experience, Mr. Griswold began his career at International
Paper Company (holding positions in sales, marketing and operations) and was
later Vice President, Packaging for Pepsi Cola International.
JAMES V. FAULKNER, JR. -- Mr. Faulkner joined Packaging in 1995 as its Vice
President and General Counsel. Prior to that he was Vice President Law for
Tenneco. Mr. Faulkner began his legal career with Lord, Day & Lord and was later
Associate General Counsel of Union Pacific Corporation and Senior Vice President
of USPCI (a wholly owned subsidiary of Union Pacific). He has 25 years
experience in staff and operational legal positions.
JAMES D. MORRIS -- Mr. Morris will be Vice President and GM Operations upon
the spin-off. Since 1995 he has held various senior management positions in
Packaging's specialty packaging unit, including oversight of manufacturing,
engineering and product development. He also has responsibility for the sales,
marketing and business planning of the processor packer operations of the
specialty packaging unit. Mr. Morris joined Packaging in connection with its
1995 acquisition of Mobil Plastics. He spent 20 years with Mobil in assignments
which included manager of polyethylene manufacturing, regional manufacturing
manager and plant manager.
PETER J. LAZAREDES -- Mr. Lazaredes will be Vice President -- Supermarket
and Foodservice Packaging upon the spin-off. Since 1996 he has held various
senior management positions in Packaging's speciality packaging unit, including
responsibility for the marketing and sales of rigid and flexible containers to
the foodservice and institutional markets. Mr. Lazaredes joined Packaging in
1996 from Amoco Foam Products where he was General Manager of the tableware
business unit from 1992. He spent 15 years with Amoco in sales and marketing
positions for packaging, fabrics and fibers divisions.
STOCK OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of our common stock that we
expect will be beneficially owned by: (i) each person who will be a director of
Packaging upon the spin-off; (ii) each person who is named in the Summary
Compensation Table below; and (iii) all persons who will be directors or
executive officers of Packaging upon the spin-off, as a group. This information
is based on our knowledge of the number of shares of Tenneco common stock owned
by these persons as of June 30, 1999
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and the distribution of all the shares of our common stock to the holders of
Tenneco common stock in the spin-off at a one-for-one ratio.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
DIRECTORS OWNED(1)
- --------- ------------
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
- ------------------
<S> <C>
[to be provided by amendment]
</TABLE>
- -------------------------
(1) Less than one percent.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board will establish three standing committees as permitted by the
Bylaws, which will have the following described responsibilities and authority:
The Audit Committee, comprised solely of outside directors, will have the
responsibility, among other things, to: (a) recommend the selection of our
independent public accountants; (b) review and approve the scope of the
independent public accountants' audit activity and extent of non-audit services;
(c) review with management and such independent public accountants the adequacy
of our basic accounting system and the effectiveness of our internal audit plan
and activities; (d) review with management and the independent public
accountants our certified financial statements and exercise general oversight of
our financial reporting process; and (e) review with us litigation and other
legal matters that may affect our financial condition and monitor compliance
with our business ethics and other policies.
The Compensation/Nominating/Governance Committee, comprised solely of
outside directors, will have the responsibility, among other things, to (a)
establish the salary rate of officers and employees of Packaging and its
subsidiaries, (b) examine periodically our compensation structure and (c)
supervise our welfare and pension plans and compensation plans. It will also
have significant corporate governance responsibilities to, among other things,
(1) review and determine the desirable balance of experience, qualifications and
expertise among members of the our Board, (2) review possible candidates for
membership on our Board and recommend a slate of nominees for election as
directors at our annual shareowners' meeting, (3) review the function and
composition of the other committees of our Board and recommend membership on
these committees and (4) review the qualifications and recommend candidates for
election as our officers.
The Three-year Independent Director Evaluation Committee, comprised solely
of outside directors, will have the responsibility, among other things, to
review our Qualified Offer Rights Plan, which will be adopted prior to the
spin-off, at least every three years and, if it deems it appropriate, recommend
that the full Board modify or terminate that plan.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Tenneco and/or its
direct and indirect subsidiaries (including Packaging) to: (a) our Chief
Executive Officer upon the spin-off; and (b) each of the persons who will be
included among the four most highly compensated executive officers of Packaging
upon the spin-off, based on 1998 compensation, other than the Chief Executive
Officer. The table shows
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the amounts paid to these persons for all services provided to Tenneco and its
subsidiaries (including Packaging).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
- --------------------------- ---- ------ ----- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
[to be provided by amendment]
</TABLE>
Options Granted in 1998
The following table sets forth the number of options to purchase Tenneco
common stock that were granted by Tenneco during 1998 to the persons named in
the Summary Compensation Table above.
OPTIONS GRANTED IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
SHARES OF PERCENT OF STOCK PRICE
COMMON STOCK TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION --------------------
NAME GRANTED(#) IN 1998 (%) PRICE ($) DATE 5% ($) 10% ($)
---- ------------ --------------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
[to be provided by amendment]
</TABLE>
Options Exercised in 1998 and 1998 Year-End Values
The following table sets forth the number of options to purchase Tenneco
common stock exercised during 1998 and held as of December 31, 1998 by the
persons named in the Summary Compensation Table above.
OPTIONS EXERCISED IN 1998 AND 1998 YEAR-END VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXPECTED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
SHARES AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
[to be provided by amendment]
</TABLE>
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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 above during
1998 by Tenneco.
LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN 1998
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS
SHARES, UNITS PERIOD UNTIL UNDER NON-STOCK PRICE BASED PLANS
OR OTHER MATURATION OR ---------------------------------
NAME RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
[to be provided by amendment]
</TABLE>
The following table sets forth the aggregate estimated annual benefits
payable upon normal retirement pursuant to the Tenneco Retirement Plan and the
Tenneco Inc. Supplemental Executive Retirement Plan (the "Tenneco Supplemental
Executive Retirement Plan") to persons in specified remuneration and years of
credited participation classifications. Both of these plans will be assumed by
Packaging in connection with the spin-off.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
------------------------------------------
RENUMERATION 15 20 25 30
- ------------ ------- ------- ------- ---------
<S> <C> <C> <C> <C>
[to be provided by amendment]
</TABLE>
Compensation of Directors
Following the spin-off, each director who is not also an employee of
Packaging or its subsidiaries, an "outside director," will be paid a yearly
retainer fee of $35,000 for service on our Board of Directors. In general, 100%
of that fee will be paid in the form of stock-settled common stock equivalents
(the "directors' stock equivalents"), as described below. A director may elect,
however, to have up to 40% ($14,000) of the fee paid in cash. They will also
receive cash attendance fees and committee chair and membership fees, and
reimbursement of their expenses for attending meetings of the Board of
Directors. Outside directors will receive $1,000 for each meeting of the Board
of Directors attended, and each of them who serves as a Chairman of the Audit or
Compensation/Nominating/Governance Committees is paid a fee of $7,000 per
Chairmanship. Outside directors who serve as members of these committees will be
paid $4,000 per committee membership. Members of the Three-year Independent
Director Evaluation Committee will receive $1,000 plus expenses for each meeting
of that committee attended.
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Directors' stock equivalents will be payable in shares of our common stock
after an outside director ceases to serve as a director. Final distribution of
the shares may be made either in a lump sum or in installments over a period of
years. The directors' stock equivalents are issued at 100% of the fair market
value on the date of the grant. Each outside director will also receive an
annual grant of an option to purchase up to 3,000 shares of our common stock
("directors options") as additional incentive compensation for service on the
Board of Directors. Directors options (a) will be granted with per share
exercise prices equal to 100% of the fair market value of a share of our common
stock on the day the option is granted, (b) will have terms of ten years and (c)
will fully vest six months from the grant date. Once vested, the directors
options will be exercisable at any time during the option term.
We will have a voluntary deferred compensation plan for outside directors.
Under this plan, an outside director may elect, prior to the commencement of the
next calendar year, to have up to 40% ($14,000) of his or her retainer fee and
all or a portion of his or her meeting fees credited to a deferred compensation
account. The plan will provide outside directors with various investment
options. These investment options will include stock equivalent units of the our
common stock, which may be paid out in either cash or shares of our common
stock.
We expect that restricted shares of Tenneco common stock held by directors
will be vested prior to the completion of the spin-off, and the directors will
be paid an amount in cash to defray taxes incurred on that vesting.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
We will maintain a key executive change-in-control severance benefit plan
similar to the one established by Tenneco. The purpose of the plan is to enable
us to continue to attract, retain and motivate highly qualified employees by
eliminating (to the maximum practicable extent) any concern on the part of those
employees that their job security or benefit entitlements will be jeopardized by
a "change-in-control" of Packaging (as that term will be defined in the plan).
The plan will be designed to achieve this purpose through (i) the establishment
of a severance plan for the benefit of key employees and officers whose position
is terminated under certain circumstances following a change-in-control, and
(ii) the establishment of a trust fund designed to ensure the payment of
benefits accrued under our benefit plans. Under the plan, we expect that Messrs.
would have become entitled to receive payments from us in
the amount of , respectively, had their positions been terminated on June
30, 1999. In addition, restricted shares held in the name of those individuals
under the restricted stock plans we will adopt would have automatically reverted
to us, and we would have been obliged to pay those individuals the fair market
value of the shares. Their performance share equivalent units would also have
been fully vested and paid. The spin-off does not constitute a
"change-in-control" of Tenneco or Packaging for purposes of the current Tenneco
Benefits Protection Program.
Transactions with Management and Others
Certain executive officers of Tenneco are indebted to Tenneco and, upon the
spin-off, will be indebted to Packaging. That indebtedness was incurred in
connection with relocation of those officers and all amounts outstanding are
secured by a subordinated mortgage note which accrues interest at the rate of 3%
per year on the unpaid balance and matures at the earlier of the individual's
termination of employment or the year 2026. Principal is payable in full at
maturity and the payment of interest has been deferred for 1998. The following
sets forth the approximate indebtedness amount outstanding for the executive
officers as of : .
Benefit Plans Following the Spin-off
We will succeed to sponsorship of three plans qualified under Section
401(a) of the Code: the Tenneco Retirement Plan, the Tenneco Thrift Plan and the
Tenneco Thrift Plan for Hourly Employees. The Tenneco Retirement Plan is a
defined benefit pension plan. The thrift plans are 401(k) plans with
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employer matching contributions as specified in the plans. Packaging will also
continue its sponsorship of a defined benefit pension plan covering hourly
employees.
We will also succeed to sponsorship of three non-qualified deferred
compensation plans: the 1997 Tenneco Inc. Board of Directors Deferred
Compensation Plan, the Tenneco Inc. Deferred Compensation Plan and the Amended
and Restated Tenneco Inc. Supplemental Executive Retirement Plan. All of these
plans are unfunded; however, we will assume the Tenneco Inc. Rabbi Trust, from
which assets may be available to pay benefits in specified circumstances.
We will maintain a Benefits Protection Program patterned after the one
maintained by Tenneco. We will adopt a plan similar to the Tenneco Inc. Change
in Control Severance Benefit Plan for Key Executives, and we will assume the
Tenneco Inc. Benefits Protection Trust.
Prior to the spin-off, we will adopt an Executive Incentive Compensation
Plan patterned after Tenneco's plan of the same name to provide annual cash
bonuses to eligible employees.
Prior to the spin-off, we will adopt an employee stock purchase plan
similar to the one maintained by Tenneco, under which approximately 4,000,000
shares of our common stock will be available for purchase. Tenneco will approve
this plan as our sole shareowner prior to the spin-off.
Prior to the spin-off, we will adopt a plan calling for the grant of stock
options, restricted stock, performance share equivalent units and other stock
rights patterned after the 1996 Tenneco Inc. Stock Ownership Plan. Approximately
20,000,000 shares of our common stock will be available for grant under this
plan. This plan will be approved by Tenneco as our sole shareowner prior to the
spin-off.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Elimination of Liability of Directors
The Certificate provides that a director of Packaging will not be liable to
us or our shareowners 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 ("DGCL") as the same exists or may thereafter be amended. Based on the
DGCL, as presently in effect, a director of Packaging will not be personally
liable to us or our shareowners for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Packaging or our
shareowners;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions; or
- 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 Packaging only if he or she is a director of
Packaging and is acting in his or her capacity as director and do not apply to
officers of Packaging who are not directors.
Indemnification of Directors and Officers
The Bylaws provide that we will indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may thereafter be
amended, any person (a "Covered Person")
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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, or a person for
whom he is the legal representative, is or was a director or officer of
Packaging or, while a director or officer of Packaging, is or was serving at the
request of Packaging 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 that Covered Person. The Bylaws also provide that, notwithstanding
the foregoing, but except as described in the second following paragraph, we
will be required to indemnify a Covered Person in connection with a proceeding
(or part thereof) commenced by that Covered Person only if the commencement of
the proceeding (or part thereof) by the Covered Person was authorized by our
Board.
The Bylaws further provide that we will pay the expenses (including
attorneys' fees) incurred by a Covered Person in defending any proceeding in
advance of its final disposition; provided, however, that, to the extent
required by law, the payment of expenses in advance of the final disposition of
the proceeding will be made only upon receipt of an undertaking by that Covered
Person to repay all amounts advanced if it should be ultimately determined that
the Covered Person is not entitled to be indemnified under the relevant section
of the Bylaws or otherwise.
Pursuant to the Bylaws, 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 Covered Person has been received by Packaging, the Covered
Person 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 Bylaws provide that, in any such action, we will
have the burden of proving that the Covered Person is not entitled to the
requested indemnification or payment of expenses under applicable law.
The Bylaws also provide:
- that the rights conferred on any Covered Person thereby are not exclusive
of any other rights which that Covered Person may have or thereafter
acquire under any statute, provision of the Certificate, the Bylaws,
agreement, vote of shareowners or disinterested directors or otherwise;
- that our obligation, if any, to indemnify or to advance expenses to any
Covered Person 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 that Covered Person may collect as indemnification or advancement
of expenses from such other company, partnership, joint venture, trust,
enterprise or nonprofit enterprise; and
- that any repeal or modification of the relevant provisions of the Bylaws
will not adversely affect any right or protection thereunder of any
Covered Person in respect of any act or omission occurring prior to the
time of such repeal or modification.
The Bylaws also expressly state that the provisions thereof will not limit
our right, to the extent and in the manner permitted by law, to indemnify and to
advance expenses to persons other than Covered Persons when and as authorized by
appropriate corporate action.
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CERTAIN SHAREOWNERS
All of our capital stock is currently owned by Tenneco. In the spin-off,
Tenneco shareowners will receive one share of our common stock per share of
Tenneco common stock. The following table sets forth information about those
persons that we expect to hold more than 5% of our common stock upon completion
of the spin-off. It is based on our knowledge of those persons who owned more
than 5% of Tenneco's common stock on June 30, 1999. Before giving effect to the
spin-off, the following table sets forth, as of June 30, 1999, the name,
address, and Tenneco common stock ownership for each person known by Tenneco to
be the beneficial owner of more than five percent of Tenneco's outstanding
common stock (the only class of voting securities outstanding).
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON PERCENT OF COMMON
OF BENEFICIAL OWNER(1) STOCK OWNED(1) STOCK OUTSTANDING(1)
- ---------------------------------------------------------- ---------------- --------------------
<S> <C> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc.................. 21,206,280(2) 12.47%(2)
One McKinney Plaza
3232 McKinney Avenue
15th Floor
Dallas, Texas 75204-2429
Morgan Stanley Dean Witter & Co. ......................... 9,748,992(3) 5.73%(3)
1585 Broadway
New York, New York 10036
</TABLE>
- ------------------------
(1) The foregoing information is based on information contained in filings made
with the Securities and Exchange Commission.
(2) Barrow, Hanley, Mewhinney & Strauss, Inc. has indicated that it has sole
voting power over 5,104,460 shares, shared voting power over 16,101,820
shares, and sole dispositive power over 21,206,280 shares. Barrow, Hanley
also advised Tenneco that it is a registered investment advisor and these
shares are held on behalf of various clients. These shares include
16,365,800 shares (9.62%) held on behalf of the Vanguard Windsor II Fund,
The Vanguard Group, 455 Devon Park Drive, Wayne, Pennsylvania 19087-1815.
(3) Morgan Stanley Dean Witter & Co. has indicated that it has shared voting
power over 9,599,905 shares, and shared dispositive power over 9,748,992
shares.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under our Restricted Certificate of Incorporation (the "Certificate"), our
authorized capital stock will consist of 350,000,000 shares of common stock and
50,000,000 shares of preferred stock. We will not issue any preferred stock in
the spin-off. Based on the number of shares of Tenneco outstanding on June 30,
1999, Tenneco will distribute up to approximately 171,356,195 shares of
Packaging common stock in the spin-off. The Certificate provides that Packaging
shareowners do not have any preemptive right to subscribe to an additional issue
of Packaging stock or to any securities of Packaging convertible into Packaging
stock.
PACKAGING COMMON STOCK
Packaging common shareowners will be entitled to one vote for each share on
all matters on which shareowners generally are entitled to vote, and except as
otherwise required by law or provided with respect to any series of preferred
stock, Packaging common shareowners will possess 100% of the voting power. The
Certificate does not provide for cumulative voting.
Subject to the preferential rights of any outstanding preferred stock,
Packaging common shareowners will be entitled to such dividends as may be
declared from time to time by the Packaging Board and paid from funds legally
available therefor, and Packaging common shareowners will be entitled to receive
pro rata all assets of Packaging available for distribution upon liquidation.
All shares of Packaging common stock received in the spin-off will be fully paid
and nonassessable.
There is no established public trading market for Packaging common stock,
although a "when issued" market is expected to develop prior to the spin-off
date. We have applied to the New York Stock Exchange for the listing of
Packaging common stock upon official notice of issuance and we expect to receive
approval of such listing prior to the spin-off.
Our dividend policy will be established by our board of directors from time
to time. Subject to legal and contractual restrictions, its decisions regarding
dividends will be based on all considerations that in its business judgment are
relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated developments
concerning our business and operations. We expect that our dividend policy for
the foreseeable will be set to approximate the Standard & Poor's 500 average
dividend yield. For additional information concerning the payment of dividends
by us, see "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our cash flow and our consequent ability to pay any dividends on Packaging
common stock will be substantially dependent upon our earnings and cash flow
available after debt service and the availability of such earnings by way of
dividends, distributions, loans and other advances.
Under the DGCL, we may pay dividends out of "surplus" (as determined in
accordance with the DGCL) or, if there is no surplus, out of net profits for the
fiscal year in which the dividends are declared and/or the preceding fiscal year
(subject to certain restrictions).
The Certificate provides that the business and affairs of Packaging will be
managed by or under the direction of a Board of Directors, consisting of not
less than five nor more than sixteen directors, the exact number to be
determined from time to time by the Board of Directors.
PACKAGING PREFERRED STOCK
Under the Certificate, the Packaging Board of Directors is authorized to
issue preferred stock, in one or more series, and to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating,
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optional or other special rights, if any, and any qualifications, limitations or
restrictions thereof, of the shares of such series. See "-- Anti-takeover
Effects of Certain Provisions."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Certificate, the Bylaws, the rights to be issued in accordance with the
Qualified Offer Rights Plan and Delaware statutory law contain provisions that
could make the acquisition of control of Packaging by means of a tender offer, a
proxy contest or otherwise more difficult. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to the
Certificate, the Bylaws and the Qualified Offer Rights Plan Agreement which are
attached as exhibits to our Registration Statement on Form 10 under the Exchange
Act relating to our common stock.
Special Meetings
The Bylaws provide that, subject to the rights of the holders of any series
of preferred stock of Packaging to elect additional directors under specified
situations, special meetings of shareowners will be called by the Packaging
Board. The business permitted to be conducted at any special meeting of
shareowners is limited to the purposes specified in our notice of meeting.
Advance Notice Provisions for Shareowner Nominations and Shareowner
Proposals
The Bylaws establish an advance notice procedure for shareowners to make
nominations of candidates for election of directors before an annual meeting or
special meeting of shareowners or to bring other business before an annual
meeting or special meeting of shareowners (the "Shareowner Notice Procedure").
The Shareowner Notice Procedure provides that nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the shareowners may be made at an annual meeting of shareowners only:
- pursuant to Packaging's notice of meeting;
- by or at the direction of the Board of Directors; or
- by any shareowner who was a shareowner of record at the time the
requisite notice is delivered, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in the Shareowner
Notice Procedure.
Under the Shareowner Notice Procedure, the shareowner must have given
timely notice of any nomination or proposal in writing to the Secretary of
Packaging. For shareowner notice in respect of the annual meeting of Packaging's
shareowners to be timely, the notice must generally be delivered to the
Secretary of Packaging not less than 90 days nor more than 120 days prior to the
first anniversary of the previous year's annual meeting. The Shareowner Notice
Procedure also provides that for the purpose of our first annual meeting of
shareowners held after 1999, the anniversary date shall be deemed to be May 11,
1999.
Under the Shareowner Notice Procedure, a shareowner's notice to Packaging
in respect of an annual meeting, must contain the following information:
- as to each person whom the shareowner proposes to nominate for election
as a director all information relating to the person that is required to
be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to the
Exchange Act (and the person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
- as to any other business that the shareowner proposes to bring before the
meeting:
- a brief description of the business desired to be brought before the
meeting;
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- the text of the proposal (including the text of any resolutions proposed
for consideration and in the event that the business includes a proposal
to amend the Bylaws, the language of the proposed amendment);
- the reasons for conducting the business at the meeting; and
- any material interest in the business of the shareowner and the
beneficial owner, if any, on whose behalf the proposal is made; and
- as to the shareowner giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made:
- the name and address of the shareowner and of the beneficial owner;
- the class and number of shares of capital stock which are owned
beneficially and of record by the shareowner and the beneficial owner;
- a representation that the shareowner is a holder of record of Packaging
stock entitled to vote at the meeting and intends to appear in person or
by proxy at the meeting to propose the business or nomination; and
- a representation whether the shareowner or the beneficial owner, if any,
intends or is part of a group which intends:
- to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of the Packaging's capital stock required to
approve the proposal or elect the nominee and/or
- otherwise to solicit proxies from shareowners is support of the
proposal or nomination.
The Shareowner Notice Procedure provides that Packaging may require any
proposed nominee to furnish such other information as it may reasonably require
to determine the eligibility of such proposed nominee to serve as a director.
The Shareowner Notice Procedure provides that nominations of persons for
election to the Board of Directors may be made at a special meeting of
shareowners at which directors are to be elected pursuant to Packaging's notice
of meeting
- by or at the direction of the Board of Directors; or
- provided that the Board of Directors has determined that directors shall
be elected at such meeting, by any shareowner who is a shareowner of
record at the time the requisite notice is delivered, who is entitled to
vote at the meeting and upon such election and who complies with the
notice procedures set forth in the Shareowner Notice Procedure.
Under the Shareowner Notice Procedure, the shareowner must have given
timely notice thereof in writing to the Secretary of Packaging. For shareowner
notice in respect of a special meeting of shareowners at which directors are to
be elected to be timely, the notice must be delivered to the Secretary of
Packaging not earlier than 120 days prior to such special meeting and not later
than the later of 90 days prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. The shareowner notice must contain the information
required under the Shareowner Notice Procedure in respect of an annual meeting
of shareowners.
The Shareowner Notice Procedure provides that:
- only the persons who are nominated in accordance with these procedures
are eligible to be elected at an annual or special meeting of shareowners
to serve as directors and only that business shall be conducted at a
meeting of shareowners as shall have been brought before the meeting in
accordance with these procedures; and
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- the chairman of the meeting shall have the power and duty:
- to determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed in accordance with these
procedures; and
- if any proposed nomination or business was not made or proposed in
compliance with such procedures, to declare that the nomination shall be
disregarded or that the proposed business shall not be transacted.
By requiring advance notice of nominations by shareowners, the Shareowner
Notice Procedure will afford the Packaging Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Packaging Board, to inform shareowners about such
qualifications. By requiring advance notice of other proposed business, the
Shareowner Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of shareowners and, to the extent deemed necessary or
desirable by the Packaging Board, will provide the Packaging Board with an
opportunity to inform shareowners, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Packaging Board's position regarding action to be taken with respect to
such business, so that shareowners can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although the Bylaws do not give the Packaging Board any power to approve or
disapprove shareowner nominations for the election of directors or proper
shareowner proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of shareowner
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
Packaging and its shareowners.
Record Date Procedure for Shareowner Action by Written Consent
The Bylaws establish a procedure for the fixing of a record date in respect
of action proposed to be taken by Packaging's shareowners by written consent in
lieu of a meeting. The Bylaws provide that any person seeking to have the
shareowners authorize or take corporate action by written consent without a
meeting shall, by written notice, request that a record date be fixed for such
purpose. The Packaging 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 Packaging Board. If the Packaging Board fails
within 10 days after Packaging receives such notice to fix a record date for
such purpose, the Bylaws provide that the record date shall be the day on which
the first written consent is delivered to Packaging unless prior action by the
Packaging Board is required under the DGCL, in which event the record date shall
be at the close of business on the day on which the Packaging Board adopts the
resolution taking such prior action. The Bylaws also provide that the Secretary
of Packaging or, under certain circumstances, two inspectors designated by the
Secretary shall promptly conduct such ministerial review of the sufficiency of
any written consents of shareowners duly delivered to Packaging and of the
validity of the action to be taken by shareowner consent as he deems necessary
or appropriate.
Shareowner Meetings
The Bylaws provide that the Packaging Board and the chairman of a meeting
may adopt rules for the conduct of stockholder meetings and specify the types of
rules that may be adopted such as:
- the establishment of an agenda;
- rules relating to presence at the meeting of persons other than
shareowners;
- restrictions on entry at the meeting after commencement thereof; and
- the imposition of time limitations for questions by participants at the
meeting.
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Preferred Stock
The Certificate authorizes the Packaging Board to provide 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.
We believe that the ability of the Packaging Board to issue one or more
series of preferred stock will provide Packaging with flexibility in structuring
possible future financings and acquisitions and in meeting other corporate needs
which might arise. The authorized shares of preferred stock, as well as shares
of common stock, will be available for issuance without further action by
Packaging's shareowners, unless such action is required by the rules of any
stock exchange or automated quotation system on which Packaging's securities may
be listed or traded. The NYSE currently requires shareowner approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could result in a 20% increase in the number of
shares of common stock outstanding or in the amount of voting securities
outstanding. If the approval of Packaging's shareowners is not required for the
issuance of shares of preferred stock or Packaging common stock, the Packaging
Board may determine not to seek shareowner approval.
Although the Packaging Board has no intention at the present time of doing
so, it could issue a series of preferred stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Packaging Board will make any determination to issue such
shares based on its judgment as to the best interests of Packaging and its
shareowners. The Packaging Board, in so acting, could issue preferred stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the Packaging Board, including
a tender offer or other transaction that some, or a majority, of Packaging's
shareowners might believe to be in their best interests or in which shareowners
might receive a premium for their stock over the then current market price of
such stock.
Business Combinations
The Certificate prohibits "Business Combinations" (as defined in the
Certificate) with "Interested Stockholders" (as defined in the Certificate)
without the approval of the holders of at least 66 2/3% in voting power of the
outstanding shares of stock entitled to vote in the election of directors
("Voting Stock") not owned by an Interested Stockholder unless:
- approved by a majority of the "Continuing Directors" (as defined in the
Certificate); or
- certain detailed requirements have been satisfied as to:
- the value and type of consideration to be paid to Packaging's
shareowners;
- the maintenance of Packaging's dividend policy;
- the public disclosure of the Business Combination; and
- the absence of any major change in Packaging's business or equity
capital structure without the approval of a majority of the Continuing
Directors.
The Certificate generally defines an "Interested Stockholder" as any person who:
- is or has announced or publicly disclosed a plan or intention to become
the beneficial owner of Voting Stock representing five percent or more of
the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock; or
- is an affiliate or associate of Packaging and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner of Voting Stock representing five percent or more of the
votes entitled to be cast by the holders of all then outstanding shares
of Voting Stock.
The Certificate defines a "Continuing Director" as any member of the Packaging
Board who is not an affiliate or associate or representative of the Interested
Stockholder and was a member of Packaging Board
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prior to the time that the Interested Stockholder became an Interested
Stockholder, and any successor thereto who is not an affiliate or associate or
representative of the Interested Stockholder and is recommended or elected to
succeed the Continuing Director by a majority of Continuing Directors.
Amendment of Certain Provisions of the Certificate and By-laws
Under the DGCL and the Certificate, the Packaging Board or shareowners may
amend the Bylaws. The Certificate also provides that any proposal to amend the
provisions of the Certificate regarding Business Combinations proposed by or on
behalf of an Interested Stockholders requires the affirmative vote of the
holders of 66 2/3% in voting power of the outstanding shares of Voting Stock,
excluding Voting Stock beneficially owned by any Interested Stockholders, unless
the amendment is unanimously recommended by the members of the Packaging Board
and each of the members of the Packaging Board qualifies as a Continuing
Director. Approval by the Packaging Board, together with the affirmative vote of
the holders of a majority in voting power of the outstanding shares of Voting
Stock, is required to amend all other provisions of the Certificate. The
Business Combination supermajority voting requirement could have the effect of
making more difficult any amendment by shareowners of the Business Combination
provisions of the Certificate described above, even if a majority of Packaging's
shareowners believe that such amendment would be in their best interest.
Qualified Offer Rights Plan
Prior to the spin-off, the Packaging Board will adopt a Qualified Offer
Rights Plan and cause to be issued, with each share of Packaging common stock to
be distributed in the spin-off, one preferred share purchase right (a "Right").
Each Right will entitle the registered holder to purchase from Packaging one
one-thousandth of a share of Series A Junior Participating Preferred Stock of
Packaging (the "Series A Junior Preferred Stock") at a price of $ per
one one-thousandth of a share of Series A Junior Preferred Stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will be
set forth in a Qualified Offer Plan Rights Agreement between Packaging and First
Chicago Trust Company of New York, as Rights Agent (the "Rights Agent"). The
Rights will expire on (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by Packaging, in either case as described below.
In connection with the adoption of the Qualified Offer Rights Plan, the
Packaging Board will also adopt a "TIDE" (Three-year Independent Director
Evaluation) mechanism. Under the TIDE mechanism, an independent Packaging Board
committee will review, on an ongoing basis, the Qualified Offer Rights Plan and
developments in rights plans generally, and, if it deems appropriate, recommend
modification or termination of the Qualified Offer Rights Plan. This independent
committee will report to the Packaging Board at least every three years as to
whether the Qualified Offer Rights Plan continues to be in the best interests of
the Packaging shareowners.
Holders of the Rights cannot exercise the Rights until the "Distribution
Date." Under the Qualified Offer Rights Plan, a "Distribution Date" occurs upon
the earlier of:
- 10 days following a public announcement that a person or group of
affiliated or associated persons has become an "Acquiring Person"; or
- 10 business days (or such later date as may be determined by action of
the Packaging Board prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 20% or more of the
outstanding shares of Packaging common stock.
Except in certain situations, a person or group of affiliated or associated
persons becomes an "Acquiring Person" upon acquiring beneficial ownership of 20%
or more of the outstanding shares of Packaging common stock. Until the
Distribution Date, the Rights will be evidenced by Packaging common stock
certificates.
79
<PAGE> 89
Holders of the Rights cannot exercise the Rights in connection with a
"Qualified Offer," which is:
- an all-cash tender offer;
- for all outstanding Packaging common stock that is fully financed;
- remains open for a period of at least 60 business days;
- results in the offeror owning at least 85% of the outstanding shares of
Packaging common stock after consummation of the offer (excluding certain
shares);
- assures a prompt second-step acquisition of shares not purchased in the
initial offer at the same price as the initial offer; and
- meets certain other requirements.
The Qualified Offer Rights Plan provides that, until the Distribution Date
(or earlier expiration of the Rights), the Rights will be transferred with and
only with Packaging common stock. Until the Distribution Date (or earlier
expiration of the Rights), new Packaging common stock certificates issued after
the Record Date upon transfer or new issuances of Packaging common stock will
contain a notation incorporating the Qualified Offer Rights Plan by reference.
Until the Distribution Date (or earlier expiration of the Rights), the surrender
for transfer of any certificates for shares of Packaging common stock
outstanding as of the Record Date, even without such notation, will also
constitute the transfer of the Rights associated with the shares of Packaging
common stock represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Packaging common stock as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Qualified Offer Rights Plan provides that, the Purchase Price payable,
and the number of shares of Series A Junior Preferred Stock or other securities
or property issuable, upon exercise of the Rights shall adjust from time to time
to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Junior Preferred Stock;
- upon the grant to holders of the Series A Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase Series A Junior
Preferred Stock at a price, or securities convertible into Series A
Junior Preferred Stock with a conversion price, less than the
then-current market price of the Series A Junior Preferred Stock; or
- upon the distribution to holders of the Series A Junior Preferred Stock
of evidences of indebtedness or assets (excluding regular periodic cash
dividends or dividends payable in Series A Junior Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The Qualified Offer Rights Plan provides that, the number of outstanding
Rights shall adjust in the event of a stock dividend on Packaging's common stock
payable in shares of Packaging common stock or subdivisions, consolidations or
combinations of Packaging's common stock occurring, in any such case, prior to
the Distribution Date.
The terms of the shares of Series A Junior Preferred Stock do not vest
Packaging's with the authority to redeem such shares. Each share of Series A
Junior Preferred Stock will be entitled, when, as and if declared, to a minimum
preferential quarterly dividend payment of the greater of:
- $ per share; and
- 1000 times the dividend declared per share of Packaging common stock.
In the event of liquidation, dissolution or winding up of Packaging, the
holders of the Series A Junior Preferred Stock will be entitled to a minimum
preferential payment of the greater of:
- $ per share (plus any accrued but unpaid dividends); and
80
<PAGE> 90
- 1000 times the payment made per share of Packaging common stock.
Each share of Series A Junior Preferred Stock will have 1000 votes, voting
together with the Packaging common stock. Finally, in the event of any merger,
consolidation or other transaction in which outstanding shares of Packaging
common stock are converted or exchanged, each share of Series A Junior Preferred
Stock will be entitled to receive 1000 times the amount received per share of
Packaging common stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the Series A Junior Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
share of Series A Junior Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of Packaging common stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights the
Acquiring Person may beneficially own (which will thereupon become void), will
thereafter have the right to receive upon exercise of a Right that number of
shares of Packaging common stock having a market value of two times the exercise
price of the Right.
In the event that, after a person or group has become an Acquiring Person,
a person acquires Packaging in a merger or other business combination
transaction or Packaging sells 50% or more of its consolidated assets or earning
power, proper provisions will be made so that each holder of a Right (other than
Rights beneficially owned by an Acquiring Person, which will have become void)
will thereafter have the right to receive upon the exercise of a Right that
number of shares of common stock of the person with whom Packaging has engaged
in the foregoing transaction (or its parent) that at the time of such
transaction have a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or the
acquisition by such Acquiring Person of 50% or more of the outstanding shares of
Packaging common stock, the Packaging Board may exchange the Rights (other than
Rights owned by such Acquiring Person which will have become void), in whole or
in part, for shares of Packaging common stock or Series A Junior Preferred Stock
(or a series of Packaging's preferred stock having equivalent rights,
preferences and privileges), at an exchange ratio of one share of Packaging
common stock, or a fractional share of Series A Junior Preferred Stock (or other
preferred stock) equivalent in value thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Junior Preferred Stock or
Packaging common stock will be issued (other than fractions of Series A Junior
Preferred Stock which are integral multiples of one one-thousandth of a share of
Series A Junior Preferred Stock, which may, at Packaging's election be evidenced
by depositary receipts), and in lieu thereof an adjustment in cash will be made
based on the current market price of the Series A Junior Preferred Stock or
Packaging common stock.
At any time prior to the time an Acquiring Person becomes such, the
Packaging Board may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (the "Redemption Price") payable, at Packaging's option in cash,
shares of Packaging common stock or such other form of consideration as the
Packaging Board shall determine. The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Packaging
Board in its sole discretion may establish. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price.
For so long as the Rights are then redeemable, Packaging may, except with
respect to the Redemption Price, amend the Qualified Offer Rights Plan in any
manner. After the Rights are no longer redeemable, Packaging may, except with
respect to the Redemption Price, amend the Qualified Offer Rights Plan in any
manner that does not adversely affect the interests of holders of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a Packaging shareowner, including, without limitation, the
right to vote or to receive dividends.
81
<PAGE> 91
A copy of the Qualified Offer Rights Plan Agreement is being filed with the
Securities and Exchange Commission as an Exhibit to Packaging's Registration
Statement on Form 10. A copy of the Qualified Offer Rights Plan Agreement is
available free of charge from Packaging. This summary description of the Rights
does not purport to be complete and is qualified in its entirety by reference to
the Qualified Offer Rights Plan, as the same may be amended from time to time,
which is hereby incorporated herein by reference. The Rights are being
registered under the Exchange Act, together with Packaging common stock,
pursuant to such Registration Statement. In the event that the Rights become
exercisable, Packaging will register the shares of Packaging Junior Preferred
Stock for which the Rights may be exercised, in accordance with applicable law.
Anti-takeover Legislation
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any "business combination"
with any "interested stockholder" for a three-year period following the time
that such stockholder becomes an interested stockholder unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares); or
- on or subsequent to such time, the business combination is approved by
the board of directors of the corporation and by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Section 203 of the DGCL generally defines an "interested stockholder" to
include:
- any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately prior
to the relevant date; and
- the affiliates and associates of any such person.
Section 203 of the DGCL generally defines a "business combination" to
include:
- mergers and sales or other dispositions of 10% or more of the assets of
the corporation with or to an interested stockholder;
- certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries;
- certain transactions which would result in increasing the proportionate
share of the stock of the corporation or its subsidiaries owned by the
interested stockholder; and
- receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges, or other financial benefits.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the certificate of incorporation or shareowner-adopted by-laws may
exclude a corporation from the restrictions imposed thereunder. Neither the
Certificate nor the Bylaws exclude Packaging from the restrictions imposed under
Section 203 of the DGCL. It is anticipated that the provisions of Section 203 of
the DGCL may encourage companies interested in acquiring Packaging to negotiate
in advance with the Packaging Board since the stockholder approval requirement
would be avoided if the Packaging Board approves, prior to the time the
shareowner becomes an interested stockholder, either the business combination or
the transaction which results in the shareowner becoming an interested
stockholder.
82
<PAGE> 92
ADDITIONAL INFORMATION
Tenneco is (and, following the spin-off, Automotive and Packaging will be)
subject to the informational requirements of the Exchange Act. Under the
Exchange Act, Tenneco files (and Automotive and Packaging will file) reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by Tenneco (and to be filed by Automotive and Packaging) with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Commission's Regional Offices, including the
following: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such information may be obtained by mail at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Street, N.W., Washington, D.C. 20549 or accessed electronically on the
Commission's Web site at (http://www.sec.gov). Packaging common stock is
expected to approved for listing on the New York Stock Exchange and reports and
other information concerning Packaging may then be inspected at the New York
Stock Exchange offices, 20 Broad Street, New York, New York, 10005.
We intend to furnish holders of Packaging common stock with annual reports
containing consolidated financial statements prepared in accordance with United
States generally accepted accounting principles and audited and reported on,
with an opinion expressed, by an independent public accounting firm, as well as
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
We have filed with the Commission a Registration Statement on Form 10 under
the Exchange Act covering Packaging common stock and the associated Rights.
THIS INFORMATION STATEMENT DOES NOT CONTAIN ALL OF THE INFORMATION IN THE
REGISTRATION STATEMENT AND THE RELATED EXHIBITS AND SCHEDULES. STATEMENTS IN
THIS INFORMATION STATEMENT AS TO THE CONTENTS OF ANY CONTRACT, AGREEMENT OR
OTHER DOCUMENT ARE SUMMARIES ONLY AND ARE NOT NECESSARILY COMPLETE. FOR COMPLETE
INFORMATION AS TO THESE MATTERS, REFER TO THE APPLICABLE EXHIBIT OR SCHEDULE TO
THE REGISTRATION STATEMENT. THE REGISTRATION STATEMENT AND THE RELATED EXHIBITS
FILED BY PACKAGING WITH THE COMMISSION MAY BE INSPECTED AT THE PUBLIC REFERENCE
FACILITIES OF THE COMMISSION LISTED ABOVE.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Information
Statement other than those contained herein or in the documents incorporated by
reference herein and, if given or made, such information or representation must
not be relied upon as having been authorized by Packaging or Tenneco. Neither
the delivery of this Information Statement nor consummation of the spin-off
contemplated hereby shall, under any circumstances, create any implication that
there has been no change in the affairs of Packaging or Tenneco since the date
hereof, or that the information herein is correct as of any time subsequent to
its date.
83
<PAGE> 93
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE OF
THE BUSINESSES OF TENNECO PACKAGING
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................... F-2
Combined statements of income for each of the three years in
the period ended December 31, 1998, and the three months
ended March 31, 1999 (unaudited) and 1998 (unaudited)..... F-3
Combined balance sheets -- December 31, 1998 and 1997, and
March 31, 1999 (unaudited)................................ F-4
Combined statements of cash flows for each of the three
years in the period ended December 31, 1998, and the three
months ended March 31, 1999 (unaudited) and 1998
(unaudited)............................................... F-5
Statements of changes in combined equity for each of the
three years in the period ended December 31, 1998, and
three months ended March 31, 1999 (unaudited)............. F-6
Statements of comprehensive income for each of the three
years in the period ended December 31, 1998, and the three
months ended March 31, 1999 (unaudited) and 1998
(unaudited)............................................... F-7
Notes to combined financial statements...................... F-8
Financial statement schedule -- Valuation and Qualifying
Accounts.................................................. S-1
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined balance sheets of the Businesses
of Tenneco Packaging (see Note 1) as of December 31, 1998 and 1997, and the
related combined statements of income, cash flows, changes in combined equity
and comprehensive income for each of the three years in the period ended
December 31, 1998. These combined financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these combined financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Businesses of Tenneco Packaging as of December 31, 1998 and 1997, and the
results of their combined operations and cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the combined financial statements, in the fourth
quarter of 1997, the Businesses of Tenneco Packaging changed their method of
accounting for certain costs incurred in connection with information technology
transformation projects.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule listed
in the index to the combined financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic combined financial statements. The supplemental schedule
has been subjected to the auditing procedures applied in the audits of the basic
combined financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic combined financial statements of the Businesses of Tenneco Packaging taken
as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
July 2, 1999
F-2
<PAGE> 95
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF INCOME
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- --------------------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
Specialty................................. $2,785 $2,553 $1,987 $ 666 $ 630
Other..................................... 6 10 -- -- 3
------ ------ ------ ------ ------
2,791 2,563 1,987 666 633
Gain (loss) on sale of businesses and assets,
net....................................... (9) -- 15 (18) --
Other income, net............................ 6 6 34 3 5
------ ------ ------ ------ ------
2,788 2,569 2,036 651 638
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below).............................. 1,870 1,796 1,417 444 432
Engineering, research, and development....... 33 34 22 7 6
Selling, general, and administrative......... 427 270 232 107 87
Depreciation and amortization................ 175 163 131 48 44
------ ------ ------ ------ ------
2,505 2,263 1,802 606 569
------ ------ ------ ------ ------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES,
AND MINORITY INTEREST........................ 283 306 234 45 69
Interest expense (net of interest
capitalized)............................ 133 124 102 36 33
Income tax expense........................ 67 75 67 3 18
Minority interest......................... 1 1 -- -- --
------ ------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS.............. 82 106 65 6 18
Income (loss) from discontinued operations, net
of income tax................................ 57 21 71 (172) 14
------ ------ ------ ------ ------
Income (loss) before extraordinary loss........ 139 127 136 (166) 32
Extraordinary loss, net of income tax.......... -- -- (2) (7) --
------ ------ ------ ------ ------
Income (loss) before cumulative effect of
change in accounting principle............... 139 127 134 (173) 32
Cumulative effect of change in accounting
principle, net of income tax................. -- (38) -- (32) --
------ ------ ------ ------ ------
NET INCOME (LOSS).............................. $ 139 $ 89 $ 134 $ (205) $ 32
====== ====== ====== ====== ======
EARNINGS (LOSS) PER SHARE
Basic earnings per share of common stock --
Continuing operations........................ $ .49 $ .63 $ .38 $ .03 $ .11
Discontinued operations...................... .34 .12 .42 (1.03) .08
Extraordinary loss........................... -- -- (.01) (.04) --
Cumulative effect of change in accounting
principle................................. -- (.23) -- (.19) --
------ ------ ------ ------ ------
$ .83 $ .52 $ .79 $(1.23) $ .19
====== ====== ====== ====== ======
Diluted earnings per share of common stock --
Continuing operations........................ $ .49 $ .63 $ .38 $ .03 $ .11
Discontinued operations...................... .34 .12 .42 (1.03) .08
Extraordinary loss........................... -- -- (.01) (.04) --
Cumulative effect of change in accounting
principle................................. -- (.23) -- (.19) --
------ ------ ------ ------ ------
$ .83 $ .52 $ .79 $(1.23) $ .19
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined statements of income.
F-3
<PAGE> 96
THE BUSINESSES OF TENNECO PACKAGING
COMBINED BALANCE SHEETS
(MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1997 1999
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 7 $ 11 $ 7
Receivables --
Customer notes and accounts, net....................... 336 301 223
Affiliated companies................................... 44 74 51
Income taxes........................................... 15 36 17
Other.................................................. 52 10 94
Inventories............................................... 412 404 440
Deferred income taxes..................................... 6 41 17
Prepayments and other..................................... 45 47 32
------ ------ ------
917 924 881
------ ------ ------
Other assets:
Long-term notes receivable, net........................... 22 21 21
Goodwill and intangibles, net............................. 1,052 1,009 1,034
Pension assets............................................ 742 654 769
Other..................................................... 143 129 99
------ ------ ------
1,959 1,813 1,923
------ ------ ------
Plant, property, and equipment, at cost..................... 2,057 1,856 1,998
Less -- Reserves for depreciation and amortization........ 501 398 503
------ ------ ------
1,556 1,458 1,495
------ ------ ------
Net assets of discontinued operations....................... 366 423 372
------ ------ ------
$4,798 $4,618 $4,671
====== ====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $ 595 $ 158 $ 724
Payables --
Trade.................................................. 255 252 274
Affiliated companies................................... 6 6 8
Taxes accrued............................................. 13 12 40
Accrued liabilities....................................... 188 192 169
Other..................................................... 85 124 169
------ ------ ------
1,142 744 1,384
------ ------ ------
Long-term debt.............................................. 1,312 1,492 1,337
------ ------ ------
Deferred income taxes....................................... 291 270 263
------ ------ ------
Postretirement benefits..................................... 163 114 148
------ ------ ------
Deferred credits and other liabilities...................... 100 144 55
------ ------ ------
Commitments and contingencies
Minority interest........................................... 14 15 14
------ ------ ------
Combined equity............................................. 1,776 1,839 1,470
------ ------ ------
$4,798 $4,618 $4,671
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined balance sheets.
F-4
<PAGE> 97
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF CASH FLOWS
(MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------- ------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 82 $ 106 $ 65 $ 6 $ 18
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations --
Depreciation and amortization.......................... 175 163 131 48 44
Deferred income taxes.................................. 77 118 4 1 --
(Gain) loss on sale of businesses and assets, net...... 9 -- (15) 18 --
Allocated interest, net of tax......................... 85 78 63 24 21
Changes in components of working capital --
(Increase) decrease in receivables................... (50) (1) (59) (9) 58
(Increase) decrease in inventories................... 8 (12) (5) (34) (25)
(Increase) decrease in prepayments and other current
assets............................................ (1) (30) 8 (3) (2)
Increase (decrease) in payables...................... 65 (44) 13 (27) (36)
Increase (decrease) in taxes accrued................. (23) (36) 40 19 30
Increase (decrease) in interest accrued.............. -- (1) (1) -- --
Increase (decrease) in other current liabilities..... 35 (5) (8) (30) (6)
Other.................................................. (90) (38) 30 (38) (54)
----- ----- ----- ----- ----
Cash provided (used) by continuing operations............... 372 298 266 (25) 48
Cash provided (used) by discontinued operations............. 205 107 (3) 55 34
----- ----- ----- ----- ----
Net cash provided (used) by operating activities............ 577 405 263 30 82
----- ----- ----- ----- ----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- 10 123 -- --
Net proceeds from sale of businesses and assets............. 22 14 23 3 1
Expenditures for plant, property, and equipment............. (194) (229) (216) (29) (46)
Acquisitions of businesses and assets....................... (101) (285) (323) (2) --
Expenditures for plant, property, and equipment and business
acquisitions -- discontinued operations................... (203) (108) (169) (22) (16)
Investments and other....................................... (38) (56) (107) -- (5)
----- ----- ----- ----- ----
Net cash provided (used) by investing activities............ (514) (654) (669) (50) (66)
----- ----- ----- ----- ----
FINANCING ACTIVITIES
Issuance of long-term debt.................................. 3 4 -- -- 2
Retirement of long-term debt................................ (18) (18) (7) (28) (2)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 4 (78) (16) 1 1
Cash contributions from (distributions to) Tenneco.......... (56) 331 422 45 (19)
----- ----- ----- ----- ----
Net cash provided (used) by financing activities............ (67) 239 399 18 (18)
----- ----- ----- ----- ----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ -- (1) (1) 2 --
----- ----- ----- ----- ----
Increase (decrease) in cash and temporary cash
investments............................................... (4) (11) (8) -- (2)
Cash and temporary cash investments, beginning of period.... 11 22 30 7 11
----- ----- ----- ----- ----
Cash and temporary cash investments, end of
period.................................................... $ 7 $ 11 $ 22 $ 7 $ 9
===== ===== ===== ===== ====
Cash paid during the year for interest...................... $ 6 $ 9 $ 8 $ -- $ 1
Cash paid during the year for income taxes (net of
refunds).................................................. $ 21 $ (68) $ 60 $ 11 $ 3
</TABLE>
- -------------------------
Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months or less at the date of purchase.
The accompanying notes to combined financial statements are an integral part
of these combined statements of cash flows.
F-5
<PAGE> 98
THE BUSINESSES OF TENNECO PACKAGING
STATEMENTS OF CHANGES IN COMBINED EQUITY
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED
1998 1997 1996 MARCH 31, 1999
---- ---- ---- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, January 1................................. $1,839 $1,843 $1,531 $1,776
Net income (loss)................................ 139 89 134 (205)
Accumulated other comprehensive income (loss).... 22 (24) (7) (21)
Allocated interest, net of tax................... 85 78 63 24
Change in allocated corporate debt............... (333) (549) (137) (110)
Cash contributions from (distributions to)
Tenneco....................................... (56) 331 422 45
Noncash contributions from (distributions to)
Tenneco....................................... 80 71 (163) (39)
------ ------ ------ ------
Balance, end of period............................. $1,776 $1,839 $1,843 $1,470
====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these
statements of changes in combined equity.
F-6
<PAGE> 99
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
OTHER OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME INCOME INCOME
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS)............. $139 $ 89 $134
---- ---- ----
ACCUMULATED OTHER
COMPREHENSIVE INCOME:
CUMULATIVE TRANSLATION
ADJUSTMENT
Balance, January 1.......... $(21) $ 3 $10
Translation of foreign
currency statements..... 24 24 (25) (25) (6) (6)
Hedges of net investment
in foreign
subsidiaries............ -- -- 2 2 (2) (2)
Income tax benefit
(expense)............... -- -- (1) (1) 1 1
---- ---- ---
Balance, end of period...... 3 (21) 3
---- ---- ---
ADDITIONAL MINIMUM PENSION
LIABILITY ADJUSTMENT
Balance, January 1.......... -- -- --
Additional minimum pension
liability adjustment.... (4) (4) -- -- -- --
Income tax benefit
(expense)............... 2 2 -- -- -- --
---- ---- ---
Balance, end of period...... (2) -- --
---- ---- ---
Balance, end of period........ $ 1 $(21) $ 3
==== ---- ==== ---- === ----
Other comprehensive income
(loss)...................... 22 (24) (7)
---- ---- ----
COMPREHENSIVE INCOME (LOSS)... $161 $ 65 $127
==== ==== ====
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-----------------------------
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME INCOME
------------- -------------
(UNAUDITED)
<S> <C> <C>
NET INCOME (LOSS)............. $(205)
-----
ACCUMULATED OTHER
COMPREHENSIVE INCOME:
CUMULATIVE TRANSLATION
ADJUSTMENT
Balance, January 1.......... $ 3
Translation of foreign
currency statements..... (21) (21)
Hedges of net investment
in foreign
subsidiaries............ -- --
Income tax benefit
(expense)............... -- --
----
Balance, end of period...... (18)
----
ADDITIONAL MINIMUM PENSION
LIABILITY ADJUSTMENT
Balance, January 1.......... (2)
Additional minimum pension
liability adjustment.... -- --
Income tax benefit
(expense)............... -- --
----
Balance, end of period...... (2)
----
Balance, end of period........ $(20)
==== -----
Other comprehensive income
(loss)...................... (21)
-----
COMPREHENSIVE INCOME (LOSS)... $(226)
=====
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined statements of comprehensive income.
F-7
<PAGE> 100
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying combined financial statements represent the financial
position, results of operations, and cash flows for all of the Businesses of
Tenneco Packaging ("Packaging") owned directly or indirectly by Tenneco Inc.
("Tenneco") and its subsidiaries (see "Control" below). Packaging includes the
assets, liabilities, and operations of Tenneco's specialty packaging and
paperboard packaging businesses as well as Tenneco's corporate and
administrative service operations.
Unless the context otherwise requires, the term "Tenneco" refers to: (i)
for periods prior to the spin-off, as defined below, Tenneco's automotive and
packaging businesses, and administrative service operations and (ii) for periods
after the spin-off, Tenneco's automotive business.
2. STRATEGIC ALTERNATIVES ANALYSIS
In July 1998, Tenneco's Board of Directors authorized management to develop
a broad range of strategic alternatives which could result in the separation of
the automotive, paperboard packaging, and specialty packaging businesses. As
part of that strategic alternatives analysis, Tenneco has taken the following
actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture with an affiliate of Madison Dearborn Partners, Inc. The
contribution to the joint venture was completed in April 1999. Tenneco
received consideration of cash and debt assumption totaling
approximately $2 billion and a 45 percent common equity interest in the
joint venture (now 43 percent due to subsequent management equity
issuances)valued at approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and packaging businesses into
two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture.
Packaging expects the sale to be completed before the spin-off discussed
below.
As a result of the decision to sell Packaging's remaining interest in the
containerboard joint venture, Packaging's paperboard packaging segment is
presented as a discontinued operation in the accompanying combined financial
statements. Reference is made to Note 7 for information related to discontinued
operations.
The separation of Tenneco's automotive and packaging businesses will be
accomplished by the spin-off of the common stock of Packaging to Tenneco
shareowners (the "Spin-off"). At the time of the Spin-off, Packaging will
include Tenneco's specialty packaging business, Tenneco's administrative
services operations, and the remaining interest in the containerboard joint
venture if the sale has not been completed. Tenneco and Packaging are, however,
currently analyzing the alternatives with regard to the administrative services
operations.
Before the Spin-off, Tenneco will realign substantially all of its existing
debt through some combination of tender offers, exchange offers, prepayments and
other refinancings. The debt realignment will be financed by internally
generated cash, borrowings by Tenneco under the new credit facility, the
issuance by Tenneco of subordinated debt, and borrowings by Packaging under a
new credit facility.
The Spin-off is subject to conditions, including formal declaration of the
Spin-off by the Tenneco Board of Directors, a favorable determination that the
Spin-off will be tax-free for U.S. federal income tax purposes, and the
successful completion of the debt realignment and corporate restructuring
transactions.
F-8
<PAGE> 101
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Tenneco has requested a favorable ruling from the Internal Revenue Service on
the tax-free nature of the Spin-off.
Packaging will modify or enter into certain contractual agreements with
Tenneco related to becoming a separate publicly held company. These agreements
include a distribution agreement, a tax sharing agreement, a human resources
agreement, an insurance agreement, and a transition services agreement.
These agreements will provide, among other things, that (i) Packaging will
become the sponsor of the Tenneco Retirement Plan, the Tenneco Supplemental
Executive Retirement Plan, and the Tenneco Thrift Plan; and (ii) Packaging will
provide certain administrative services, including payroll, accounts payable,
benefits administration, accounting, and travel-related services to Tenneco for
a specified period of time.
3. SUMMARY OF ACCOUNTING POLICIES
Control
All of the outstanding common stock of Packaging is owned directly or
indirectly by Tenneco. Thus, Packaging is under the control of Tenneco.
Unaudited Interim Information
The unaudited interim combined financial statements as of March 31, 1999,
and for the three month periods ended March 31, 1999 and 1998, 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 Packaging'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.
Income Taxes
Packaging 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. The estimates
utilized in the recognition of deferred tax assets are subject to revision in
future periods based on new facts or circumstances.
Packaging 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. This agreement provides, among
other things, that (1) each company in a taxable income position will be
currently charged with an amount equivalent to its U.S. federal income tax
computed on a separate return basis and (2) each company in a tax loss position
will be reimbursed currently. The income tax amounts reflected in the combined
financial statements of Packaging under the provisions of the tax sharing
arrangement are not materially different from the income taxes which would have
been provided had Packaging filed a separate tax return. Under the tax sharing
agreement, Tenneco pays all U.S. federal taxes directly and bills or refunds, as
applicable, its subsidiaries for the applicable portion of the total tax
payments. Cash taxes paid in the combined statements of cash flows include
payments to Tenneco for U.S. federal income taxes.
F-9
<PAGE> 102
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Packaging does not provide for U.S. federal income taxes on unremitted
earnings of foreign subsidiaries as it is the present intention of management to
reinvest the unremitted earnings in its foreign operations. Unremitted earnings
of foreign subsidiaries are approximately $95 million at December 31, 1998. It
is not practicable to determine the amount of U.S. federal income taxes that
would be payable upon remittance of the assets that represent those earnings.
In connection with the Spin-off, the current tax sharing agreement will be
cancelled, and Packaging will enter into a new tax sharing agreement with
Tenneco. The tax sharing agreement will provide, among other things, for the
allocation of taxes among the parties of tax liabilities arising prior to, as a
result of, and subsequent to the Spin-off. Generally, Packaging will be liable
for taxes imposed on it and its affiliates engaged in the packaging business. In
the case of U.S. federal income taxes imposed on the combined activities of the
consolidated group, Packaging will generally be liable to Tenneco for U.S.
federal income taxes attributable to its activities.
Changes in Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. This
statement cannot be applied retroactively and is effective for all fiscal years
beginning after June 15, 2000. Packaging is currently evaluating the new
standard but has not yet determined the impact it will have on its financial
position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Packaging previously
capitalized certain costs in connection with the start-up of certain new foreign
operations and its shared administrative service operations. Packaging adopted
SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative
effect of this change in accounting principle upon adoption of $32 million (net
of a $9 million tax benefit), or $.19 per diluted common share. The change in
accounting principle decreased the loss before cumulative effect of change in
accounting principle by $2 million (net of $1 million in income tax expense), or
$.01 per diluted common share for the three months ended March 31, 1999. If the
new accounting method had been applied retroactively, net income for the three
months ended March 31, 1998, and the years ended December 31, 1998, 1997, and
1996, would have been lower by $3 million (net of a $2 million tax benefit), or
$.02 per diluted common share, $14 million (net of a $8 million tax benefit), or
$.08 per diluted common share, $7 million (net of a $3 million tax benefit), or
$.04 per diluted common share, and $7 million (net of a $4 million tax benefit),
or $.04 per diluted common share.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes new
accounting and reporting standards for the costs of computer software developed
or obtained for internal use. This statement requires prospective application
for fiscal years beginning after December 15, 1998. Packaging adopted SOP 98-1
on January 1,
F-10
<PAGE> 103
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1999. The impact of this new standard did not have a significant effect on
Packaging's financial position or results of operations.
As required by the FASB's Emerging Issues Task Force ("EITF") Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation," Packaging recorded an after-tax charge of $38 million (net of a
tax benefit of $24 million), or $.23 per diluted common share in the fourth
quarter of 1997. EITF Issue 97-13 establishes the accounting treatment and an
allocation methodology for certain consulting and other costs incurred in
connection with information technology transformation efforts. This charge was
reported as a cumulative effect of change in accounting principle.
General and Administrative Expenses
Included in the "Selling, general and administrative" caption in the
Combined Statements of Income for 1998, 1997, and 1996, is $70 million, $49
million, and $51 million, respectively, which represents Packaging'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 is based on estimated levels of
effort devoted to Tenneco's various operations and the relative size of these
operations based on revenues, gross property, and payroll. Also included in the
"Selling, general and administrative" caption is $55 million, $22 million, and
$7 million, for 1998, 1997, and 1996, respectively, related to administrative
service operations which has not been allocated among Tenneco's various
operations. Packaging estimates that, had it operated as a separate, stand-alone
entity and had the administrative service operations costs been allocated based
on a usage charge, its annual costs for these services would have been lower by
approximately $40 million (unaudited) for the year ended December 31, 1998, $27
million (unaudited) for the year ended December 31, 1997, and $18 million
(unaudited) for the year ended December 31, 1996.
Sales of Receivables
Packaging sells trade receivables to a third party in the ordinary course
of business. At December 31, 1998 and 1997, $140 million and $130 million,
respectively, and $146 million at March 31, 1999, of its outstanding trade
receivables had been sold. Sales of trade receivables are reflected as a
reduction of customer notes and accounts receivable in the accompanying combined
balance sheets and the proceeds received are included in cash flows from
operating activities in the accompanying combined statements of cash flows.
Inventories
At December 31, 1998 and 1997, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Finished goods.............................................. $246 $265
Work in process............................................. 51 22
Raw materials............................................... 63 85
Materials and supplies...................................... 52 32
---- ----
$412 $404
==== ====
</TABLE>
Inventories are stated at the lower of cost or market. A portion of total
inventories (61% and 43% at December 31, 1998 and 1997, respectively) is valued
using the "last-in, first-out" method. All other inventories are valued on the
"first-in, first-out" ("FIFO") or "average" methods. If the FIFO or average
F-11
<PAGE> 104
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
method of inventory accounting had been used by Packaging for all inventories,
inventories would have been approximately $30 million lower and $2 million
higher at December 31, 1998 and 1997, respectively.
Goodwill and Intangibles, Net
At December 31, 1998 and 1997, goodwill and intangibles, net of
amortization, by major category were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Goodwill.................................................... $ 695 $ 662
Trademarks.................................................. 177 182
Patents..................................................... 149 157
Other....................................................... 31 8
------ ------
$1,052 $1,009
====== ======
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years. Such
amortization amounted to $17 million, $21 million, and $12 million for 1998,
1997, and 1996, respectively, and is included in the combined statements of
income caption, "Depreciation and amortization."
Packaging has capitalized certain intangible assets, primarily trademarks
and patents, based on their estimated fair value at date of acquisition.
Amortization is provided on these intangible assets on a straight-line basis
over periods ranging from 5 to 40 years. Such amortization amounted to $18
million, $17 million, and $17 million in 1998, 1997, and 1996, respectively, and
is included in the combined statements of income caption, "Depreciation and
amortization."
Plant, Property, and Equipment, at Cost
At December 31, 1998 and 1997, plant, property, and equipment, at cost, by
major category was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Land, buildings, and improvements........................... $ 446 $ 389
Machinery and equipment..................................... 1,481 1,339
Other, including construction in progress................... 130 128
------ ------
$2,057 $1,856
====== ======
</TABLE>
Depreciation of Packaging's properties is provided on a straight-line basis
over the estimated useful lives of the assets. Useful lives range from 10 to 40
years for buildings and improvements and from 3 to 25 years for machinery and
equipment.
Other Long-Term Assets
Packaging previously capitalized certain costs in connection with the
start-up of certain new foreign operations and its shared administrative service
operations. The start-up costs are amortized over the periods benefited,
generally three to five years. Start-up costs capitalized, net of amortization,
at December 31, 1998 and 1997, were $41 million and $20 million, respectively.
Packaging adopted a new accounting standard in the first quarter of 1999, which
requires these costs to be expensed. Refer to "Changes in Accounting Principles"
discussed previously in this footnote.
F-12
<PAGE> 105
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Packaging capitalizes certain costs related to the purchase and development
of software which is used in its business operations. The costs attributable to
these software systems are amortized over their estimated useful lives based on
various factors such as the effects of obsolescence, technology, and other
economic factors. Capitalized software development costs, net of amortization,
were $140 million and $104 million at December 31, 1998 and 1997, respectively.
As described previously in this footnote, Packaging adopted a new accounting
standard related to accounting for the costs of computer software developed for
internal use. The impact of this new standard did not have a significant effect
on Packaging's financial position or results of operations.
Environmental Liabilities
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations and
that do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of the
liability are based upon currently available facts, existing technology, and
presently enacted laws and regulations taking into consideration the likely
effects of inflation and other societal and economic factors. All available
evidence is considered including prior experience in remediation of contaminated
sites, other companies' clean-up experience, and data released by the United
States Environmental Protection Agency or other organizations. These estimated
liabilities are subject to revision in future periods based on actual costs or
new information. These liabilities are included in the balance sheet at their
undiscounted amounts. Recoveries are evaluated separately from the liability
and, when assured, are recorded and reported separately from the associated
liability in the combined financial statements. For further information on this
subject, refer to Note 15, "Commitments and Contingencies."
Earnings Per Share
In connection with the Spin-off, Tenneco shareowners will receive one share
of Packaging common stock for each share of Tenneco common stock outstanding.
Accordingly, basic and diluted earnings per share for Packaging have been
calculated using Tenneco's historical weighted average shares outstanding and
weighted average shares outstanding adjusted to include estimates of additional
shares that would be issued if potentially dilutive common shares had been
issued, respectively. Potentially dilutive securities include stock options,
restricted stock and performance shares.
Tenneco's basic and diluted average common shares outstanding are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic......................... 168,505,573 170,264,731 169,609,373 166,743,506 169,542,371
Diluted....................... 168,834,531 170,801,636 170,526,112 167,180,597 170,065,712
</TABLE>
Research and Development
Research and development costs are expensed as incurred. Research and
development expenses were $25 million, $29 million, and $19 million for 1998,
1997, and 1996, respectively, and are included in the combined statements of
income caption "Engineering, research, and development."
F-13
<PAGE> 106
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
Financial statements of international operations are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each applicable period
for revenues, expenses, and gains and losses. Translation adjustments are
reflected in the combined balance sheet caption "Combined equity."
Risk Management Activities
Packaging from time to time uses derivative financial instruments,
principally foreign currency forward purchase and sale contracts with terms of
less than one year, to hedge its exposure to changes in foreign currency
exchange rates. Net gains or losses on these foreign currency exchange contracts
that are designated as hedges are recognized in the combined statements of
income to offset the foreign currency gain or loss on the underlying
transaction. Packaging has from time to time also entered into forward contracts
to hedge its net investment in foreign subsidiaries. The after-tax net gains or
losses on these contracts are recognized on the accrual basis in the combined
balance sheet caption "Combined equity." In the statement of cash flows, cash
receipts or payments related to these exchange contracts are classified
consistent with the cash flows from the transaction being hedged.
Packaging does not currently enter into derivative financial instruments
for speculative purposes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of Packaging's assets,
liabilities, revenues, and expenses. Reference is made to the "Income Taxes" and
"Environmental Liabilities" sections of this footnote and Notes 13 and 15 for
additional information on significant estimates included in Packaging's combined
financial statements.
4. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in every part of Tenneco's business. As a result, Packaging
recorded a pre-tax charge to income from continuing operations of $32 million,
$20 million after-tax or $.12 per diluted common share. Of the pre-tax charge,
$10 million relates to operational restructuring actions and $22 million relates
to a staff and cost reduction plan, which covers employees in both the operating
unit and at corporate.
The operational restructuring plans for Packaging involve the elimination
of production lines at two plants resulting in the elimination of 104 positions.
Additionally, Packaging intends to exit four joint ventures. The staff and cost
reduction plan involves the elimination of 184 administrative positions in
Packaging's business unit and in Packaging's corporate operations.
The fixed assets for the production lines to be eliminated, as well as the
joint venture investments, were written down to their estimated fair value in
the fourth quarter of 1998. No significant cash proceeds are expected to be
received from the ultimate disposal of these assets.
As of December 31, 1998, and March 31, 1999, approximately 158 and 201
employees, respectively, have been terminated. This restructuring is being
executed according to Packaging's initial plan and Packaging expects to complete
all restructuring actions by the fourth quarter of 1999.
In the first quarter of 1999, in connection with Tenneco's contribution of
its containerboard assets to a new joint venture, Tenneco adopted a plan to
realign its headquarters functions. This plan involves the severance of
approximately 40 employees, and the closing of the Greenwich, Connecticut,
headquarters
F-14
<PAGE> 107
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
facility. The charge for this plan was recorded in Packaging's corporate
operations in the amount of $29 million pre-tax, $17 million after-tax or $.10
per diluted common share. Assets were written down to net realizable value.
Packaging collected approximately $30 million in the second quarter of 1999
related to the sale of these assets.
Amounts related to the restructuring plans described above are shown in the
following table:
<TABLE>
<CAPTION>
1ST QUARTER 1999
-----------------------------------
1998 CHARGED BALANCE AT CHARGED BALANCE AT
RESTRUCTURING CASH TO ASSET DECEMBER 31, RESTRUCTURING CASH TO ASSET MARCH 31,
CHARGE PAYMENTS ACCOUNTS 1998 CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- -------- ------------ ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance............... $20 $ 5 $-- $15 $16 $ 3 $-- $28
Asset impairments....... 12 -- 12 -- 13 -- 13 --
--- --- --- --- --- --- --- ---
$32 $ 5 $12 $15 $29 $ 3 $13 $28
=== === === === === === === ===
</TABLE>
5. 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 Packaging. Changes in the "Combined equity" caption represent the
net income (loss) of Packaging, net cash and noncash contributions from
(distributions to) Tenneco, accumulated other comprehensive income, 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, 1998, and three months ended March 31, 1999.
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 Packaging based on the portion
of Tenneco's investment in Packaging which is deemed to be debt, generally based
upon the ratio of Packaging'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 7.0%, 7.4%, and 8.3% for 1998,
1997, and 1996, respectively. Total pre-tax interest expense allocated to
Packaging in 1998, 1997, and 1996 was $130 million, $120 million, and $99
million, respectively. Packaging 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 Packaging for
financial reporting on a historical basis, Packaging 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 Packaging's combined
equity. Although management believes that the historical allocation of corporate
debt and interest is reasonable, it is not necessarily indicative of Packaging's
debt upon completion of the realignment of Tenneco's debt nor debt and interest
that will be incurred by Packaging as a separate public entity.
A portion of the corporate debt of Tenneco and its related interest expense
allocated to Packaging has also been allocated to discontinued operations based
on the ratio of the discontinued operations' net assets to Packaging's combined
net assets plus debt.
F-15
<PAGE> 108
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Notes and Advances Receivable from Tenneco
"Cash contributions from (distributions to) 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, 1998 and 1997, Packaging had a note receivable from Tenneco
totaling $476 million and $496 million, respectively, which is payable on demand
and is included as a component of Packaging's combined equity.
Accounts Receivable and Accounts Payable -- Affiliated Companies
Receivables -- Affiliated companies relates to general and administrative
costs incurred by Packaging and allocated to affiliates. Payables -- Affiliated
companies relates to billings for costs incurred by affiliates and allocated to
Packaging. Reference is made to Note 3 for a discussion of the types of such
costs allocated to Packaging.
Employee Benefits
Certain employees of Packaging participate in the Tenneco employee stock
option and employee stock purchase plans. The Tenneco employee stock option plan
provides for the grant of Tenneco common stock options and other stock awards at
a price not less than market value at the date of grant. The Tenneco employee
stock purchase plan allows employees to purchase Tenneco common stock at a 15%
discount subject to certain thresholds. Packaging expects to establish similar
plans for its employees after the Spin-off. In connection with the Spin-off,
outstanding options to Tenneco common stock held by Packaging employees will be
replaced by options of Packaging so as to preserve the aggregate value of the
options held prior to the Spin-off. Employees of Packaging also participate in
certain Tenneco postretirement and pension plans. Reference is made to Notes 11
and 13 for a further discussion of these plans.
6. ACQUISITIONS
During 1998, Packaging made three acquisitions for approximately $101
million.
In March 1997, Packaging entered into an agreement to acquire the
protective and flexible packaging division of N.V. Koninklijke KNP BT ("KNP"), a
Dutch distribution, paper, and packaging firm, for approximately $380 million
including debt assumed and preferred stock of a subsidiary issued to the seller.
The KNP acquisition was completed in late April 1997.
In June 1996, Packaging entered into an agreement to acquire Amoco Foam
Products for $310 million. Amoco Foam Products manufactures expanded polystyrene
tableware, hinged-lid food containers, packaging trays, and industrial products
for residential and commercial construction applications. Packaging closed the
acquisition of Amoco Foam Products in August 1996.
All of the acquisitions discussed above have been accounted for as
purchases; accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based on their fair values. The excess of
the purchase price over the fair value of the net assets acquired is included in
the combined balance sheet caption "Goodwill and intangibles, net."
F-16
<PAGE> 109
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Discontinued Operations
In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint venture
with an affiliate of Madison Dearborn Partners, Inc. The contribution to the
joint venture was completed in April 1999. Tenneco received consideration of
cash and debt assumption totaling approximately $2 billion plus a 45 percent
common equity interest in the joint venture (now 43 percent due to subsequent
management equity issuances) valued at approximately $200 million. The
containerboard assets contributed to the joint venture represented substantially
all of the assets of Packaging's paperboard packaging segment and included four
mills, 67 corrugated products plants, and an ownership or leasehold interest in
approximately 950,000 acres of timberland. Prior to the transaction, Packaging
borrowed approximately $1.8 billion and used approximately $1.2 billion of those
borrowings to acquire assets used by the containerboard business under to
operating leases and timber cutting rights and to purchase containerboard
business accounts receivable that had previously been sold to a third party. The
remainder of the borrowings was remitted to Tenneco and used to repay a portion
of Tenneco's short-term debt. Packaging then contributed the containerboard
business assets (subject to the new indebtedness and the containerboard business
liabilities) to the joint venture in exchange for $247 million in cash and the
45 percent interest in the joint venture. As a result of the transaction,
Packaging recognized a pre-tax loss of $293 million, $178 million after-tax or
$1.07 per diluted common share, in the first quarter of 1999, based on the
amount by which the carrying amount of the containerboard assets exceeded the
fair value of those assets, less cost to sell. The estimate of fair value of the
containerboard assets was based on the fair value of the consideration received
by Tenneco from the joint venture.
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Packaging
expects the sale to be completed before the spin-off. As a result of the
decision to sell the remaining interest in the containerboard joint venture,
Packaging's paperboard packaging segment is presented as a discontinued
operation in the accompanying combined financial statements.
In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's folding carton operation, to Caraustar Industries. This
transaction closed in June 1999.
Net assets as of December 31, 1998, 1997, and 1996, and results of
operations for the years then ended for the paperboard packaging segment were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Net assets at the end of the period (Note).................. $ 366 $ 423 $ 459
====== ====== ======
Net sales and operating revenues............................ $1,570 $1,431 $1,605
====== ====== ======
Income before income taxes and interest allocation.......... $ 131 $ 63 $ 152
Income tax (expense) benefit................................ (48) (19) (60)
------ ------ ------
Income before interest allocation........................... 83 44 92
Allocated interest expense, net of income tax (Note)........ (26) (23) (21)
------ ------ ------
Income from discontinued operations......................... $ 57 $ 21 $ 71
====== ====== ======
</TABLE>
- ---------------
Note: Net assets of discontinued operations includes allocated corporate debt of
$548 million, $473 million and $394 million as of December 31, 1998, 1997 and
1996, respectively. Reference is made to Note 5, "Transactions with
Tenneco -- Corporate Debt and Interest Allocation," for a discussion of the
allocation of corporate debt and interest expense to discontinued operations.
F-17
<PAGE> 110
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Extraordinary Loss
In the first quarter of 1999, Packaging recorded an extraordinary loss for
extinguishment of debt of $7 million (net of a $3 million income tax benefit) or
$.04 per diluted common share. The loss related to early retirement of debt in
connection with the sale of the containerboard assets.
8. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt outstanding and allocated long-term corporate
debt obligations at December 31, 1998 and 1997, is set forth in the following
table:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Notes due 1999 through 2016, average effective interest rate
9.5% in 1998 and 10% in 1997.............................. $ 22 $ 20
Less -- current maturities.................................. 1 1
------ ------
21 19
Allocated corporate debt obligations, average effective
interest rate 7.0% in 1998 and 7.4% in 1997............... 1,291 1,473
------ ------
Total long-term debt........................................ $1,312 $1,492
====== ======
</TABLE>
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1998, are $1 million, $3 million, $4 million,
$5 million, and $2 million for 1999, 2000, 2001, 2002, and 2003, respectively.
Reference is made to Note 5 for a discussion of allocated corporate debt
obligations.
Short-Term Debt
Packaging uses lines of credit and overnight borrowings to finance certain
of its short-term capital requirements. Information regarding short-term debt as
of and for the years ended December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
CREDIT CREDIT
AGREEMENTS* AGREEMENTS*
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Outstanding borrowings at end of year....................... $11 $ 1
Weighted average interest rate on outstanding borrowings at
end of year............................................... 18.7% 7.1%
Approximate maximum month-end outstanding borrowings during
year...................................................... $37 $26
Approximate average month-end outstanding borrowings during
year...................................................... $18 $9
Weighted average interest rate on approximate average
month-end outstanding borrowings during year.............. 18.4% 17.5%
</TABLE>
- -------------------------
* Includes borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
Packaging was allocated short-term corporate debt obligations of $583
million at December 31, 1998, and $156 million at December 31,1997. Reference is
made to Note 5 for a discussion of allocated corporate debt obligations.
F-18
<PAGE> 111
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. FINANCIAL INSTRUMENTS
Asset and Liability Instruments
The fair value of cash and temporary cash investments, short and long-term
receivables, and accounts payable, and short-term debt (before allocation of
corporate debt to Packaging from Tenneco) was considered to be the same as or
was not determined to be materially different from the carrying amount.
The long-term debt reflected in the Combined Balance Sheets primarily
represents corporate debt allocated to Packaging from Tenneco. As such, an
estimate of fair value has not been provided. The fair value of other long-term
debt is not materially different from the carrying amount.
Instruments With Off-Balance-Sheet Risk
Foreign Currency Contracts -- Note 3, "Summary of Accounting
Policies -- Risk Management Activities" describes Tenneco's use of and
accounting for foreign currency exchange contracts. Packaging currently manages
its exposure to changes in foreign currency rates by making loans with a Tenneco
affiliate in the functional currency of the operating company concerned. The
Tenneco affiliate then integrates all of Tenneco's foreign currency denominated
loans and enters into foreign currency forward purchase and sale contracts to
mitigate its net exposure to changes in foreign exchange rates. For most
operating companies third party trade receivables and payables are maintained in
the functional currency. From time to time Packaging may enter into foreign
currency forward purchase and sale contracts with terms of less than one year to
mitigate its exposure to changes in exchange rates on foreign currency third
party trade receivables and payables. At December 31, 1998, Packaging had
purchase contracts of approximately $1 million, primarily in U.S. dollars, and
sell contracts of approximately $1 million, primarily in British pounds. At
December 31, 1997, Packaging had purchase contracts of approximately $2 million,
primarily in Belgian francs and German marks, and sell contracts of
approximately $2 million, primarily in British pounds and French francs. At
March 31, 1999, Packaging had purchase contracts of approximately $1 million,
primarily in U.S. dollars, and sell contracts of approximately $1 million,
primarily in German marks and British pounds.
10. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
U.S. income before income taxes............................. $108 $139 $108
Foreign income before income taxes.......................... 42 43 24
---- ---- ----
Income before income taxes.................................. $150 $182 $132
==== ==== ====
</TABLE>
F-19
<PAGE> 112
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a comparative analysis of the components of income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Current --
U.S....................................................... $(11) $(57) $45
State and local........................................... (2) 9 15
Foreign................................................... 3 5 3
---- ---- ---
(10) (43) 63
---- ---- ---
Deferred --
U.S....................................................... 59 101 3
Foreign, state and other.................................. 18 17 1
---- ---- ---
77 118 4
---- ---- ---
Income tax expense.......................................... $ 67 $ 75 $67
==== ==== ===
</TABLE>
Current income tax expense for the years ended December 31, 1998, 1997, and
1996, include tax benefits of $45 million, $41 million, and $34 million,
respectively, related to the allocation of corporate interest expense to
Packaging from Tenneco. See Note 5.
Following is a reconciliation of income taxes computed at the statutory
U.S. federal income tax rate (35% for all years presented) to the income tax
expense reflected in the combined statements of income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income
tax rate.................................................. $ 53 $ 64 $46
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit.................................... 1 (8) (1)
State and local taxes on income, net of U.S. federal
income tax benefit..................................... 3 18 10
Amortization of nondeductible goodwill.................... 5 4 4
Other..................................................... 5 (3) 8
---- ---- ---
Income tax expense.......................................... $ 67 $ 75 $67
==== ==== ===
</TABLE>
F-20
<PAGE> 113
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of Packaging's net deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Deferred tax assets --
Tax loss carryforwards:
U.S. .................................................. $ 95 $ 46
State and local........................................ 7 --
Foreign................................................ 13 4
Postretirement benefits other than pensions............... 13 23
Other..................................................... 26 24
Valuation allowance....................................... (8) (4)
---- ----
Net deferred tax asset............................... 146 93
---- ----
Deferred tax liabilities --
Tax over book depreciation................................ 95 61
Pensions.................................................. 213 206
Other..................................................... 123 55
---- ----
Total deferred tax liability......................... 431 322
---- ----
Net deferred tax liability................................ $285 $229
==== ====
</TABLE>
As reflected by the valuation allowance in the table above, Packaging had
potential tax benefits of $8 million and $4 million at December 31, 1998 and
1997, respectively, which were not recognized in the combined statements of
income when generated. These unrecognized tax benefits resulted primarily from
foreign tax loss carryforwards which are available to reduce future foreign tax
liabilities.
Of the $270 million of U.S. tax loss carryforwards which exist at December
31, 1998, $215 million expire in 2012 and $55 million expire in 2018. The $110
million of state tax loss carryforwards which exist at December 31, 1998, will
expire in varying amounts over the period from 2000 to 2012. Of the $43 million
of foreign tax loss carryforwards which exist at December 31, 1998, $18 million
do not expire and the remainder expires in varying amounts over the period from
1999 to 2005.
Packaging 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. This agreement provides, among
other things, that (1) each company in a taxable income position will be
currently charged with an amount equivalent to its U.S. federal income tax
computed on a separate return basis and (2) each company in a tax loss position
will be reimbursed currently. The income tax amounts reflected in the combined
financial statements of Packaging under the provisions of the tax sharing
arrangement are not materially different from the income taxes which would have
been provided had Packaging filed a separate tax return. Under the tax sharing
agreement, Tenneco pays all federal taxes directly and bills or refunds, as
applicable, its subsidiaries for the applicable portion of the total tax
payments. Cash taxes paid in the combined statements of cash flows include
payments to Tenneco for income taxes.
Liability for foreign income taxes is generally allocated to the legal
entity on which such taxes are imposed. In the case of state income taxes,
Packaging is liable for its tax in states where returns are filed for separate
entities. In states where returns are filed on a combined basis, liability is
allocated in a manner similar to federal income tax.
F-21
<PAGE> 114
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE STOCK PLANS
In June 1992, Tenneco initiated an Employee Stock Purchase Plan ("ESPP").
The ESPP was terminated in 1996. Tenneco adopted a new employee stock purchase
plan effective April 1, 1997 with provisions similar to the 1992 ESPP. Under the
new ESPP, Tenneco sold 311,586 shares, 216,665 shares, and 185,179 shares to
Packaging employees in 1998, 1997, and 1996, respectively. The plan allows U.S.
and Canadian employees of Packaging to purchase Tenneco Inc. common stock
through payroll deductions at a 15% discount. Each year, an employee in the plan
may purchase shares with a discounted value not to exceed $21,250. The weighted
average fair value of the employee purchase right, which was estimated using the
Black-Scholes option pricing model and the assumptions described below except
that the average life of each purchase right was assumed to be 90 days, was
$6.31, $11.14, and $10.77 in 1998, 1997, and 1996, respectively. After the
Spin-off, Packaging employees will no longer participate in the Tenneco ESPP.
In December 1996, Tenneco adopted the 1996 Stock Ownership Plan which
permits the granting of a variety of awards, including common stock, restricted
stock, performance units, stock appreciation rights, and stock options, to
officers and employees of Tenneco. Tenneco can issue up to 17 million shares of
common stock under this plan, which will terminate December 31, 2001. Certain
key Packaging employees have been granted restricted stock and restricted units
under the 1996 Stock Ownership Plan. These awards generally require, among other
things, that the employee remain an employee of Tenneco during the restriction
period. Certain key Packaging employees have also been granted performance
shares which will vest based upon the attainment of specified performance goals
within four years from the date of grant. In connection with the Spin-off, all
outstanding restricted stock, restricted units and performance shares will
become fully vested. After the Spin-off, Packaging employees will no longer
participate in Tenneco's 1996 Stock Ownership Plan.
The fair value of each stock option issued by Tenneco to Packaging
employees during 1998, 1997, and 1996 is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions for grants in 1998, 1997, and 1996, respectively: (a) risk-free
interest rate of 5.7%, 6.5%, and 6.0%; (b) expected lives of 10 years, 6 years,
and 5 years; (c) expected volatility of 25.6%, 24.1%, and 24.9%; and (d)
dividend yield of 3.2%, 2.8%, and 3.3%. The weighted average fair value of
options granted during the year is $10.83, $12.03, and $11.42 for 1998, 1997,
and 1996, respectively.
Packaging applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock-based compensation plans. Packaging
recognized after-tax stock-based compensation expense of $3 million, $4 million,
and $15 million in 1998, 1997, and 1996, respectively. Had compensation costs
for Packaging's stock-based compensation plans been determined in accordance
with FAS No. 123, "Accounting for Stock-Based Compensation," based on the fair
value at the grant dates for awards under those plans, Packaging's pro forma net
income for the years ended December 31, 1998, 1997, and 1996, would have been
lower by $14 million or $.08 per both basic and diluted common share, $13
million or $.08 per both basic and diluted common share, and $5 million or $.03
per both basic and diluted common share, respectively.
12. MINORITY INTEREST
At December 31, 1998 and 1997, Packaging reported minority interest in the
combined balance sheet of $14 million and $15 million, respectively. This
primarily relates to preferred stock of a subsidiary issued in connection with
the KNP acquisition.
13. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Packaging has pension plans that cover substantially all of its employees.
Benefits are based on years of service and, for most salaried employees, on
final average compensation. Packaging's funding policies
F-22
<PAGE> 115
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
are to contribute to the plans amounts necessary to satisfy the funding
requirement of federal laws and regulations. Plan assets consist principally of
listed equity and fixed income securities. After the Spin-off, Packaging will
become the sponsor of the Tenneco Inc. Retirement Plan (the "TRP"). Benefits
accrued under the TRP by employees of Tenneco's automotive business will be
frozen as of the last day of the calendar month in which the Spin-off occurs,
and all related pension obligations and assets will be retained by Packaging. In
addition, all TRP pension obligations and assets associated with participating
employees from former subsidiaries and affiliates of Tenneco will be retained by
Packaging and have been reflected in the historical combined financial
statements. These pension obligations and assets that Packaging will retain
under all of these arrangements are included in the table below.
Packaging has postretirement health care and life insurance plans that
cover all of its salaried and certain of its hourly domestic employees. For
salaried employees, the plans cover employees retiring from Packaging on or
after attaining age 55 who have had a least 10 years service with Packaging
after attaining age 45. For hourly employees, the postretirement benefit plans
generally cover employees who retire according to one of Packaging's hourly
employee retirement plans. All of these benefits may be subject to deductibles,
copayment provisions, and other limitations, and Packaging has reserved the
right to change these benefits. Packaging's postretirement benefit plans are not
funded.
F-23
<PAGE> 116
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the change in benefit obligation, the change in plan assets,
the development of net amount recognized, and the amounts recognized in the
combined statement of financial position for the pension plans and
postretirement benefit plans follows:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligation at September 30 of the previous year... $2,654 $2,361 $ 70 $ 64
Currency rate conversion.................................. 1 -- -- --
Service cost.............................................. 28 23 1 1
Interest cost............................................. 199 178 5 5
Plan amendments........................................... 44 8 -- --
Actuarial loss (gain)..................................... 293 254 1 5
Acquisitions.............................................. -- 13 -- --
Benefits paid............................................. (194) (183) (8) (6)
Participants' contributions............................... -- -- 1 1
------ ------ ---- ----
Benefit obligation at September 30........................ $3,025 $2,654 $ 70 $ 70
====== ====== ==== ====
Change in plan assets:
Fair value at September 30 of the previous year........... $3,516 $2,966 $ -- $ --
Currency rate conversion.................................. -- 4 -- --
Actual return on plan assets.............................. 102 714 -- --
Employer contributions.................................... 5 3 7 5
Participants' contributions............................... 1 -- 1 1
Acquisitions.............................................. -- 12 -- --
Benefits paid............................................. (194) (183) (8) (6)
------ ------ ---- ----
Fair value at September 30................................ $3,430 $3,516 $ -- $ --
====== ====== ==== ====
Development of net amount recognized:
Funded status at September 30............................. $ 405 $ 862 $(70) $(70)
Contributions during the fourth quarter................... 1 1 2 1
Unrecognized cost:
Actuarial loss (gain).................................. 200 (273) 11 11
Prior service cost..................................... 71 57 (4) (5)
Transition liability (asset)........................... (43) (62) -- --
------ ------ ---- ----
Net amount recognized at December 31...................... $ 634 $ 585 $(61) $(63)
====== ====== ==== ====
Amounts recognized in the combined balance sheet:
Prepaid benefit cost...................................... $ 664 $ 594 $ -- $ --
Accrued benefit cost...................................... (56) (9) (61) (63)
Intangible asset.......................................... 22 -- -- --
Accumulated other comprehensive income.................... 4 -- -- --
------ ------ ---- ----
Net amount recognized..................................... $ 634 $ 585 $(61) $(63)
====== ====== ==== ====
</TABLE>
- -------------------------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) benefit cost has been recorded based
upon certain actuarial estimates as described below. Those estimates are
subject to revision in future periods given new facts or circumstances.
F-24
<PAGE> 117
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs (income) from continuing operations for the
years 1998, 1997, and 1996, consist of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 28 $ 23 $ 20
Interest on prior year's projected benefit obligation....... 199 178 126
Expected return on plan assets.............................. (285) (265) (178)
Net amortization:
Actuarial loss (gain)..................................... 1 -- 3
Prior service cost........................................ 11 11 11
Transition liability (asset).............................. (19) (19) (13)
----- ----- -----
Net pension costs (income).................................. $ (65) $ (72) $ (31)
===== ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for all pension plans with accumulated benefit obligations
in excess of plan assets were $89 million, $83 million, and $27 million,
respectively, as of September 30, 1998, and $12 million, $11 million, and $1
million, respectively, as of September 30, 1997.
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1998, 1997, and 1996 actuarial present value of
the benefit obligations were 7.0%, 7.75%, and 7.75%, respectively. The rate of
increase in future compensation was 4.8%, 4.9%, and 4.8%, for 1998, 1997, and
1996, respectively. The weighted average expected long-term rate of return on
plan assets for 1998, 1997, and 1996 was 10.0% for each year.
Net periodic postretirement benefit cost from continuing operations for the
years 1998, 1997, and 1996 consist of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 2 $ 1 $ 1
Interest on accumulated postretirement benefit obligation... 5 5 5
Net amortization:
Prior service cost........................................ (2) (2) (2)
Actuarial loss (gain)..................................... 1 1 0
--- --- ---
Net periodic postretirement benefit cost.................... $ 6 $ 5 $ 4
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1998, 1997, and 1996 accumulated postretirement benefit
obligation was 5%, 5%, and 6%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the 1998, 1997, and 1996 accumulated postretirement
benefit obligations by approximately $2 million for each year. There would be no
change in the aggregate of the service cost and interest cost components of the
net periodic postretirement benefit cost for any of these years.
Decreasing the assumed health care cost trend rate by one percentage point
in each year would decrease the 1998 accumulated postretirement benefit
obligation by approximately $2 million and would not change the aggregate of
service cost and interest cost components of the net periodic postretirement
benefit cost.
F-25
<PAGE> 118
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rates (which are based on long-term market rates) used in
determining the 1998, 1997, and 1996 accumulated postretirement benefit
obligations were 7.00%, 7.75%, and 7.75%, respectively.
14. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Packaging is a global manufacturer with a single operating segment:
Specialty Packaging -- Manufacture and sale of specialty packaging and
consumer products for foodservice, consumer, protective, flexible and
institutional/industrial markets.
The accounting policies of the segment are the same as those described in
Note 3, "Summary of Accounting Policies." Packaging evaluates operating
performance based primarily on income before interest expense, income taxes, and
minority interest. Individual operating segments have not been aggregated within
this reportable segment.
Products are transferred between geographic areas on a basis intended to
reflect as nearly as possible the "market value" of the products.
The following table sets forth information relating to Packaging's external
customer revenues for each product or each group of similar products:
<TABLE>
<CAPTION>
NET SALES AND
OPERATING REVENUES
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
SPECIALTY
Disposable plastic, fiber, and aluminum packaging
products............................................... $2,126 $2,105 $1,862
Plastic and fiber protective and flexible packaging
products............................................... 607 399 78
Other..................................................... 52 49 47
------ ------ ------
Total Specialty Packaging............................ 2,785 2,553 1,987
------ ------ ------
OTHER....................................................... 6 10 --
------ ------ ------
COMBINED.................................................... $2,791 $2,563 $1,987
====== ====== ======
</TABLE>
F-26
<PAGE> 119
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize certain segment and geographic information
of Packaging:
<TABLE>
<CAPTION>
SEGMENT RECLASS
------------------ &
SPECIALTY OTHER ELIMS COMBINED
--------- ------ ------- --------
<S> <C> <C> <C> <C>
AT MARCH 31, 1999, AND FOR THE THREE MONTHS THEN ENDED
Revenues from external customers......................... $ 666 $ -- $ -- $ 666
Depreciation and amortization............................ 42 6 -- 48
Income before interest, income taxes, and minority
interest............................................... 83 (38) -- 45
Cumulative effect of change in accounting principle...... (17) (15) -- (32)
Extraordinary loss....................................... -- (7) -- (7)
Total assets (Note)...................................... 3,246 1,475 (50) 4,671
Net assets of discontinued operations.................... -- 372 -- 372
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED
Revenues from external customers......................... $2,785 $ 6 $ -- $2,791
Depreciation and amortization............................ 152 23 -- 175
Income before interest, income taxes, and minority
interest............................................... 328 (45) -- 283
Total assets (Note)...................................... 3,260 1,580 (42) 4,798
Net assets of discontinued operations.................... -- 366 -- 366
Investment in affiliated companies....................... 17 -- -- 17
Capital expenditures..................................... 190 4 -- 194
Noncash items other than depreciation and amortization... 22 (84) -- (62)
AT MARCH 31, 1998, AND FOR THE THREE MONTHS THEN ENDED
Revenues from external customers......................... $ 630 $ 3 $ -- $ 633
Depreciation and amortization............................ 39 5 -- 44
Income before interest, income taxes, and minority
interest............................................... 74 (5) -- 69
Total assets (Note)...................................... 3,273 1,442 (42) 4,673
Net assets of discontinued operations.................... -- 394 -- 394
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
Revenues from external customers......................... $2,553 $ 10 $ -- $2,563
Depreciation and amortization............................ 143 20 -- 163
Income before interest, income taxes, and minority
interest............................................... 308 (2) -- 306
Cumulative effect of change in accounting principle...... (11) (27) -- (38)
Total assets (Note)...................................... 3,244 1,412 (38) 4,618
Net assets of discontinued operations.................... -- 423 -- 423
Investment in affiliated companies....................... 9 -- -- 9
Capital expenditures..................................... 227 2 -- 229
Noncash items other than depreciation and amortization... 10 (86) -- (76)
AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED
Revenues from external customers......................... $1,987 $ -- $ -- $1,987
Depreciation and amortization............................ 123 8 -- 131
Income before interest, income taxes, and minority
interest............................................... 249 (15) -- 234
Extraordinary loss....................................... -- (2) -- (2)
Total assets (Note)...................................... 2,655 1,421 (48) 4,028
Net assets of discontinued operations.................... -- 459 -- 459
Investment in affiliated companies....................... 9 1 -- 10
Capital expenditures..................................... 172 44 -- 216
Noncash items other than depreciation and amortization... (2) (44) -- (46)
</TABLE>
- ---------------
Note: The Other segment's total assets includes pension assets retained by
Packaging related to certain employees of Tenneco's and Packaging's
discontinued operations, Packaging's administrative service operations
assets and net assets of the discontinued paperboard packaging segment.
F-27
<PAGE> 120
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
--------------------
UNITED RECLASS &
STATES FOREIGN(A) ELIMS COMBINED
------ ---------- --------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b).................... $2,212 $579 $ -- $2,791
Long-lived assets(c)................................... 2,168 295 -- 2,463
Total assets........................................... 4,131 691 (24) 4,798
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b).................... $2,116 $447 $ -- $2,563
Long-lived assets(c)................................... 2,026 236 -- 2,262
Total assets........................................... 4,036 596 (14) 4,618
AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b).................... $1,759 $228 $ -- $1,987
Long-lived assets(c)................................... 1,957 94 -- 2,051
Total assets........................................... 3,755 281 (8) 4,028
</TABLE>
- -------------------------
Notes: (a) Revenues from external customers and long-lived assets for individual
foreign countries are not material.
(b) Revenues are attributed to countries based on location of the seller.
(c) Long-lived assets include all long-term assets except net assets from
discontinued operations, goodwill, intangibles, and deferred tax
assets.
15. COMMITMENTS AND CONTINGENCIES
Capital Commitments
Packaging estimates that expenditures aggregating approximately $110
million will be required after December 31, 1998, to complete facilities and
projects authorized at such date, and substantial commitments have been made in
connection therewith.
Lease Commitments
Packaging holds certain of its facilities, equipment, and other assets
under long-term leases. The minimum lease payments under non-cancelable
operating leases with lease terms in excess of one year are $50 million, $31
million, $22 million, $15 million, and $56 million for the years 1999, 2000,
2001, 2002, and 2003, respectively, and $53 million for subsequent years.
Commitments under capital leases were not significant to the accompanying
combined financial statements. Total rental expense for continuing operations
for the years 1998, 1997, and 1996, was $35 million, $37 million, and $24
million, respectively, including minimum rentals under non-cancelable operating
leases of $45 million, $42 million, and $18 million for the corresponding
periods.
Litigation
Packaging and its combined subsidiaries are parties to various legal
proceedings arising from their operations. Packaging believes that the outcome
of these proceedings, individually and in the aggregate, will have no material
effect on the financial position or results of operations of Packaging and its
combined subsidiaries.
F-28
<PAGE> 121
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Matters
Packaging and its combined subsidiaries are subject to a variety of
environmental and pollution control laws and regulations in all jurisdictions in
which they operate. Packaging has provided reserves for compliance with these
laws and regulations where it is probable that a liability exists and where
Packaging can make a reasonable estimate of the liability. The estimated
liabilities recorded are subject to change as more information becomes available
regarding the magnitude of possible clean-up costs and the timing, varying
costs, and effectiveness of alternative clean-up technologies. However,
Packaging believes that any additional costs which arise as more information
becomes available will not have a material effect on the combined financial
condition or results of operations of Packaging.
16. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
INCOME BEFORE
INTEREST
NET SALES EXPENSE, INCOME (LOSS) INCOME (LOSS) INCOME (LOSS)
AND INCOME TAXES, FROM FROM BEFORE
OPERATING AND MINORITY CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY
QUARTER REVENUES INTEREST OPERATIONS OPERATIONS LOSS LOSS
- ------- --------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999
1st................. $ 666 $ 45 $ 6 $(172) $(166) $ (7)
====== ==== ==== ===== ===== ====
1998
1st................. $ 633 $ 69 $ 18 $ 14 $ 32 $ --
2nd................. 738 104 51 23 74 --
3rd................. 696 74 15 26 40 --
4th................. 724 36 (2) (6) (7) --
------ ---- ---- ----- ----- ----
$2,791 $283 $ 82 $ 57 $ 139 $ --
====== ==== ==== ===== ===== ====
1997
1st................. $ 510 $ 48 $ 9 $ 13 $ 22 $ --
2nd................. 675 7 31 (11) 20 --
3rd................. 682 89 2 11 43 --
4th................. 696 2 4 8 42 --
------ ---- ---- ----- ----- ----
$2,563 $306 $106 $ 21 $ 127 $ --
====== ==== ==== ===== ===== ====
<CAPTION>
INCOME (LOSS) CUMULATIVE
BEFORE CUMULATIVE EFFECT OF
EFFECT OF CHANGE CHANGE IN NET
IN ACCOUNTING ACCOUNTING INCOME
QUARTER PRINCIPLE PRINCIPLE (LOSS)
- ------- ----------------- ---------- ------
<S> <C> <C> <C>
1999
1st................. $(173) $(32) $(205)
===== ==== =====
1998
1st................. $ 32 $ -- $ 32
2nd................. 74 -- 74
3rd................. 40 -- 40
4th................. (7) -- (7)
----- ---- -----
$ 139 $ -- $ 139
===== ==== =====
1997
1st................. $ 22 $ -- $ 22
2nd................. 20 -- 20
3rd................. 43 -- 43
4th................. 42 (38) 4
----- ---- -----
$ 127 $(38) $ 89
===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-------------------------------------------------------------------------------------------------------
CUMULATIVE
BEFORE CUMULATIVE EFFECT OF
FROM FROM BEFORE EFFECT OF CHANGE CHANGE IN
CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS LOSS PRINCIPLE PRINCIPLE (LOSS)
- ------- ---------- ------------ ------------- ------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
1st................ $.03 $(1.03) $(1.00) $(.04) $(1.04) $(.19) $(1.23)
==== ====== ====== ===== ====== ===== ======
1998
1st................ $.11 $ .08 $ .19 $ -- $ .19 $ -- $ .19
2nd................ .30 .14 .44 -- .44 -- .44
3rd................ .09 .15 .24 -- .24 -- .24
4th................ (.01) (.04) (.05) -- (.05) -- (.05)
---- ------ ------ ----- ------ ----- ------
$.49 $ .34 $ .83 $ -- $ .83 $ -- $ .83
==== ====== ====== ===== ====== ===== ======
1997
1st................ $.06 $ .07 $ .13 $ -- $ .13 $ -- $ .13
2nd................ .19 (.07) .12 -- .12 -- .12
3rd................ .18 .07 .25 -- .25 -- .25
4th................ .20 .05 .25 -- .25 (.23) .02
---- ------ ------ ----- ------ ----- ------
$.63 $ .12 $ .75 $ -- $ .75 $(.23) $ .52
==== ====== ====== ===== ====== ===== ======
</TABLE>
F-29
<PAGE> 122
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-------------------------------------------------------------------------------------------------------
CUMULATIVE
BEFORE CUMULATIVE EFFECT OF
FROM FROM BEFORE EFFECT OF CHANGE CHANGE IN
CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS LOSS PRINCIPLE PRINCIPLE (LOSS)
------- ---------- ------------ ------------- ------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
1st................ $ .03 $(1.03) $(1.00) $(.04) $(1.04) $(.19) $(1.23)
===== ====== ====== ===== ====== ===== ======
1998
1st................ $ .11 $ .08 $ .19 $ -- $ .19 $ -- $ .19
2nd................ .30 .14 .44 -- .44 -- .44
3rd................ .09 .15 .24 -- .24 -- .24
4th................ (.01) (.04) (.05) -- (.05) -- (.05)
----- ------ ------ ----- ------ ----- ------
$ .49 $ .34 $ .83 $ -- $ .83 $ -- $ .83
===== ====== ====== ===== ====== ===== ======
1997
1st................ $ .06 $ .07 $ .13 $ -- $ .13 $ -- $ .13
2nd................ .19 (.07) .12 -- .12 -- .12
3rd................ .18 .07 .25 -- .25 -- .25
4th................ .20 .05 .25 -- .25 (.23) .02
----- ------ ------ ----- ------ ----- ------
$ .63 $ .12 $ .75 $ -- $ .75 $(.23) $ .52
===== ====== ====== ===== ====== ===== ======
</TABLE>
- -------------------------
Notes: Reference is made to Notes 3, 4, 6, and 7 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for items
affecting quarterly results.
(The preceding notes are an integral part of the foregoing combined financial
statements.)
F-30
<PAGE> 123
SCHEDULE II
THE BUSINESSES OF TENNECO PACKAGING
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------- ---------- ----------------------- ---------- ---------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts Deducted from
Assets to Which it Applies:
Year Ended December 31, 1998............ $11 $ 5 $-- $ 5 $11
=== === == === ===
Year Ended December 31, 1997............ $18 $ 2 $2 $11 $11
=== === == === ===
Year Ended December 31, 1996............ $ 9 $11 $-- $ 2 $18
=== === == === ===
</TABLE>
S-1
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Incorporation of the "PKG CORPORATION", as received and filed in this
office the nineteenth day of April, A.D. 1965, at 10 o'clock A.M.
In Testimony Whereof, I have hereunto set my hand and
official seal at Dover this eighteenth day of May in the
year of our Lord one thousand nine hundred and sixty-five.
[SEAL] /s/ ELISHA C. DUKES
------------------------------
Secretary of State
/s/ G. F. Downs
------------------------------
Ass't Secretary of State
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
PKG CORPORATION
FIRST. The name of the Corporation is PKG CORPORATION.
SECOND. Its principal office in the State of Delaware is located at
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name and address of its resident agent is The Corporation Trust Company, No.
100 West Tenth Street, Wilmington 99, Delaware.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To produce, to manufacture, mold or otherwise fabricate, to buy, sell,
exchange or otherwise deal in and with lumber, timber, pulp, paper, paper board
and other fibrous products, materials commonly known as plastics and other
similar materials and containers, boxes, packages, packaging and products of
all kinds made therefrom or from any other ingredients or materials and in any
and all materials, ingredients, articles and products that are now or hereafter
may be related to or used in connection with such production, manufacture,
molding, fabrication or dealing.
To manufacture, buy, sell and deal in and with all kinds of building
and structural materials and supplies, machinery and mechanical equipment of all
kinds.
To construct, build, purchase, lease, equip or otherwise acquire, and
to hold, own, improve, develop, manage, maintain, control, lease, mortgage,
create liens upon, sell, convey or otherwise dispose of and turn to account,
any and all plants, machinery, works, implements and things or property, real
or personal, of every kind and description incidental to, connected with or
suitable or convenient for any of the purposes enumerated in this certificate
of incorporation; any and all tracks, locomotive, railroad cars, tank cars,
motor cars, motor trucks and vehicles of any and every description, necessary or
convenient in connection with any of the businesses enumerated in this
certificate of incorporation; and any and all ships, docks, boats, barges,
floats and vessels (whether operated by steam, electric, oil, gasoline or any
other power), docks, wharves, dry docks,
<PAGE> 3
repair shops, elevators, piers, terminals, warehouses and storage plants,
facilities, connections and installations necessary or convenient for any of
the businesses enumerated in this certificate of incorporation.
To acquire by lease, purchase, contract, concession or otherwise, and
to own, develop, explore, exploit, improve, operate, lease, enjoy, control,
manage or otherwise turn to account, mortgage, grant, sell, exchange, convey or
otherwise dispose of any and all real estate, lands, options, concessions,
leases, grants, land patents, franchises, deposits, mines, mining rights,
quarries, locations, claims, rights, privileges and easements, tenements,
appurtenances and hereditaments, interests and properties of every description
and nature whatsoever which this Corporation may deem wise and proper in
connection with the conduct of any business or businesses enumerated in this
Certificate of Incorporation or in any other business in which this Corporation
may lawfully engage.
To carry on and conduct research work upon any and all problems
arising in connection with the development of its properties or in connection
with any of the other objects and purposes of the Corporation.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal
in and deal with goods, ware and merchandise and personal property of every
class and description.
To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To enter into, make and perform contracts of every kind and description
with any person, firm, association, corporation, municipality, county, state,
body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the Corporation,
and from time to time, without limit as to amount to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidence of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment
-2-
<PAGE> 4
in trust of the whole or any part of the property of the Corporation,
whether at the time owned or thereafter acquired, and to sell, pledge or
otherwise dispose of such bonds or other obligations of the corporation for its
corporate purposes.
To loan to any person, firm or corporation any of its funds, either
with or without security.
To have one or more offices, to carry on all or any of its operations
and business and without restriction or limit as to amount to purchase or
otherwise acquire, hold, own, mortgage, sell, convey, or otherwise dispose of
real and personal property of every class and description in any of the States,
Districts, Territories or Colonies of the United States, and in any and all
foreign countries, subject to the laws of such State, District, Territory,
Colony or Country.
To conduct and carry on any of the objects and purposes herein
enumerated through or by means of investment in subsidiaries or in the stock,
securities, or other evidences of interest in corporations, associations,
partnerships, or trust estates engaged in carrying on or conducting any one or
more of the businesses or enterprises which the Corporation is authorized to
conduct and carry on hereunder.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the
State of Delaware, and to do any or all of the things hereinbefore set forth to
the same extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the objects and purposes specified in each of
the foregoing clauses of this Article shall be regarded as independent objects
and purposes.
FOURTH. The total number of shares which the Corporation shall have
authority to issues is two hundred (200) and the Par Value of each of said
shares is Five Dollars ($5.00), amounting in the aggregate to One Thousand
Dollars ($1,000.00).
-3-
<PAGE> 5
FIFTH. The minimum amount of capital with which the Corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH. The names and places of residence of the Incorporators are as
follows:
NAMES RESIDENCES
----- ----------
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
SEVENTH. The Corporation is to have perpetual existence.
EIGHT. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
NINTH. Ownership of shares of any class of the capital stock of the
Corporation shall not entitle the holders thereof to any pre-emptive right to
subscribe for or purchase or to have offered to them for subscription or
purchase any additional shares of capital stock of any class of the Corporation
or any securities convertible into any class of capital stock of the
Corporation, whether now or hereafter authorized, however acquired, issued or
sold by the Corporation, it being the purpose and intent hereof that the Board
of Directors shall have full right, power and authority to offer for
subscription or sell or to make any disposal of any or all unissued shares of
the capital stock of the Corporation or any securities convertible into stock or
any or all shares of stock or convertible securities issued and thereafter
acquired by the Corporation, for such consideration, in money or property, as
the Board of Directors in its sole discretion shall determine.
TENTH. All corporate powers shall be exercised by the Board of
Directors except as otherwise provided by statute.
The number of Directors of the Corporation shall be fixed from time to
time by the By-Laws and may be altered as the By-Laws may provide.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To make, amend, alter, change, add to or repeal the By-Laws of the
corporation.
(b) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
-4-
<PAGE> 6
(c) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation.
(d) To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
(e) By resolution passed by a majority of the whole Board, to
designate one or more committees, each committee to consist of two or more of
the Directors of the Corporation, which, to the extent provided in the
Resolution or in the By-Laws of the Corporation, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it. Such committee or committees shall have
such name or names as may be stated in the By-Laws of the Corporation or as may
be determined from time to time by Resolution adopted by the Board of Directors.
(f) When and authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and for the best
interests of the Corporation.
(g) Without the assent or vote of the stockholders, to authorize and
issue obligations of the Corporation in such amounts and having such terms and
provisions as the Board of Directors in its sole discretion shall determine and
to authorize and cause to be executed mortgages and liens, without limit as to
amount, upon the real and personal property of the Corporation.
(h) From time to time to determine whether and to what extent, at what
time and place, and under what conditions and regulations the
-5-
<PAGE> 7
accounts and books of the Corporation or any of them shall be open to the
inspection of any stockholder and no stockholder shall have any right to
inspect any account or book or document of the Corporation except as conferred
by statute or the By-Laws or as authorized by a Resolution of the stockholders
or the Board of Directors.
(i) To authorize the payment of compensation to the Directors for
services to the Corporation, including fees for special services to the
Corporation and for attendance at meetings of the Board of Directors and of any
committees of the Board of Directors and to determine the amount of such
compensation and fees.
(j) At any time or from time to time (without any action by the
stockholders of the Corporation) to create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities
of the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes or
of any series of any class or classes, such rights or options to be evidenced
by or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times, which may be limited or
unlimited in duration, at or within which, and the price or prices at which any
such shares may be purchased from the Corporation upon the exercise of any such
right or option shall be such as shall be fixed and stated in the Resolution or
Resolutions adopted by the Board of Directors providing for the creation and
issue of such rights or options, and, in every case, set forth or incorporated
by reference in the instrument or instruments evidencing such right or options.
No contract or other transaction between the Corporation or any other
corporation shall be affected or invalidated by the fact that one or more of
the Directors of this Corporation are interested in, or is a director or
Directors or Officer or Officers of such other corporation, and no contract or
other transaction between the Corporation and any other person or firm shall be
affected or invalidated by the fact that one or more of the Directors of this
Corporation is a party to, or are parties to, or interested in, such contract
or transaction; provided that in each
-6-
<PAGE> 8
such case the nature and extent of the interest of such Director or Directors in
such contract or other transaction and/or the fact that such Director or
Directors is or are a Director or Directors or Officer or Officers of such
other corporation is known to the Board of Directors or is disclosed at the
meeting of the Board of Directors at which such contract or other transaction
is authorized.
A Director shall be fully protected in relying in good faith upon the
books of account of the Corporation or statements prepared by any of its
officials as to the value and amount of the assets, liabilities and/or net
profits of the Corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be
declared and paid.
The Corporation may in its By-Laws confer powers upon its Board of
Directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon it by statute.
ELEVENTH. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangements and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all
-7-
<PAGE> 9
the creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be; and also on this
Corporation.
TWELFTH. Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elections of Directors
need not be by ballot unless the By-Laws of the Corporation shall so provide.
THIRTEENTH. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereby prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the Incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hands and seals this 19th day of April, A.D. 1965.
A. D. ATWELL (SEAL)
------------------------
F. J. OBARA, JR. (SEAL)
------------------------
A. D. GRIER (SEAL)
------------------------
<PAGE> 10
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Amendment of Certificate of Incorporation of the "PKG CORPORATION", as
received and filed in this office the eighth day of June, A.D. 1965, at 12:15
o'clock P.M.
In Testimony Whereof, I have hereunto set my hand and
official seal at Dover this fifteenth day of July in the
year of our Lord one thousand nine hundred and sixty-five.
[SEAL] /s/ ELISHA C. DUKES
------------------------------
Secretary of State
/s/ G. F. Downs
------------------------------
Ass't Secretary of State
<PAGE> 11
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PKG CORPORATION
---------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
---------------
WE, Cecil C. Johnson, President and M. H. Covey, Secretary, of PKG
Corporation, a corporation existing under the laws of the State of Delaware, do
hereby certify under the seal of the said corporation as follows:
1. That the Certificate of Incorporation of said corporation has been
amended by striking out the whole of Article FIRST thereof as it now exists and
inserting in lieu thereof a new Article FIRST, reading as follows:
"FIRST: The name of the corporation is PACKAGING CORPORATION OF AMERICA
hereinafter referred to as the "Corporation""
2. That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, We, Cecil C. Johnson, president and M. H. Covey,
Secretary, of PKG Corporation, have signed Certificate and caused the corporate
seal of said corporation be hereunto affixed this 8th day of June, 1965.
[SEAL] /s/ Cecil C. Johnson
-----------------------------
President
/s/ M. H. Covey
-----------------------------
Secretary
STATE OF TEXAS )
) SS:
COUNTY OF HARRIS )
BE IT REMEMBERED, that on this 8th day of June, 1965, personally
before me Betty Weisbach, a Notary Public in and for the County and State
aforesaid, duly commissioned and sworn to take acknowledgements or proofs of
deeds, Cecil C. Johnson
<PAGE> 12
President of PKG CORPORATION, a corporation of the State of Delaware, the
corporation described in the foregoing Certificate, known to me personally to
be such, and he, the said Cecil C. Johnson as such President, acknowledged the
said Certificate to be his act and deed and made on behalf of said corporation;
that the signature of said President and of the Secretary of said corporation
to said foregoing certificate are in the handwriting of the said President and
of the Secretary of the corporation, respectively, and that the seal affixed to
the Certificate is the common or corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/ BETTY WEISBACH
----------------------------------
Notary Public in and for Harris
[SEAL] County, Texas
My commission expires June 1, 1967
-2-
<PAGE> 13
State of Delaware
[State of Delaware Seal]
Office of Secretary of State
I, Elisha C. Dukes, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Ownership of the "PACKAGING CORPORATION OF AMERICA", merging the "COATES
BOARD & CARTON CO., INC.", pursuant to Section 253 of the General Corporation
Law of the State of Delaware, as received and filed in this office the
twenty-sixth day of April, A.D. 1967, at 10 o'clock A.M.
In Testimony Whereof, I have hereunto set my hand and official
seal at Dover this twenty-sixth day of April in the year of our
Lord one thousand nine hundred and sixty-seven.
/s/ ELISHA C. DUKES
-----------------------------
Secretary of State
/s/ G. F. DOWNS
-----------------------------
Asst. Secretary of State
<PAGE> 14
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
COATES BOARD & CARTON CO., INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a Corporation organized and existing
under the laws of Delaware,
DOES HEREBY CERTIFY:
FIRST: That this Corporation was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this Corporation owns all of the outstanding shares (of each
class) of the stock of Coates Board & Carton Co., Inc., a corporation
incorporated on the 11th day of May, 1966, pursuant to the General Corporation
Law of the State of Delaware.
THIRD: That this corporation, by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of the board on the 5th day of April, 1967, determined to and
did merge into itself said Coates Board & Carton Co., Inc.:
NOW, THEREFORE, BE IT RESOLVED, that Packaging Corporation of America
merge, and it hereby does merge into itself said Coates Board & Carton Co., Inc,
and assumes all of its obligations; and
<PAGE> 15
FURTHER RESOLVED, that the merger shall become effective on May 1, 1967;
and
FURTHER RESOLVED that the proper officers of this Corporation be, and they
hereby are, directed to make and execute, under the corporate seal of this
Corporation, a Certificate of Ownership and Merger setting forth a copy of the
resolutions to merge said Coates Board & Carton Co., Inc. and assume its
liabilities and obligations, and the date of adoption thereof, and to cause the
same to be filed, in the manner provided by law, and to do all acts and things
whatsoever, whether within or without the State of Delaware, which may be in
anywise necessary or proper to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused its
corporate seal to be affixed and this certificate to be signed by W. J.
Wakefield, its Senior Vice President and A. A. Haller, its Assistant Secretary
this 20th day of April A.D. 1967.
PACKAGING CORPORATION OF AMERICA
By /s/ W.J. WAKEFIELD
--------------------------
Senior Vice President
By /s/ A. A. HALLER
--------------------------
Assistant Secretary
-2-
<PAGE> 16
STATE OF ILLINOIS )
)SS:
COUNTY OF COOK )
BE IT REMEMBERED that on this 20th day of April A.D. 1967, personally came
before me, Norma Lahger, a Notary Public in and for the County and State
aforesaid, W. J. Wakefield, Senior Vice President of Packaging Corporation of
America, a corporation of the State of Delaware, the corporation described in
and which executed the foregoing certificate, known to me personally to be such,
and he, the said W. J. Wakefield as such Senior Vice President, duly executed
said certificate before me and acknowledged the said certificate to be his act
and deed and the act and deed of said corporation; that the signatures of the
said Senior Vice President and of the Assistant Secretary of said corporation to
said foregoing certificate are in the handwriting of the said Senior Vice
President and Assistant Secretary of said corporation respectively, and that the
seal affixed to said certificate is the common or corporate seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ Norma Lahger
--------------------
Notary Public
My commission expires June 15, 1970.
<PAGE> 17
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Ownership of the "PACKAGING CORPORATION OF AMERICA", a corporation organized
and existing under the laws of the State of Delaware, merging the "NORTHWESTERN
CORRUGATED BOX COMPANY", a corporation organized and existing under the laws of
the State of Minnesota, pursuant to Section 253 of the General Corporation Law
of the State of Delaware, as received and filed in this office the twenty-second
day of December, A.D. 1967, at 10 o'clock A.M.
In Testimony Whereof, I have hereunto set my hand and
official seal at Dover this twenty-second day of December in
the year of our Lord one thousand nine hundred and
sixty-seven.
[SEAL] /s/ ELISHA C. DUKES
------------------------------
Secretary of State
/s/ G. F. DOWNS
------------------------------
Ass't Secretary of State
REC'D FOR RECORD DEC 22, 1967 LEO J. DUGAN, Jr. RECORDER
<PAGE> 18
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
NORTHWESTERN CORRUGATED BOX COMPANY
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of Delaware,
DOES HEREBY CERTIFY:
FIRST: That this corporation was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this corporation owns all of the outstanding shares of
the stock of NORTHWESTERN CORRUGATED BOX COMPANY, a corporation incorporated on
the 27th day of March, 1947, pursuant to the General Corporation Law of the
State of Minnesota.
THIRD: That this corporation, by the following resolutions of its
Board of Directors, duly adopted at a meeting of the Board of Directors held on
November 7, 1967, filed with the minutes of the board, determined to and did
merger into itself said NORTHWESTERN CORRUGATED BOX COMPANY:
RESOLVED, that PACKAGING CORPORATION OF AMERICA merge, and it hereby
does merge into itself said NORTHWESTERN CORRUGATED BOX COMPANY, and assumes
<PAGE> 19
all of its obligations; and
FURTHER RESOLVED, that the merger shall become effective on January 1,
1968.
FURTHER RESOLVED, that the proper officers of this corporation be and
they hereby are, directed to make and execute, under the corporate seal of this
corporation, a Certificate of Ownership and Merger setting forth a copy of the
resolutions to merge said NORTHWESTERN CORRUGATED BOX COMPANY and assume its
liabilities and obligations, and the date of adoption thereof, and to cause the
same to be filed with the Secretary of State and a certified copy in the office
of the Record of Deeds of New Castle County and to do all acts and things
whatsoever, whether within or without the State of Delaware, which may be in
anywise necessary or proper to effect said merger.
FOURTH: Anything herein or elsewhere to the contrary notwithstanding
this merger may be terminated and abandoned by the board of directors of
PACKAGING CORPORATION OF AMERICA at any time prior to the date of filing the
merger with the Secretary of State.
<PAGE> 20
IN WITNESS WHEREOF, said PACKAGING CORPORATION OF AMERICA has caused
its corporate seal to be affixed and this certificate to be signed by W. J.
Wakefield, its Senior Vice-President and A. A. Haller, its Assistant Secretary
this 11th day of December A.D. 1967.
PACKAGING CORPORATION OF AMERICA
By /s/ W. J. WAKEFIELD
-----------------------------
Senior Vice-President
By /s/ A. A. HALLER
-----------------------------
Assistant Secretary
[SEAL]
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
BE IT REMEMBERED that on this 11th day of December 1967, personally
came before me, a Notary Public in and for the County and State aforesaid, W.
J. Wakefield, Senior Vice President, and A. A. Haller, Assistant Secretary of
PACKAGING CORPORATION OF AMERICA, a corporation of the State of Delaware, and
they duly executed said certificate before me and severally acknowledged the
said certificate to be their act and deed and the act and deed of said
corporation and the facts stated therein are true; that the signatures of the
said officers are in the handwriting of each of said officers respectively; and
that the seal affixed to said certificate is the common or corporate seal of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/ SUE GROWNEY
-----------------------------
Notary Public
[SEAL]
<PAGE> 21
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, EUGENE BUNTING, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Ownership of the "PACKAGING CORPORATION OF AMERICA", a corporation organized
and existing under the laws of the State of Delaware, merging "EPCO INC.", a
corporation organized and existing under the laws of the State of Delaware and
"SUPERIOR BOX AND BAG COMPANY, INC.", a corporation organized and existing under
the laws of the State of Texas, pursuant to Section 253 of the General
Corporation Law of the State of Delaware, as received and filed in this office
the thirty-first day of December, A.D. 1970, at 10 o'clock A.M.
In Testimony Whereof, I have hereunto set my hand and
official seal at Dover this thirty-first day of December in
the year of our Lord one thousand nine hundred and seventy.
[SEAL] /s/ EUGENE BUNTING
------------------------------
Secretary of State
/s/ R. G. CALDWELL
------------------------------
Ass't Secretary of State
REC'D FOR RECORD DEC 31, 1970 LEO J. DUGAN, Jr. RECORDER
<PAGE> 22
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
EPCO INC. AND
SUPERIOR BOX AND BAG COMPANY, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * *
Packaging Corporation of America, a corporation organized and existing
under the laws of Delaware,
DOES HEREBY CERTIFY:
FIRST: that this corporation was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of Delaware.
SECOND: that this corporation owns all of the outstanding shares of the
stock of EPCO INC., a corporation incorporated on the 9th day of December, 1968,
pursuant to the General Corporation Law of Delaware.
THIRD: that this corporation owns all of the outstanding shares of the
stock of Superior Box and Bag Company, Inc., a corporation incorporated on the
27th day of February, 1964, pursuant to the Business Corporation Act of the
State of Texas.
FOURTH: that this corporation by the unanimous written consent of its
members, filed with the minutes of the Board of Directors on the 30th day of
December, 1970 determined to and did merge into itself said EPCO INC. and
Superior Box and Bag Company, Inc.
RESOLVED: that Packaging Corporation of America merge, and it does
hereby merge, into itself said EPCO INC. and Superior Box and Bag
Company, Inc., and assumes all of their obligation; and further
RESOLVED, that the merger shall become effective on January 1,
1971; and further
RESOLVED, that the President or any Vice President and the
Secretary or Assistant Secretary of this corporation be, and they
hereby are, directed to make and execute, under the corporate seal of
this Corporation, a Certificate of Ownership and Merger setting forth a
copy of the resolution to merge said EPCO INC. and Superior Box and Bag
Company, Inc. and to assume their liabilities and obligations, and the
date of adoption thereof, and to cause the same to be filed with the
Secretary of State and a certified copy in the office of the Recorder
of Deeds of New Castle County and to do all acts and things whatsoever
including, but not limited to the filing of the Articles of Merger with
the Secretary of State of Texas, whether within or without the State of
Delaware, which may be in anywise necessary or proper to effect said
merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has
caused its corporate seal to be hereunto affixed
<PAGE> 23
and this certificate to be signed by E. J. Kenn, its Vice President,
and attested by A. A. Haller, its Assistant Secretary, this 30th day of
December, 1970
PACKAGING CORPORATION OF AMERICA
ATTEST:
/s/ A. A. HALLER By /s/ E. J. KENN
- ----------------------------- --------------------------------------
Assistant Secretary Vice President
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
BE IT REMEMBERED, that on this 30th day of December 1970, personally
came before me, a Notary Public in and for the County and State aforesaid, E. J.
Kenn, Vice President of Packaging Corporation of America, a corporation of the
State of Delaware, and he duly executed said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said corporation and the facts stated therein to be true; and that the seal
affixed to said certificate and attested to by the Assistant Secretary of said
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
[SEAL]
/s/ ROSE MARIE LANE
------------------------------
Notary Public
-2-
<PAGE> 24
State of Delaware )
) ss,
New Castle County )
I, Leo J. Dugan, Jr., Recorder of Deeds for New Castle County,
Delaware, do hereby certify that Certified Copy of Certificate of Ownership of
"PACKAGING CORPORATION OF AMERICA (DEL.)", merging "EPCO INC. (DEL.)",
"SUPERIOR BOX AND BAG COMPANY, INC. (TEX.)" was received for record in this
office on December 31, 1970 and the same appears of record in the Recorder's
Office for said County.
Witness my hand and Official Seal, this thirty-first day of December,
A. D. 1970.
/s/ LEO J. DUGAN, JR.
------------------------------
Recorder.
<PAGE> 25
[LOGO]
State
of
DELAWARE
OFFICE OF SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware,
do hereby certify that the attached is a true and correct copy of
Certificate of Ownership filed in this office on January 4, 1971
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
[SEAL]
BY: /s/ M. C. DAVIS
--------------------------------
DATE: August 15, 1989
-----------------------------
<PAGE> 26
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
THE EASTERN CORRUGATED CONTAINER CORPORATION,
COMMONWEALTH CONTAINER CORP.,
EASTERN PAPER PRODUCTS CO., INC.
MIDLAND PAPER CORPORATION,
MIDDLEPENN CORPORATION
PAPERBOARD SALES, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * *
Packaging Corporation of America, a corporation organized and existing
under the laws of Delaware,
DOES HEREBY CERTIFY:
FIRST: that this corporation was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware.
SECOND: that this corporation owns all of the outstanding shares of the
stock of The Eastern Corrugated Container Corporation, a corporation
incorporated on the 9th day of March, 1922, pursuant to the Business Corporation
Law of the State of New York.
THIRD: that this corporation owns all the outstanding shares of the
stock of Commonwealth Container Corp., a corporation incorporated on the 4th day
of October, 1951, pursuant to the Business Corporation Act of the State of New
Jersey.
FOURTH: that this corporation owns all the outstanding shares of the
stock of Eastern Paper Products Co., Inc., a corporation incorporated on the
18th day of December, 1952, pursuant to the Business Corporation Act of the
State of New Jersey.
FIFTH: that this corporation owns all the outstanding shares of the
stock of Midland Paper Corporation, a corporation incorporated on the 18th day
of September, 1950, pursuant to the Business Corporation Act of the State of New
Jersey.
SIXTH: that this Corporation owns all the outstanding shares of the
stock of Middlepenn Corporation, a corporation organized on the 29th day of
June, 1955, pursuant to the Business Corporation Law of the Commonwealth of
Pennsylvania.
SEVENTH: that this corporation owns all the outstanding shares of the
stock of Paperboard Sales, Inc., a corporation organized on the 14th day of
January, 1957, pursuant to the Business Corporation Law of the Commonwealth of
Pennsylvania.
EIGHTH: that this corporation by the unanimous written consent of its
members, filed with the minutes of the Board of Directors on the 4th day of
January, 1971, determined to and did merge into itself said The Eastern
Corrugated Container Corporation, Commonwealth Container Corp., Eastern Paper
Products Co., Inc, Midland Paper Corporation, Middlepenn Corporation and
Paperboard Sales, Inc.
1
<PAGE> 27
RESOLVED, that Packaging Corporation of America merge, and it does
hereby merge, into itself said The Eastern Corrugated Container
Corporation, Commonwealth Container Corp., Eastern Paper Products Co.,
Inc., Midland Paper Corporation, Middlepenn Corporation and Paperboard
Sales, Inc., and assumes all of their obligations; and further
RESOLVED, that the merger shall become effective upon the date of
filing with the Secretary of State of Delaware; and further
RESOLVED, that the President or any Vice President and the
Secretary or Assistant Secretary of this Corporation be, and they
hereby are, directed to make and execute, under the corporate seal of
this Corporation, a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge said The Eastern Corrugated Container
Corporation, Commonwealth Container Corp., Eastern Paper Products Co.,
Inc., Midland Paper Corporation, Middlepenn Corporation and Paperboard
Sales, Inc., and to assume their liabilities and obligations, and the
date of adoption thereof, and to cause the same to be filed with the
Secretary of State of Delaware and a certified copy in the office of
the Recorder of Deeds of New Castle County and to do all acts and
things whatsoever, including, but not limited to, filing with the
Secretary of State of the states of New Jersey, New York and
Pennsylvania, which may be in anywise necessary or proper to effect
said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
E. J. Kenn, its Vice President, and attested by A. A. Haller, its Assistant
Secretary, this 4th day of January, 1971.
CORPORATE SEAL
PACKAGING CORPORATION OF AMERICA
ATTEST:
/s/ A. A. HALLER By /s/ E. J. KENN
- --------------------------------- -----------------------------
Assistant Secretary Vice President
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
BE IT REMEMBERED, that on this 4th day of January, 1971, personally
came before me, a Notary Public in and for the County and State aforesaid, E. J.
Kenn, Vice President of Packaging Corporation of America, a corporation of the
State of Delaware, and he duly executed said certificate before me and
acknowledged the same certificate to be his act and deed and the act and deed of
said corporation and the facts stated therein to be true; and that the seal
affixed to said certificate and attested to by the Assistant Secretary of said
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
NOTARIAL SEAL /s/ ROSE MARIE LANE
-----------------------------
Notary Public
2
<PAGE> 28
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, ROBERT H. REED, Secretary of State of the State of Delaware, DO
HEREBY CERTIFY that the above and foregoing is a true and correct copy of
Certificate of Ownership of the "PACKAGING CORPORATION OF AMERICA", a
corporation organized and existing under the laws of the State of Delaware,
merging "THE E-Z-DO COMPANY", a corporation organized and existing under the
laws of the State of New Jersey, pursuant to Section 253 of the General
Corporation Law of the State of Delaware, as received and filed in this office
the ninth day of April, A.D. 1973, at 10 o'clock A.M.
In Testimony Whereof, I have hereunto set my hand and official
seal at Dover this ninth day of April in the year of our Lord
one thousand nine hundred and seventy-three.
/s/ ROBERT H. REED
------------------------------
Secretary of State
[SEAL]
/s/ M. BIDDLE
------------------------------
Ass't Secretary of State
REC'D FOR RECORD 4-9-1973 LEO J. DUGAN, Jr., RECORDER
<PAGE> 29
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
THE E-Z-DO COMPANY
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
Packaging Corporation of America, a corporation organized and existing
under the laws of Delaware,
DOES HEREBY CERTIFY:
FIRST: that this corporation was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware.
SECOND: that this corporation owns all the outstanding shares of the
stock of The E-Z-DO Company, a corporation incorporated on the 25th day of
February, 1953, pursuant to the Business Corporation Act of the State of New
Jersey.
THIRD: that this Corporation by the unanimous written consent of its
Board of Directors, filed with the minutes of the Board of Directors on the
23rd day of March, 1973, determined to and did merge into itself, effective the
1st day of May, 1973, said The E-Z-DO Company.
RESOLVED: that Packaging Corporation of America merge, and it does
hereby merge, into itself said The E-Z-DO Company, and assumes all of
its obligations; and further
RESOLVED: that the merger shall become effective on May 1, 1973;
and further
RESOLVED: that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they
hereby are, directed to make and execute, under the corporate seal of
this corporation, a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge said The E-Z-DO Company and to assume
its liabilities and obligations, and the date of adoption thereof, and
to cause the same to be filed with the Secretary of State of the State
of Delaware and a certified copy in the office of the Recorder of Deeds
of New Castle County, Delaware and to do all acts and things whatsoever
including, but not limited to, the filing with the Secretary of State
of New Jersey, which may be in anywise necessary or proper to effect
said merger.
<PAGE> 30
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
Its corporate seal to be hereunto affixed and this certificate to be signed by
E. J. Kenn, its Vice President, and attested by A. A. Haller, its Assistant
Secretary, this 26th day of March, 1973.
PACKAGING CORPORATION OF AMERICA
ATTEST:
/s/ A. A. HALLER By /s/ E. J. KENN
- ------------------------------ ---------------------------------
Assistant Secretary Vice President
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
BE IT REMEMBERED, that on this 26th day of March, 1973, personally
came before me, a Notary Public in and for the County and State aforesaid, E. J.
Kenn, Vice President of Packaging Corporation of America, a corporation of the
State of Delaware, and he duly executed said certificate before me and
acknowledged the same certificate to be his act and deed and the act and deed of
said corporation and the facts stated therein to be true; and that the seal
affixed to said certificate and attested to by the Assistant Secretary of said
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
[SEAL] /s/ VERNIA MARBERRY
--------------------------------
Notary Public
<PAGE> 31
[LOGO]
State
of
DELAWARE
Office of SECRETARY OF STATE
I, ROBERT H. REED, Secretary of State of the State of Delaware, do
hereby certify that the above and foregoing is a true and correct copy of
Certificate of Ownership of the "PACKAGING CORPORATION OF AMERICA", a
corporation organized and existing under the laws of the State of Delaware,
merging "FOAM AIR PACKAGING CORP." and "ARNOLD ASSOCIATES, INC.", corporations
organized and existing under the laws of the State of Illinois, pursuant to
Section 253 of the General Corporation Law of the State of Delaware, as received
and filed in this office the thirty-first day of December, A. D. 1975, at 10
o'clock A.M.
IN TESTIMONY WHEREOF, I have hereunto set my hand and
official seal at Dover this thirty-first day of
December in the year of our Lord one thousand nine
hundred and seventy-five.
/s/ ROBERT H. REED
------------------------------------------------
Robert H. Reed Secretary of State
[SEAL]
/s/ GROVER A. BIDDLE
------------------------------------------------
Grover A. Biddle Assistant Secretary of State
<PAGE> 32
State of Delaware )
) ss,
New Castle County )
I, Leo J. Dugan, Jr., Recorder of Deeds for New Castle County,
Delaware, do hereby certify that Certified Copy of Certificate of Ownership and
Merger of "PACKAGING CORPORATION OF AMERICA" (DEL.DOM.) MERGING "FOAM AIR
PACKAGING CORP." (ILL.DOM) AND "ARNOLD ASSOCIATES, INC." (ILL.DOM.) was
received for record in this office on December 31, 1975 and the same appears of
record in the Recorder's Office of said County.
Witness my hand and Official Seal, this thirty-first day of December A.
D. 1975.
/s/ LEO J. DUGAN, JR.
-------------------------------
Recorder
<PAGE> 33
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
FOAM AIR PACKAGING CORP., AND
ARNOLD ASSOCIATES, INC.
INTO
PACKAGING CORPORATION OF AMERICA
__________________________________
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of Delaware.
DOES HEREBY CERTIFY:
FIRST: that this corporation was incorporated on the 19th day of April,
1965 pursuant to the General Corporation Law of the State of Delaware, as
amended.
SECOND: that this corporation owns all the outstanding shares of the
stock of Foam Air Packaging Corp., a corporation incorporated on the 7th day of
April, 1961 pursuant to the Illinois Business Corporation Act.
THIRD: that this corporation owns all the outstanding shares of the
stock of Arnold Associates, Inc., a corporation incorporated on the 16th day of
October, 1967 pursuant to the Illinois Business Corporation Act.
FOURTH: that this corporation by the unanimous consent of its members,
filed with the minutes of the Board of Directors on the 31st day of December,
1975, determined to and did merge into itself said Foam Air Packaging Corp. and
Arnold Associates, Inc.
RESOLVED, that Packaging Corporation of America merge, and it hereby
does merge, into itself said Foam Air Packaging Corp. and Arnold Associates,
Inc., and assumes all of their obligations; and further
RESOLVED, that the merger shall become effective on January 1, 1976;
and further
<PAGE> 34
RESOLVED, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be, and they
hereby are, directed to make and execute, under the corporate seal of
this Corporation, a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge said Foam Air Packaging Corp. and
Arnold Associates, Inc. and to assume their liabilities and
obligations, and the date of adoption thereof, and to cause the same to
be filed with the Secretary of State of Delaware, and a certified copy
in the office of the Recorder of Deeds of New Castle County, Delaware,
and to do all acts and things whatsoever, including but not limited to,
the filing of the Articles of Merger of Subsidiary Corporations with
the Secretary of State of Illinois, which may be in anywise necessary
or proper to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has
caused its corporate seal to be hereunto affixed and this certificate
to be signed by E. J. Kenn, its Vice President, and attested by A. A.
Haller, its Assistant Secretary, this 31st day of December, 1975.
PACKAGING CORPORATION OF AMERICA
[CORPORATE SEAL]
By /s/ E. J. KENN
ATTEST: --------------------------------
Vice President
/s/ A. A. HALLER
- -----------------------------------
Assistant Secretary
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
BE IT REMEMBERED, THAT on this 31st day of December 1975,
personally came before me, a Notary Public in and for the County and
State aforesaid, E. J. Kenn, Vice President of Packaging Corporation of
America, a corporation of the State of Delaware, and he duly executed
said certificate before me and acknowledged the same certificate to be
his act and deed and the act and deed of said corporation and the facts
stated therein to be true; and that the seal affixed to said
certificate and attested to by the Assistant Secretary of said
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office
the day and year aforesaid.
/s/ JUDITH [ILLEGIBLE]
NOTARIAL SEAL -------------------------
Notary Public
<PAGE> 35
[LOGO]
State
of
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware,
do hereby certify that the attached is a true and correct copy of
Certificate of Ownership filed in this office on December 29, 1981
/s/ MICHAEL HARKINS
---------------------------------------
Michael Harkins, Secretary of State
BY: M. C. DAVIS
------------------------------------
[SEAL]
DATE: August 15, 1989
----------------------------------
<PAGE> 36
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PACKAGING CORPORATION OF AMERICA (ALABAMA)
INTO
PACKAGING CORPORATION OF AMERICA
* * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: that this Corporation was incorporated on April 19, 1965,
pursuant to the General Corporation Law of the State of Delaware, as amended.
SECOND: that this Corporation owns all the outstanding shares of
Packaging Corporation of America, a corporation incorporated on August 18,
1972, pursuant to the Alabama Business Corporation Act.
THIRD: that this Corporation by the following resolution of its Board
of Directors, duly adopted by unanimous written consent dated as of December
28, 1981, determined to and did merge into itself said PACKAGING CORPORATION OF
AMERICA (Alabama):
RESOLVED, that this Corporation merge, and it does hereby merge,
into itself its wholly-owned subsidiary PACKAGING CORPORATION OF
AMERICA, an Alabama corporation, and that this Corporation assume, and
it does hereby assume, all of the liabilities and obligations of said
corporation; and it is further
RESOLVED, that the merger shall become effective on December 31,
1981; and it is further
RESOLVED, that upon the merger becoming effective, each share of
Capital Stock, par value $1.00 per share, of PACKAGING CORPORATION OF
AMERICA (Alabama) which is issued and outstanding immediately prior to
the merger shall cease to exist and be cancelled; and it is further
RESOLVED, that the President or any Vice President and this
Secretary or any Assistant Secretary of this Corporation be, and they
hereby are, directed to make and execute, under the corporation seal of
this Corporation, a Certificate of Ownership and Merger setting forth a
copy of these resolutions and the date of adoption thereof, and to
cause the same to be filed in the office of the Secretary of State of
Delaware, and a certified copy in the office of the Recorder of
Deeds of New Castle County, Delaware, and to do all acts and things
whatsoever, whether within or without the State of Delaware, which may
be in any way necessary or proper to effect said merger.
<PAGE> 37
IN WITNESS WHEREOF, said PACKAGING CORPORATION OF AMERICA has caused
its corporate seal to be affixed and this Certificate to be signed by R. D.
Harlow, a Vice President, and attested by J. R. Olsen, its Assistant
Secretary, this 28th day of December, 1981.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
-----------------------------
R. D. Harlow, Vice President
ATTEST:
J. R. OLSEN
- -------------------------------------
J. R. Olsen, Assistant Secretary
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
BE IT REMEMBERED, that on this 28th day of December, 1981, personally
came before me, a Notary Public in and for the County and State aforesaid, R. D.
Harlow, Vice President of Packaging Corporation of America, a corporation of the
State of Delaware, and he duly executed said certificate before me and
acknowledged the same certificate to be his act and deed and the act and deed of
said corporation and the facts stated therein to be true; and that the seal
affixed to said certificate and attest to by the Assistant Secretary of said
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
[SEAL]
/s/ [ILLEGIBLE]
-------------------------------------
Notary Public
My Commission Expires June 29, 1984
<PAGE> 38
[LOGO]
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, MICHAEL HARKINS, Secretary of State of the State of Delaware, do hereby
certify that the above and foregoing is a true and correct copy of Certificate
of Change of Location of Registered Office of the companies represented by "The
Corporation Trust Company", as it applies to "PACKAGING CORPORATION OF AMERICA",
as received and filed in this office the twenty-seventh day of July, A.D. 1984,
at 4:30 o'clock P.M.
In Testimony Whereof, I have hereunto set my hand and
official seal at Dover this thirteenth day of June in the
year of our Lord one thousand nine hundred and eighty-five.
[SEAL] /s/ MICHAEL HARKINS
-----------------------------------
Michael Harkins, Secretary of State
<PAGE> 39
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of title 8 of the Delaware
Code, the undersigned Agent for service of process, in order to change the
address of the registered office of the corporations for which it is registered
agent, hereby certifies that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The name of the corporations represented by said agent are set forth
on the list annexed to this certificate and made a part hereof by
reference.
IN WITNESS WHEREOF, said agent has caused this certificate to
be signed on its behalf by its Vice-President and Assistant
Secretary this 25th day of July, 1984.
THE CORPORATION TRUST COMPANY
-----------------------------------
(Name of Registered Agent)
By /s/ VIRGINIA COLWELL
---------------------------------
(Vice-President)
ATTEST:
/s/ [ILLEGIBLE]
- ---------------------------------
(Assistant Secretary)
<PAGE> 40
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
---------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP & MERGER OF PACKAGING CORPORATION OF AMERICA FILED IN THIS OFFICE ON
THE ELEVENTH DAY OF DECEMBER, A.D. 1985, AT 10 O'CLOCK A.M.
::::::::::::::
[SEAL] /s/ MICHAEL HARKINS
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
:2303562
DATE:
08/15/1989
<PAGE> 41
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ABCO CARTAGE CO.
INTO
PACKAGING CORPORATION OF AMERICA
Packaging Corporation of America, a corporation organized and existing
under the laws of Delaware, DOES HEREBY CERTIFY:
FIRST: That this corporation was incorporated on the 19th day of
April, 1965, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this corporation owns all of the outstanding shares of
each class of the stock of ABCO Cartage Co. a corporation incorporated on the
15th day of November, 1950, pursuant to the Business Corporation Act of the
State of Michigan.
THIRD: That this corporation, by the following resolutions of its
Board of Directors, duly adopted by the unanimous written consent of its
members, filed with the minutes of the board on the 7th day of November, 1985,
determined to and did merge into itself said ABCO Cartage Co.:
RESOLVED, that this Corporation merge, and it does hereby merge, into
itself, its wholly-owned subsidiary, ABCO Cartage Co., a Michigan corporation,
and that this Corporation, assume, and it does hereby assume, all of the
liabilities and obligations of said corporation; and it is further
RESOLVED, that the merger shall become effective on December 31, 1985;
and it is further
RESOLVED, that upon the merger becoming effective, each share of
Capital Stock, par value $1.00 per share, of ABCO Cartage Co., which is issued
and outstanding immediately prior to the merger shall cease to exist and be
cancelled; and it is further
RESOLVED, that the President or any Vice-President and the Secretary
or any Assistant Secretary, be and they hereby are, directed to make and
execute, under the corporate seal of this Corporation, Articles of Merger
setting forth a copy of these resolutions and the date of adoption thereof, and
to cause the same to be filed in the office of the Secretary of State of
Delaware and a certified copy recorded in the office of the Recorder of Deeds
of New Castle County and do any and all acts and things whatsoever, whether
within or without the State of Delaware, which may be in any way necessary or
proper to effect said merger.
Anything herein or elsewhere to the contrary notwithstanding this
merger may be amended or terminated and abandoned by the Board of Directors of
Packaging Corporation of America at any time prior to the date of filing the
merger with the Secretary of State.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
this certificate to be signed by A. A. Haller, its Vice President and attested
by Lynne A. Taylor, its Assistant Secretary, this 11th day of November, 1985.
PACKAGING CORPORATION OF AMERICA
[SEAL] By: /s/ A. A. HALLER
-------------------------------
Vice President
ATTEST:
By: /s/ LYNNE A. TAYLOR
----------------------------
Assistant Secretary
<PAGE> 42
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING DURA-BOX COMPANY, INC. A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEW MEXICO, PURSUANT TO
SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED
AND FILED IN THIS OFFICE THE SIXTEENTH DAY OF DECEMBER, A.D. 1986, AT 10 O'CLOCK
A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1050653
DATE: 12/17/1986
<PAGE> 43
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
DURA-BOX COMPANY, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of Dura-Box Company, Inc., a corporation incorporated on the
8th day of January, 1975, pursuant to the Business Corporation Act of the State
of New Mexico.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 1st day of November 1986, determined to
and did merge into itself the said Dura-Box Company, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Dura-Box
Company, Inc. and assume all of said corporation's liabilities
and obligations; and it is further
RESOLVED, that the shares of capital stock, par value $1.00
per share, of Dura-Box Company, Inc. which are issued and
outstanding immediately prior to the merger shall be
<PAGE> 44
cancelled, and the remaining assets of Dura-Box Company, Inc.
shall be distributed to the Company; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger and Articles of Merger, each of which
setting forth a copy of the resolutions to merge said Dura-Box
Company, Inc. into the Company, pursuant to which the Company
will assume all of the liabilities and obligations of the said
Dura-Box Company, Inc., and to cause the same to be filed, in
the manner provided by law, and to do all acts and things
whatsoever. whether within or without the States of Delaware and
New Mexico, which may be in anywise necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by M. R. Haymon, its President, and attested by A. A.
Haller, its Vice President, Secretary and General Counsel, this 1st day of
November, 1986.
PACKAGING CORPORATION OF AMERICA
By /s/ M. R. HAYMON
---------------------------------
M. R. Haymon, President
ATTEST:
By /s/ A. A. HALLER
--------------------------------
A. A. Haller, Vice President,
Secretary and General Counsel
- 2 -
<PAGE> 45
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING EKCO PRODUCTS, INC. A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF ILLINOIS, PURSUANT TO
SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED
AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF DECEMBER, A.D. 1986, AT 10
O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1122265
DATE: 02/12/1987
<PAGE> 46
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
EKCO PRODUCTS, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of Ekco Products, Inc., a corporation incorporated on the 10th
day of March, 1955, pursuant to the Business Corporation Act of the State of
Illinois.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 8th day of December, 1986, determined
to and did merge into itself the said Ekco Products, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Ekco Products,
Inc. and assume all of said corporation's liabilities and
obligations; and it is further
<PAGE> 47
RESOLVED, that the shares of capital stock, par value $1.00
per share, of Ekco Products, Inc. which are issued and
outstanding immediately prior to the merger shall be cancelled,
and the remaining assets of Ekco Products, Inc. shall be
distributed to the Company; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger and Articles of Merger, each of which
setting forth a copy of the resolutions to merge said Ekco
Products, Inc. into the Company, pursuant to which the Company
will assume all of the liabilities and obligations of the said
Ekco Products, Inc., and to cause the same to be filed, in the
manner provided by law, and to do all acts and things whatsoever,
whether within or without the States of Delaware and Illinois,
which may be in anywise necessary or proper to effect said
merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Karl A. Stewart, its Assistant Secretary, this 8th day of December,
1986.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
-----------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ KARL A. STEWART
-------------------------------------
Karl A. Stewart, Assistant Secretary
- 2 -
<PAGE> 48
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
____________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING E-Z POR CORPORATION A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, PURSUANT TO
SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED
AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF DECEMBER, A.D. 1986, AT 10:01
O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1122282
DATE: 02/12/1987
<PAGE> 49
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
E-Z POR CORPORATION
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of E-Z Por Corporation, a corporation incorporated on the 24th
day of October, 1979, pursuant to the General Corporation Law of the State of
Delaware.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 8th day of December, 1986, determined
to and did merge into itself the said E-Z Por Corporation:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary E-Z Por
Corporation and assume all of said corporation's liabilities and
obligations; and it is further
<PAGE> 50
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger, which sets forth a copy of the resolutions
to merge said E-Z Por Corporation into the Company, pursuant to
which the Company will assume all of the liabilities and
obligations of the said E-Z Por Corporation, and to cause the
same to be filed, in the manner provided by law, and to do all
acts and things whatsoever, whether within or without the State
of Delaware, which may be in anywise necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Karl A. Stewart, its Assistant Secretary, this 8th day of December,
1986.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
-----------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ KARL A. STEWART
-------------------------------------
Karl A. Stewart, Assistant Secretary
- 2 -
<PAGE> 51
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
______________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING A & E PLASTICS, INC. A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, PURSUANT TO
SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED
AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF DECEMBER, A.D. 1986, AT 10:02
O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-----------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1122306
DATE: 02/12/1987
<PAGE> 52
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
A & E PLASTICS, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock Of A & E Plastics, Inc., a corporation incorporated on the
30th day of November, 1982, pursuant to the General Corporation Law of the State
of Delaware.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 8th day of December, 1986, determined
to and did merge into itself the said A & E Plastics, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary A & E
Plastics, Inc. and assume all of said corporation's liabilities
and obligations; and it is further
<PAGE> 53
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
ownership and Merger, which sets forth a copy of the resolutions
to merge said A & E Plastics, Inc. into the Company, pursuant to
which the Company will assume all of the liabilities and
obligations of the said A & E Plastics, Inc., and to cause the
same to be filed, in the manner provided by law, and to do all
acts and things whatsoever, whether within or without the State
of Delaware, which may be in anywise necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Karl A. Stewart, its Assistant Secretary, this 8th day of December,
1986.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
--------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ KARL A. STEWART
-------------------------------------
Karl A. Stewart, Assistant Secretary
RECEIVED FOR RECORD
MAR 24 1987
William M. Haney, Recorder.
<PAGE> 54
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING LAKE STATES CARRIERS, INC. AND LAKE
STATES CARRIERS, INC. CORPORATIONS ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF ILLINOIS, PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRD DAY OF
FEBRUARY, A.D. 1987, AT 10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1149005
DATE: 03/03/1987
<PAGE> 55
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
LAKE STATES CARRIERS, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware and
maintains its registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares
of the capital stock of Lake States Carriers, Inc., a corporation incorporated
on the 23rd day of July, 1959, pursuant to the Business Corporation Act of the
State of Illinois.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 1st day of January, 1987, determined to
and did merge into itself the said Lake States Carriers, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Lake States
Carriers, Inc. and assume all of said corporation's liabilities
and obligations; and it is further
<PAGE> 56
RESOLVED, that the shares of capital stock, par value
$100.00 per share, of Lake States Carriers, Inc. which are issued
and outstanding immediately prior to the merger shall be
cancelled, and the remaining assets of Lake States Carriers, Inc.
shall be distributed to the Company; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger and Articles of Merger, each of which
setting forth a copy of the resolutions to merge said Lake States
Carriers, Inc. into the Company, pursuant to which the Company
will assume all of the liabilities and obligations of the said
Lake States Carriers, Inc., and to cause the same to be filed, in
the manner provided by law, and to do all acts and things
whatsoever, whether within or without the States of Delaware and
Illinois, which may be in anywise necessary or proper to effect
said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
this certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Karl A. Stewart, its Assistant Secretary, this 1st day of January,
1987.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
--------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ KARL A. STEWART
------------------------------------
Karl A. Stewart, Assistant Secretary
- 2 -
<PAGE> 57
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING TENNESSEE RIVER PULP & PAPER COMPANY,
A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE,
PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF DECEMBER,
A.D. 1987, AT 10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1531901
DATE: 01/04/1988
<PAGE> 58
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
TENNESSEE RIVER PULP & PAPER COMPANY
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of June, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of Tennessee River Pulp & Paper Company, a corporation
incorporated on the 3rd day of January, 1956, pursuant to the General
Corporation Law of the State of Delaware.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 7th day of December, 1987, determined
to and did merge into itself the said Tennessee River Pulp & Paper Company:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Tennessee
River Pulp & Paper Company and assume all of said corporation's
liabilities and obligations; and it is further
<PAGE> 59
RESOLVED, that the proper offices of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger which sets forth a copy of the resolutions
to merge said Tennessee River Pulp & Paper Company into the
Company, pursuant to which the Company will assume all of the
liabilities and obligations of the said Tennessee River Pulp &
Paper Company, and to cause the same to be filed, in the manner
provided by law, and to do all acts and things whatsoever,
whether within or without the State of Delaware, which may be in
anywise necessary or proper to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. D. Harlow, Senior Vice President, and attested
by J. R. Olsen, its Assistant Secretary, this 7th day of December, 1987.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ J. R. OLSEN
------------------------------------
J. R. Olsen, Assistant Secretary
- 2 -
<PAGE> 60
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING WESTERN PACKAGING, INC. A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF COLORADO, PURSUANT TO
SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED
AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF MAY, A.D. 1988, AT 10 O'CLOCK
A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1731817
DATE: 05/31/1988
<PAGE> 61
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
WESTERN PACKAGING, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware and
maintains its registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding
shares of the capital stock of Western Packaging, Inc., a corporation
incorporated on the 2nd day of May, 1979, pursuant to the Colorado Corporation
Code.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 16th day of May, 1988, determined to
and did merge into itself the said Western Packaging, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Western
Packaging, Inc. and assume all of said corporation's liabilities
and obligations; and it is further
<PAGE> 62
RESOLVED, that the shares of capital stock, par value $.01
per share, of Western Packaging, Inc. which are issued and
outstanding immediately prior to the merger shall be cancelled,
and the remaining assets of Western Packaging, Inc. shall be
distributed to the Company; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger and Articles of Merger, each of which
setting forth a copy of the resolutions to merge said Western
Packaging, Inc. into the Company, pursuant to which the Company
will assume all of the liabilities and obligations of the said
Western Packaging, Inc., and to cause the same to be filed, in
the manner provided by law, and to do all acts and things
whatsoever, whether within or without the States of Delaware and
Colorado, which may be in anywise necessary or proper to effect
said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
this certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Nancy C. Barnes, its Assistant Secretary, this 16th day of May,
1988.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
--------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ NANCY C. BARNES
------------------------------------
Nancy C. Barnes, Assistant Secretary
RECEIVED FOR RECORD
JUN 1 1988
William M. Honey, Recorder
- 2 -
<PAGE> 63
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING MIDDLETON BROKERAGE CO., INC. A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF CALIFORNIA,
PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE,
AS RECEIVED AND FILED IN THIS OFFICE THE THIRTIETH DAY OF JUNE, A.D. 1988, AT 10
O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-------------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1770278
DATE: 06/30/1988
<PAGE> 64
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
MIDDLETON BROKERAGE CO., INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware and
maintains its registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding
shares of the capital stock of Middleton Brokerage Co., Inc., a corporation
incorporated on the 15th day of June, 1961, pursuant to the General Corporation
Law of the State of California.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 16th day of May, 1988, determined to
and did merge into itself the said Middleton Brokerage Co., Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Middleton
Brokerage Co., Inc. and assume all of said corporation's
liabilities and obligations; and it is further
<PAGE> 65
RESOLVED, that the proper officers of the Company be, and\they hereby
are, authorized, empowered and directed to execute, under the corporate seal
of the Company, a Certificate of Ownership and Merger and Certificate of
Ownership, each of which setting forth a copy of the resolutions to merge
said Middleton Brokerage Co., Inc. into the Company, pursuant to which the
Company will assume all of the liabilities and obligations of the said
Middleton Brokerage Co., Inc., and to cause the same to be filed, in the
manner provided by law, and to do all acts and things whatsoever, whether
within or without the States of Delaware and California, which may be in
anywise necessary or proper to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
this certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Nancy C. Barnes, its Assistant Secretary, this 16th day of May,
1988.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
--------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ NANCY C. BARNES
--------------------------------------
Nancy C. Barnes, Assistant Secretary
- 2 -
<PAGE> 66
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING ICONFORE INC. A CORPORATION ORGANIZED
AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, PURSUANT TO SECTION 253 OF
THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN
THIS OFFICE THE THIRD DAY OF AUGUST, A.D. 1988, AT 10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-----------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1813589
DATE: 08/03/1988
<PAGE> 67
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ICONFORE INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April,
1965, pursuant to the General Corporation Law of the State of Delaware and
maintains its registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding
shares of the capital stock of Iconfore Inc., a corporation incorporated on the
19th day of December, 1986, pursuant to the General Corporation Law of the State
of Delaware.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 8th day of July, 1988, determined to
and did merge into itself the said Iconfore Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Iconfore Inc.
and assume all of said corporation's liabilities and obligations;
and it is further
<PAGE> 68
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger, which sets forth a copy of the resolutions
to merge said Iconfore Inc. into the Company, pursuant to which
the Company will assume all of the liabilities and obligations of
the said Iconfore Inc., and to cause the same to be filed, in the
manner provided by law, and to do all acts and things whatsoever,
whether within or without the State of Delaware, which may be in
anywise necessary or proper to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused
this certificate to be signed by R. D. Harlow, its Senior Vice President, and
attested by Nancy C. Barnes, its Assistant Secretary, this 8th day of July,
1988.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
--------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ NANCY C. BARNES
--------------------------------------
Nancy C. Barnes, Assistant Secretary
- 2 -
<PAGE> 69
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING ECONOMY PRINTING & LITHOGRAPHING CO.
A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF TEXAS,
PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE,
AS RECEIVED AND FILED IN THIS OFFICE THE THIRTIETH DAY OF SEPTEMBER, A.D. 1988,
AT 10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
/s/ MICHAEL HARKINS
-----------------------------------
[SEAL] Michael Harkins, Secretary of State
AUTHENTICATION: 1877862
DATE: 09/30/1988
<PAGE> 70
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ECONOMY PRINTING & LITHOGRAPHING CO.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of Economy Printing & Lithographing Co., a corporation
incorporated on the 4th day of June, 1957, pursuant to the Texas Business
Corporation Act.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 18th day of August, 1988, determined to
and did merge into itself the said Economy Printing & Lithographing Co.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Economy
Printing & Lithographing Co. and assume all of said corporation's
liabilities and obligations; and it is further
<PAGE> 71
RESOLVED, that the proper offices of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger and Articles of Merger, each of which sets
forth a copy of the resolutions to merge said Economy Printing &
Lithographing Co. into the Company, pursuant to which the Company
will assume all of the liabilities and obligations of the said
Economy Printing & Lithographing Co., and to cause the same to be
filed, in the manner provided by law, and to do all acts and
things whatsoever, whether within or without the States of
Delaware and Texas, which may be in anywise necessary or proper
to effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. D. Harlow, its Senior Vice President and attested
by Nancy C. Barnes, its Assistant Secretary, this 18th day of August, 1988.
PACKAGING CORPORATION OF AMERICA
By /s/ R. D. HARLOW
-----------------------------------------
R. D. Harlow, Senior Vice President
ATTEST:
By /s/ NANCY C. BARNES
--------------------------------------
Nancy C. Barnes, Assistant Secretary
- 2 -
<PAGE> 72
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
REVERE FOIL CONTAINERS, INC.
INTO
PACKAGING CORPORATION OF AMERICA
* * * * *
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under the laws of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 19th day of April, 1965,
pursuant to the General Corporation Law of the State of Delaware and maintains
its registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
SECOND: That the Company owns all of the issued and outstanding shares of
the capital stock of Revere Foil Containers, Inc., a corporation incorporated on
the 27th day of June, 1988, pursuant to the General Corporation Law of the State
of Delaware.
THIRD: That the Company by the following resolutions of its Board of
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of said Board as of the 7th day of September, 1988, determined
to and did merge into itself the said Revere Foil Containers, Inc.:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Revere Foil
Containers, Inc. and assume all of said corporation's liabilities
and obligations; and it is further
<PAGE> 73
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger, which sets forth a copy of the resolutions
to merge said Revere Foil Containers, Inc. into the Company,
pursuant to which the Company will assume all of the liabilities
and obligations of the said Revere Foil Containers, Inc., and to
cause the same to be filed, in the manner provided by law, and to
do all acts and things whatsoever, whether within or without the
State of Delaware, which may be in anywise necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said Packaging Corporation of America has caused this
certificate to be signed by R. E. Fuqua, its Vice President, and attested by
Nancy C. Barnes, its Assistant Secretary, this 7th day of September, 1988.
PACKAGING CORPORATION OF AMERICA
By /s/ R. E. FUQUA
--------------------------------------
R. E. Fuqua, Vice President
ATTEST:
By /s/ NANCY C. BARNES
------------------------------------
Nancy C. Barnes, Assistant Secretary
RECEIVED FOR RECORD
OCT 04 1988
William M. Honey, Recorder
<PAGE> 74
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP
OF PACKAGING CORPORATION OF AMERICA, A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, MERGING PAKON INDUSTRIES A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF CALIFORNIA, TENNESSEE
RIVER PULP & PAPER COMPANY A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS
OF THE STATE OF DELAWARE, PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FIFTH
DAY OF NOVEMBER, A.D. 1992, AT 10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ MICHAEL RATCHFORD
[SEAL] -------------------------------------
Michael Ratchford, Secretary of State
AUTHENTICATION: *3674847
DATE: 11/25/1992
<PAGE> 75
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
TENNESSEE RIVER PULP & PAPER COMPANY
AND
PAKON INDUSTRIES
INTO AND WITH
PACKAGING CORPORATION OF AMERICA
PACKAGING CORPORATION OF AMERICA, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Company"), DOES HEREBY CERTIFY:
FIRST: That it is the owner of all the issued and outstanding stock of:
1. TENNESSEE RIVER PULP & PAPER COMPANY, a Delaware corporation,
incorporated on August 17, 1988; and
2. PAKON INDUSTRIES, a California corporation, incorporated on January
15, 1987
(hereinafter collectively referred to as the "Companies")
SECOND: That, in accordance with the provisions of Section 141(f) of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Company, by written consent, adopted the following resolutions to merge the
Companies into and with the Company:
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Tennessee
River Pulp & Paper Company, a Delaware corporation, and assume
all of said corporation's liabilities and obligations; and it is
further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger setting forth a copy of the resolutions to
merge said Tennessee River Pulp & Paper Company into the Company,
pursuant to which the Company will assume all of the liabilities
<PAGE> 76
and obligations of the said Tennessee River Pulp & Paper Company,
and to cause the same to be filed, in the manner provided by law,
and to do all acts and things whatsoever, whether within or
without the State of Delaware, which may be in anywise necessary
or proper to effect said merger.
* * *
RESOLVED, that the Company merge into itself and it hereby
does merge into itself its wholly-owned subsidiary Pakon
Industries, a California corporation, and assume all of said
corporations liabilities and obligations; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to execute,
under the corporate seal of the Company, a Certificate of
Ownership and Merger setting forth a copy of the resolutions to
merge said Pakon Industries into the Company, pursuant to which
the Company will assume all of the liabilities and obligations of
the said Pakon Industries, and to cause the same to be filed, in
the manner provided by law, and to do all acts and things
whatsoever, whether within or without the States of California
and Delaware, which may be in anywise necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said PACKAGING CORPORATION OF AMERICA has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by Jaime
Taronji, Jr., a Vice President, and James D. Gaughan, its Assistant Secretary,
as of November 4, 1992
PACKAGING CORPORATION OF AMERICA
BY: /s/ JAIME TARONJI, JR.
--------------------------------
Jaime Taronji, Jr.,
Vice President
ATTEST
/s/ JAMES D. GAUGHAN
- -----------------------------
James D. Gaughan
Assistant Secretary
- 2 -
<PAGE> 77
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "PACKAGING CORPORATION OF AMERICA", CHANGING ITS NAME FROM "PACKAGING
CORPORATION OF AMERICA" TO "TENNECO PACKAGING INC.", FILED IN THIS OFFICE ON THE
SECOND DAY OF NOVEMBER, A.D. 1995, AT 11 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] --------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7697784
DATE: 11-02-95
<PAGE> 78
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PACKAGING CORPORATION OF AMERICA
PACKAGING CORPORATION OF AMERICA, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), DOES HEREBY CERTIFY:
FIRST: That the Board Of Directors of the Company, by Consent of Directors
dated as of August 31, 1995, adopted a resolution setting forth a proposed
Amendment to the Certificate of Incorporation of the Company, declaring said
Amendment to be advisable. The resolution setting forth the proposed Amendment
is as follows:
"RESOLVED, that the Certificate of Incorporation of the Company be
amended by deleting in its entirety Article FIRST thereof, and by
inserting in lieu thereof the provision hereinafter set forth so that
the said Article FIRST shall be and read as follows:
"FIRST: The name of the corporation is Tenneco Packaging Inc.".
SECOND: That thereafter, the said Amendment has been consented to and
authorized by the holder of all the issued and outstanding stock entitled to
vote thereon by a written Consent given in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware and filed
with the Company on the 31st day of August, 1995.
THIRD: That said Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said PACKAGING CORPORATION OF AMERICA has caused this
Certificate to be signed by its Vice President and its corporate seal to be
hereunto affixed and attested by its corporate Assistant Secretary, this 31st
day of August, 1995.
PACKAGING CORPORATION OF AMERICA
By: /s/ ROBERT G. SIMPSON
-------------------------------------
Robert G. Simpson
Vice President
By: /s/ JAMES D. GAUGHAN
--------------------------
James D. Gaughan,
Assistant Secretary
<PAGE> 79
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"TENNECO MOORHEAD ACQUISITION INC.", A DELAWARE CORPORATION, WITH AND INTO
"TENNECO PACKAGING INC." UNDER THE NAME OF "TENNECO PACKAGING INC.", A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS
RECEIVED AND FILED IN THIS OFFICE THE EIGHTEENTH DAY OF JUNE, A.D. 1997, AT 4
O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] --------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8520143
DATE: 06-19-97
<PAGE> 80
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
TENNECO MOORHEAD ACQUISITION INC.
INTO AND WITH
TENNECO PACKAGING INC.
_______________________
TENNECO PACKAGING INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That it is the owner of all the issued and outstanding stock of
TENNECO MOORHEAD ACQUISITION INC., a Delaware corporation, incorporated on May
16, 1996.
SECOND: That, in accordance with the provisions of Section 141(f) of the
General Corporation Law of the State of Delaware, the Board of Directors of
TENNECO PACKAGING INC., by written consent, adopted the following resolutions,
dated as of June 12, 1997, to merge TENNECO MOORHEAD ACQUISITION INC. into and
with TENNECO PACKAGING INC.:
RESOLVED, that the Company merge into itself and it
hereby does merge into itself its wholly-owned subsidiary
TENNECO MOORHEAD ACQUISITION INC. and assume all of said
corporation's liabilities and obligations; and it is further
RESOLVED, that the proper officers of the Company be, and
they hereby are, authorized, empowered and directed to
execute, under the corporate seal of the Company, a
Certificate of Ownership and Merger setting forth a copy of
the resolutions to merge said TENNECO MOORHEAD ACQUISITION
INC. into the Company, pursuant to which the Company will
assume all of the liabilities and obligations of the said
TENNECO MOORHEAD ACQUISITION INC., and to cause the same to
be filed, in the manner provided by law, and to
<PAGE> 81
do all acts and things whatsoever, whether within or without
the State of Delaware, which may be necessary or proper to
effect said merger.
IN WITNESS WHEREOF, said TENNECO PACKAGING INC. has caused its corporate
seal to be hereunto affixed and this Certificate to be signed by Robert G.
Simpson, its Vice President, and James D. Gaughan, its Assistant Secretary, as
of June 12, 1997.
TENNECO PACKAGING INC.
BY: /s/ ROBERT G. SIMPSON
-------------------------------------
Robert G. Simpson, Vice President
ATTEST:
/s/ JAMES D. GAUGHAN
- --------------------------
James D. Gaughan
Assistant Secretary
- 2 -
<PAGE> 1
EXHIBIT 3.2
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TENNECO PACKAGING INC.
* * * * *
The present name of the corporation is Tenneco Packaging Inc. The
corporation was incorporated under the name of PKG Corporation by the filing of
its original Certificate of Incorporation with the Secretary of State of the
State of Delaware on April 19, 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 Tenneco Packaging Inc.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which
the corporation shall be authorized to issue is [400,000,000] shares, divided
into [350,000,000] shares of Common Stock, par value $.01 per share (herein
called "Common Stock"), and [50,000,000] shares of Preferred Stock, par value
$.01 per share (herein called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors")
is hereby expressly authorized, by resolution or resolutions thereof, to
provide, out of the unissued shares of Preferred Stock, for series of Preferred
Stock and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any qualifications,
limitations or restrictions thereof, of the shares of such series. The powers,
preferences and relative, participating, optional and other special rights of
each series of Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all other series
at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share of
Common Stock held of record by such holder on all matters on which stockholders
<PAGE> 2
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.
G. Ownership of shares of any class of the capital stock of the
corporation shall not entitle the holders thereof to any preemptive right to
subscribe for or purchase or to have offered to them for subscription or
purchase any additional shares of capital stock of any class of the corporation
or any securities convertible into any class of capital stock of the
corporation, whether now or hereafter authorized, however acquired, issued or
sold by the corporation, it being the purpose and intent hereof that the Board
of Directors shall have full right, power and authority to offer for
subscription or sell or to make any disposal of any or all unissued shares of
the capital stock of the corporation or any securities convertible into stock or
any or all shares of stock or convertible securities issued and thereafter
acquired by the corporation, for such consideration, in money or property, as
the Board of Directors in its sole discretion shall determine.
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 five 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.
B. The Board of Directors shall be authorized to adopt, make, amend,
alter, change, add to or repeal the By-Laws of the corporation, subject to the
power of the stockholders to amend, alter, change, add to or repeal the By-Laws
made by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation
shall so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A. In addition to any affirmative vote required by law or this
Restated Certificate of Incorporation or the By-Laws of the corporation, and
except as otherwise expressly provided in Section B of this Article SIXTH, a
Business Combination (as hereinafter defined)
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<PAGE> 3
with, or proposed by or on behalf of, any Interested Stockholder (as hereinafter
defined) or any Affiliate or Associate (as hereinafter defined) of any
Interested Stockholder or any person who thereafter would be an Affiliate or
Associate of such Interested Stockholder shall, except as otherwise prohibited
by applicable law, require the affirmative vote of not less than 66-2/3% of the
votes entitled to be cast by the holders of all the then outstanding shares of
Voting Stock (as hereinafter defined), voting together as a single class,
excluding Voting Stock beneficially owned by any Interested Stockholder. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be specified,
by law or in any agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article SIXTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of this Restated Certificate of Incorporation or the By-Laws
of the corporation, or any agreement with any national securities exchange, if
all of the conditions specified in either of the following Paragraphs 1 or 2 are
met or, in the case of a Business Combination not involving the payment of
consideration to the holders of the corporation's outstanding Capital Stock (as
hereinafter defined), if the condition specified in the following Paragraph 1 is
met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category
of transactions, by a majority (whether such approval is made prior to
or subsequent to the acquisition of, or announcement or public
disclosure of the intention to acquire, beneficial ownership of the
Voting Stock that caused the Interested Stockholder to become an
Interested Stockholder) of the Continuing Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. the aggregate amount of cash and the Fair Market
Value (as hereinafter defined), as of the date of the
consummation of the Business Combination, of consideration
other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to
the highest amount determined under clauses (i) and (ii)
below:
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Stockholder for any share of
Common Stock in connection with the acquisition by
the Interested Stockholder of beneficial ownership of
shares of Common Stock (x) within the two-year period
immediately prior to the first public announcement of
the proposed Business Combination (the "Announcement
Date") or (y) in the transaction in which it became
an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock
split, stock dividend, subdivision or
reclassification with respect to Common Stock; and
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<PAGE> 4
(ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder (the "Determination Date"),
whichever is higher, as adjusted for any subsequent
stock split, stock dividend, subdivision or
reclassification with respect to Common Stock.
b. The aggregate amount of cash and the Fair Market
Value, as of the date of the consummation of the Business
Combination, of consideration other than cash to be received
per share by holders of shares of any class or series of
outstanding Capital Stock, other than Common Stock, shall be
at least equal to the highest amount determined under clauses
(i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Stockholder for any share of
such class or series of Capital Stock in connection
with the acquisition by the Interested Stockholder of
beneficial ownership of shares of such class or
series of Capital Stock (x) within the two-year
period immediately prior to the Announcement Date, or
(y) in the transaction in which it became an
Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock
split, stock dividend, subdivision or
reclassification with respect to such class or series
of Capital Stock;
(ii) the Fair Market Value per share of such
class or series of Capital Stock on the Announcement
Date or on the Determination Date, whichever is
higher, as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock;
(iii) (if applicable) the price per share
equal to the Fair Market Value per share of such
class or series of Capital Stock determined pursuant
to the immediately preceding clause (ii), multiplied
by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Stockholder for any share of such
class or series of Capital Stock in connection with
the acquisition by the Interested Stockholder of
beneficial ownership of shares of such class or
series of Capital Stock within the two-year period
immediately prior to the Announcement Date, as
adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with
respect to such class or series of Capital Stock to
(y) the Fair Market Value per share of such class or
series of Capital Stock on the first day in such
two-year period on which the Interested Stockholder
acquired beneficial ownership of any share of such
class or series of Capital Stock, as adjusted for any
subsequent stock split, stock dividend,
-4-
<PAGE> 5
subdivision or reclassification with respect to such
class or series of Capital Stock; and
(iv) (if applicable) the highest
preferential amount per share to which the holders of
shares of such class or series of Capital Stock would
be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the affairs of the corporation regardless of whether
the Business Combination to be consummated
constitutes such an event.
The provisions of this Paragraph 2 shall be required
to be met with respect to every class or series of outstanding
Capital Stock, whether or not the Interested Stockholder has
previously acquired beneficial ownership of any shares of a
particular class or series of Capital Stock.
c. The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall
be in cash or in the same form as previously has been paid by
or on behalf of the Interested Stockholder in connection with
its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the
consideration so paid for shares of any class or series of
Capital Stock varied as to form, the form of consideration for
such class or series of Capital Stock shall be either cash or
the form used to acquire beneficial ownership of the largest
number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
d. After the Determination Date and prior to the
consummation of such Business Combination: (i) except as
approved by a majority of the Continuing Directors, there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any
outstanding Capital Stock; (ii) there shall have been no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any stock split, stock
dividend or subdivision of the Common Stock), except as
approved by a majority of the Continuing Directors; (iii)
there shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
that has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase such
annual rate is approved by a majority of the Continuing
Directors; and (iv) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of
Capital Stock except as part of the transaction that results
in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving
effect thereto, would not result in any increase in the
Interested Stockholder's percentage beneficial ownership of
any class or series of Capital Stock.
-5-
<PAGE> 6
e. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (the "Act") (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all stockholders of the
corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information statement
shall contain on the first page thereof, in a prominent place,
any statement as to the advisability (or inadvisability) of
the Business Combination that the Continuing Directors, or any
of them, may choose to make and, if deemed advisable by a
majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or not) of the terms
of the Business Combination from a financial point of view to
the holders of the outstanding shares of Capital Stock other
than the Interested Stockholder and its Affiliates or
Associates (as hereinafter defined), such investment banking
firm to be paid a reasonable fee for its services by the
corporation.
f. Such Interested Stockholder shall not have made
any major change in the corporation's business or equity
capital structure without the approval of a majority of the
Continuing Directors.
C. The following definitions shall apply with respect to this Article
SIXTH:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the corporation or
any Subsidiary (as hereinafter defined) with (i) any
Interested Stockholder or (ii) any other company (whether or
not itself an Interested Stockholder) which is or after such
merger or consolidation would be an Affiliate or Associate of
an Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving any assets, securities or
commitments of the corporation, any Subsidiary or any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder which (except for any arrangement,
whether as employee, consultant or otherwise, other than as a
director, pursuant to which any Interested Stockholder or any
Affiliate or Associate thereof shall, directly or indirectly,
have any control over or responsibility for the management of
any aspect of the business or affairs of the corporation, with
respect to which arrangements the value tests set forth below
shall not apply), together with all other such arrangements
(including all contemplated future events), has an
-6-
<PAGE> 7
aggregate Fair Market Value and/or involves aggregate
commitments of $25,000,000 or more or constitutes more than
five percent of the book value of the total assets (in the
case of transactions involving assets or commitments other
than capital stock) or five percent of the stockholders'
equity (in the case of transactions in capital stock) of the
entity in question (the "Substantial Part"), as reflected in
the most recent fiscal year-end consolidated balance sheet of
such entity existing at the time the stockholders of the
corporation would be required to approve or authorize the
Business Combination involving the assets, securities and/or
commitments constituting any Substantial Part; or
c. the adoption of any plan or proposal for the
liquidation or dissolution of the corporation or for any
amendment to the corporation's By-Laws; or
d. any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation,
or any merger or consolidation of the corporation with any of
its Subsidiaries or any other transaction (whether or not with
or otherwise involving an Interested Stockholder) that has the
effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock,
or any securities convertible into Capital Stock or into
equity securities of any Subsidiary, that is beneficially
owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder, or
e. any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (a) to (d).
2. The term "Capital Stock" shall mean all capital stock of
the corporation authorized to be issued from time to time under Article
FOURTH of this Restated Certificate of Incorporation, and the term
"Voting Stock" shall mean all Capital Stock which by its terms may be
voted on all matters submitted to stockholders of the corporation
generally.
3. The term "person" shall mean any individual, firm, company
or other entity and shall include any group comprised of any person and
any other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
4. The term "Interested Stockholder" shall mean any person
(other than (i) the corporation or any Subsidiary, any profit-sharing,
employee stock ownership or other employee benefit plan of the
corporation or any Subsidiary or any trustee or fiduciary with respect
to any such plan or holding Voting Stock for the purpose of funding any
such plan or funding other employee benefits for employees of the
corporation or any Subsidiary when acting in such capacity, and (ii)
until immediately following the Distribution (as defined in the
Distribution Agreement, dated as of _________ __, 1999, by and between
the corporation and the corporation known as of the date thereof as
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<PAGE> 8
Tenneco Inc., a Delaware corporation ("Old Tenneco")), Old Tenneco or
any subsidiary of Old Tenneco) who (a) is or has announced or publicly
disclosed a plan or intention to become the beneficial owner of Voting
Stock representing five percent or more of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock; or
(b) is an Affiliate or Associate of the corporation and at any time
within the two-year period immediately prior to the date in question
was the beneficial owner of Voting Stock representing five percent or
more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (b) which such person or any
of its Affiliates or Associates has, directly or indirectly, (i) the
right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right
to vote pursuant to any agreement, arrangement or understanding; or (c)
which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital Stock.
For the purposes of determining whether a person is an Interested
Stockholder pursuant to Paragraph 4 of this Section C, the number of
shares of Capital Stock deemed to be outstanding shall include shares
deemed beneficially owned by such person through application of this
Paragraph 5 of Section C, but shall not include any other shares of
Capital Stock that may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise. Notwithstanding the foregoing, for
purposes of this Article SIXTH, a person shall not be deemed a
"beneficial owner" of any Capital Stock which such person has the right
to acquire upon exercise of the Rights issued pursuant to the Qualified
Offer Plan Rights Agreement, dated as of _________ __, 1999, between
the corporation and First Chicago Trust Company of New York (including
any successor rights plan thereto, the "Rights Agreement"), if such
person would not be deemed the beneficial owner of such Capital Stock
under the terms of such Rights Agreement.
6. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under the Act
as in effect on December 11, 1996 (the term "registrant" in said Rule
12b-2 meaning in this case the corporation).
7. The term "Subsidiary" means any company of which a majority
of any class of equity securities are beneficially owned by the
corporation; provided, however, that for the purposes of the definition
of Interested Stockholder set forth in Paragraph 4 of this Section C,
the term "Subsidiary" shall mean only a company of which a majority of
each class of equity security is beneficially owned by the corporation.
8. The term "Continuing Director" means any member of the
Board of Directors, while such person is a member of the Board of
Directors, who is not an Affiliate or
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<PAGE> 9
Associate or representative of the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Continuing Director while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of
the Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
9. The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal United States securities
exchange registered under the Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day
period preceding the date in question on The Nasdaq Stock Market or any
similar system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and
(c) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
10. In the event of any Business Combination in which the
corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraphs 2.a and 2.b of Section B of this
Article SIXTH shall include the shares of Common Stock and/or
the shares of any other class or series of Capital Stock retained by
the holders of such shares.
D. A majority of the Continuing Directors shall have the power and duty
to determine for the purposes of this Article SIXTH, on the basis of information
known to them after reasonable inquiry, all questions arising under this Article
SIXTH, including, without limitation, (a) whether a person is an Interested
Stockholder, (b) the number of shares of Capital Stock or other securities
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another, (d) whether a Proposed Action is with, or proposed by, or
on behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder, (e) whether the assets that are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25,000,000 or more, and (f)
whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part. Any such determination made in good
faith shall be binding and conclusive on all parties.
E. Nothing contained in this Article SIXTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
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<PAGE> 10
F. The fact that any Business Combination complies with the provisions
of Section B of this Article SIXTH shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Combination or recommend its adoption
or approval to the stockholders of the corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
G. For the purposes of this Article SIXTH, a Business Combination or
any proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH
(collectively, "Proposed Action"), is presumed to have been proposed by or on
behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if (1) after
the Interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the corporation who with respect to
such Interested Stockholder would not qualify to serve as a Continuing Director
or (2) such Interested Stockholder, Affiliate, Associate or person votes for or
consents to the adoption of any such Proposed Action, unless as to such
Interested Stockholder, Affiliate, Associate or person a majority of the
Continuing Directors makes a good faith determination that such Proposed Action
is not proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or person, based on information known to them after reasonable
inquiry.
H. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Restated Certificate of Incorporation or the By-Laws of the corporation), any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH which is
proposed by or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder shall require the affirmative vote of the
holders of not less than 66-2/3% of the votes entitled to be cast by the holders
of all the then outstanding shares of Voting Stock, voting together as a single
class, excluding Voting Stock beneficially owned by any Interested Stockholder,
provided, however, that this Section H shall not apply to, and such 66-2/3% vote
shall not be required for, any amendment or repeal of, or the adoption of any
provision inconsistent with, this Article SIXTH unanimously recommended by the
Board of Directors if all of such directors are persons who would be eligible to
serve as Continuing Directors within the meaning of Paragraph 8 of Section C of
this Article SIXTH.
SEVENTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
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EIGHTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Restated Certificate of Incorporation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Restated Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article
EIGHTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated
Certificate of Incorporation this _____ day of __________, 1999.
TENNECO PACKAGING INC.
By:_________________________________________
Name:
Office:
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EXHIBIT 3.3
TENNECO PACKAGING INC.
(A DELAWARE CORPORATION)
BY-LAWS
AMENDED: FEBRUARY 24, 1989
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--ooOoo--
B Y - L A W S
--ooOoo--
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the state of incorporation as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Houston, State of Texas, at such place as may be
fixed from time to time by the Board of Directors. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
state of incorporation, as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
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Section 2. Annual meetings of stockholders, shall be held on such date and
at such times as may be fixed by the Board for the purpose of electing a Board
of Directors and for the transaction of other business as may properly be
brought before the meeting.
Section 3. Written notice of the Annual Meeting shall be given to each
stockholder entitled to vote thereat not less than ten nor more than fifty days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, during ordinary business hours, for a period
of at least ten days prior to the election, either at a place within the city,
town or village where the election is to be held and which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and
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subject to the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating the
time, place and object thereof, shall be given to each stockholder entitled to
vote thereat, not less than ten nor more than fifty days before the date fixed
for the meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat,
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present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
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Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after eleven months from its date, unless the proxy provides for a longer
period, and, except where the transfer books of the corporation have been closed
or a date has been fixed as a record date for the determination of its
stockholders entitled to vote.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the certificate of incorporation, the notice of
meeting, the meeting and vote of stockholders may be dispensed with, if the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted shall sign a consent
in writing, setting forth the action so taken. Prompt notice of such action by
written consent shall be given to those stockholders who have not consented in
writing to such corporate action.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than one nor more than nine. Within the limits above
specified, the term "whole Board" as used in these By-Laws shall mean the number
of directors elected and holding office at any time. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the
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certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the state of incorporation.
Section 5. The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the Directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at
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such place as shall from time to time be determined by the Board.
Section 7. The Secretary shall give notice of any special meeting by
mailing the same at least three days, or by telegraphing, telexing, telecopying,
telephoning or personally delivering the same at least one day, before the
meeting to each director; but such notice may be waived by any director. When
notice is given to a director by telephone, it shall be effective in accordance
with Article IV, Section 1 of these By-Laws.
Section 8. The number of Directors that shall constitute a quorum shall be
not less than one-third of the whole Board of Directors nor less than two
Directors and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation; provided, however, that when the whole Board is comprised of only
one director, then one director shall constitute a quorum and the vote of such
director shall constitute the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors, the Directors present
thereat may adjourn the meeting from time to time,
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without notice other than announcement at the meeting, until a quorum shall be
present.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if a written consent thereto is signed by all members of the Board or
of such committee as the case may be, and such written consent is filed with the
Minutes of proceeding of the Board or Committee.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of two or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
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Section 11. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram, telex, telecopy or telephone; provided,
that when telephone notice is given, such
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notice shall be effective substantially concurrently with one other method of
giving notice.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The corporate officers of the Company may consist of a Chairman
of the Board, and may include a Vice Chairman of the Board (both the Chairman
and the Vice Chairman shall be chosen from the Board of Directors), a President,
one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a
Treasurer, one or more Assistant Treasurers, a Controller, and such other
officers as the Board of Directors may from time to time appoint. In so far as
permitted by law, any two offices may be held by the same person. The foregoing
officers shall be elected by the Board of Directors at the first meeting after
the stockholders' Annual Meeting in each year.
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Notwithstanding any of the provisions of this Article V, the holders of a
majority of the outstanding shares of capital stock of the corporation entitled
to vote for the election of Directors, may (i) by written consent at any time,
or (ii) by vote at any special or annual meeting of stockholders, elect,
replace, remove (or consent to such election, replacement or removal) of any one
or more officers of the corporation.
Any officer elected or appointed by the Board of Directors may be removed
at any time by the affirmative vote of a majority of the whole Board of
Directors.
Section 2. The Board of Directors at its first meeting after each Annual
Meeting of Stockholders may choose a Chairman of the Board and a Vice Chairman
from among the directors and may choose a President, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller, none of whom need be a
member of the Board.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
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Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board may be elected by the Board of
Directors at the first meeting after the Annual Meeting of Stockholders in each
year. The Chairman of the Board shall preside at all meetings of stockholders
and of the Board of Directors, shall be ex-officio a member of all standing
committees, and shall perform such other duties as may from time to time be
requested of him by the Board of Directors.
VICE CHAIRMAN OF THE BOARD
Section 6a. The Vice Chairman of the Board shall preside at meetings of the
Board of Directors in the absence of the Chairman of the Board, and shall
perform
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such other duties as may from time to time be requested of him by the Board of
Directors.
THE PRESIDENT
Section 7. The president shall have the powers and perform the duties
usually incidental to the office of the president. The president shall be a
member of the Board of Directors and shall be the chief executive officer of the
corporation. In the absence of the Chairman of the Board, the president shall
preside at meetings of the Board of Directors and stockholders. Subject to the
directions of the Board of Directors, he shall have and exercise direct charge
of and general supervision over the business and affairs of the corporation and
shall perform all duties incident to the office of the chief executive officer
of a corporation and such other duties as may from time to time be assigned to
him by the Board of Directors.
Section 8. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
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THE VICE PRESIDENTS
Section 9. The vice president, or if there shall be more than one, the
vice presidents in the order determined by the Board of Directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the corporation and, when authorized by the Board of Directors,
affix the same to any instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of an assistant secretary.
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Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors, shall
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation in such depositories as may
be designated by the Board of Directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the Board of Directors, he shall give the
corporation a bond (which shall be
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renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE CONTROLLER
Section 16. The controller, following his appointment shall maintain
adequate records of all assets, liabilities and transactions of the corporation
and see that audits thereof are currently and regularly made; and he shall
perform such other duties as may be required by the Board of Directors, the
President or designated Vice President.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17. Each person who is or was a director or officer of the
corporation, or who serves or may have served at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person) and who was or is a party or is threatened to be made a
party to any threatened, pending or completed claim, action, suit or proceeding,
whether criminal, civil, administrative or investigative, including appeals,
shall be indemnified by the corporation as a matter of right to the full extent
permitted or authorized by the Corporation Law of the state of incorporation of
the corporation, as it may from time to time be amended, against any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in his capacity as a director or
officer, or arising out of his status as a director or officer. Each person who
is or was an employee or agent of the corporation, or who serves or may have
served at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
the heirs, executors, administrators or estate of such person) may, at the
discretion of the Board, be
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indemnified by the corporation to the same extent as provided herein with
respect to directors and officers of the corporation.
The corporation may, but shall not be obligated to, maintain insurance at
its expense, to protect itself and any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such. The
corporation may, but shall not be obligated to, pay expenses incurred in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding.
The indemnification provided by this Section 17 shall not be exclusive of
any other rights to which those seeking indemnification may be entitled as a
matter of law or under any agreement, vote of stockholders or disinterested
directors or otherwise.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate,
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signed by, or in the name of the corporation by, the president or a vice
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such president, vice
president, treasurer, assistant treasurer, secretary or assistant secretary may
be facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
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LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue the old certificate and record the transaction
upon its books.
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FIXING THE DATE FOR DETERMINATION OF
STOCKHOLDERS OF RECORD
Section 5. The Board of Directors may close the stock transfer books of the
corporation for a period not more than forty nor less than ten days preceding
the date of any meeting of stockholders, nor more than forty days prior to the
date of any other action, such as the date for payment of any dividend or the
date for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect or for a period of not exceeding
forty days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not more than forty nor less than ten days
preceding the date of any meeting of stockholders, nor more than forty days
prior to the date of any other action, such as the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect
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of any such change, conversion or exchange of capital stock, or to give such
consent and in such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be notwithstanding any
transfer of any stock on the books of the corporation after any such record date
fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
state of incorporation.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting, and
at any special meeting of
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stockholders when called for by vote of the stockholders, a full and clear
statement of the business and condition of the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal" and the
state of incorporation. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of
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the Board of Directors if notice of such alteration or repeal be contained in
the notice of such special meeting. No change of the time or place of the
meeting for the election of directors shall be made within sixty days next
before the day on which such meeting is to be held, and in case of any change of
such time or place, notice thereof shall be given to each stockholder in person
or by letter mailed to his last known postoffice address at least twenty days
before the meeting is held.
- 26 -
<PAGE> 1
EXHIBIT 3.4
FORM OF
AMENDED AND RESTATED BYLAWS
OF
TENNECO PACKAGING INC.
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 Bylaws.
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. Special meetings
shall be held at such date and at such time as the Board may designate.
NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof, shall
be given not less than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares
of stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary of
the corporation or in his absence an Assistant Secretary or an appointee of the
presiding officer of the meeting, shall act as the Secretary of the meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated
Certificate of Incorporation, each stockholder entitled to vote at any meeting
shall be entitled to one vote, in person or by proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
<PAGE> 2
Bylaws for determining the stockholders entitled to vote at such meeting. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by the Restated Certificate of Incorporation, these
Bylaws, the rules or regulations of any stock exchange applicable to the
corporation, or applicable law or pursuant to any regulation applicable to the
corporation or its securities, be decided by the affirmative vote of the holders
of a majority in voting power of the shares of stock of the corporation which
are present in person or by proxy and entitled to vote thereon.
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.
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
<PAGE> 3
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.
ADVANCE NOTICE
SECTION 10. (A)(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders only (a)
pursuant to the corporation's notice of meeting (or any supplement thereto), (b)
by or at the direction of the Board of Directors or (c) by any stockholder of
the corporation who was a stockholder of record of the corporation at the time
the notice provided for in this Section 10 is delivered to the Secretary of the
corporation, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 10.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 10, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and any such proposed business other
than the nominations of persons for election to the Board of Directors must
constitute a proper matter for stockholders action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
ninetieth day nor earlier than the close of business on the one hundred
twentieth day prior to the first anniversary of the preceding year's annual
meeting (provided, however, that in the event that the date of the annual
meeting is more than thirty days before or more than seventy days after such
anniversary date, notice by the stockholder must be so delivered not earlier
than the close of business on the one hundred twentieth day prior to such annual
meeting and not later than the close of business on the later of the ninetieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made by the
corporation). For purposes of the first annual meeting of stockholders of the
corporation held after 1999, the anniversary date shall be deemed to be May 11,
1999. In no event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (and such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the event that such
business includes a proposal to amend the By-laws of the corporation, the
language of the proposed amendment), the reasons for conducting such business at
<PAGE> 4
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of capital stock of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (iii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such business or
nomination, and (iv) a representation whether the stockholder or the beneficial
owner, if any, intends or is part of a group which intends (a) to deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the corporation's outstanding capital stock required to approve or adopt the
proposal or elect the nominee and/or (b) otherwise to solicit proxies from
stockholders in support of such proposal or nomination. The corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
(3) Notwithstanding anything in the second sentence of paragraph (A)
(2) of this Section 10 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation at an
annual meeting is increased and there is no public announcement by the
corporation naming the nominees for the additional directorships at least one
hundred days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 10 shall also be
considered timely, but only with respect to nominees for the additional
directorships, if it shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
tenth day following the day on which such public announcement is first made by
the corporation.
(B) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the corporation's notice of meeting (1)
by or at the direction of the Board of Directors or (2) provided that the Board
of Directors has determined that directors shall be elected at such meeting, by
any stockholder of the corporation who is a stockholder of record at the time
the notice provided for in this Section 10 is delivered to the Secretary of the
corporation, who is entitled to vote at the meeting and upon such election and
who complies with the notice procedures set forth in this Section 10. In the
event the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
entitled to vote in such election of directors may nominate a person or persons
(as the case may be) for election to such position(s) as specified in the
corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this Section 10 shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the close of
business on the one hundred twentieth day prior to such special meeting and not
later than the close of business on the later of the ninetieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment or postponement of a special meeting
commence a new time period (or extend any time period) for the giving of a
stockholder's notice as described above.
<PAGE> 5
(C) (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 10 shall be eligible to be elected at an
annual or special meeting of stockholders of the corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 10. Except as otherwise provided by law, the chairman
of the meeting shall have the power and duty (a) to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 10 (including whether the stockholder or beneficial owner, if any,
on whose behalf the nomination or proposal is made solicited (or is part of a
group which solicited) or did not so solicit, as the case may be, proxies in
support of such stockholder's nominee or proposal in compliance with such
stockholder's representation as required by clause (A)(2)(c)(iv) of this Section
10) and (b) if any proposed nomination or business was not made or proposed in
compliance with this Section 10, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
(2) For purposes of this Section 10, "public announcement"
shall include disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
10, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 10. Nothing in this Section 10 shall be
deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (b) of the holders of any series of Preferred Stock to elect
directors pursuant to any applicable provisions of the certificate of
incorporation.
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 five nor more than sixteen
and shall be determined by resolution adopted by a majority of the entire Board.
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.
<PAGE> 6
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 Bylaws 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.
<PAGE> 7
ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Executive
Committee, an Audit 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
Bylaws, 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 and Audit 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
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.
<PAGE> 8
AUDIT COMMITTEE
Section 5. 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.
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 General Counsel, the
Secretary and any Assistant Secretary, the Treasurer and any Assistant
Treasurer, and the Controller shall be elected by the Board. Each such officer
shall hold office until his successor is elected or appointed and qualified or
until his earlier death, resignation or removal. Any officer may be removed,
with or without cause, at any time by the Board. A vacancy in any office may be
filled for the unexpired portion of the term in the same manner as provided in
these Bylaws for election or appointment to such office.
<PAGE> 9
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 Bylaws. 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 Bylaws 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 Bylaws, as in his judgment may be necessary or proper for
the transaction of the business of the corporation, and shall determine their
duties, all subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 4. Each Vice Chairman shall perform such duties as may from
time to time be assigned to him by the Board, the Executive Committee or the
Chief Executive Officer.
Section 5. The President shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 6. Each Executive Vice President shall perform such duties as
may from time to time be assigned to him by the Board, the Executive Committee
or the Chief Executive Officer.
Section 7. Each Senior Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 8. Each Vice President and Assistant Vice President shall
perform such duties as may from time to time be assigned to him by the Board,
the Executive Committee, the Chief Executive Officer or an Executive Vice
President.
Section 9. The General Counsel shall have general supervision and
control of all of the corporation's legal business. He shall perform such other
duties as may be assigned to him by the Board, the Executive Committee or the
Chief Executive Officer.
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.
<PAGE> 10
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.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13. (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 (a "Covered Person") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Covered Person. Notwithstanding the preceding sentence, except
as otherwise provided in paragraph (3) of this Section 13, the corporation shall
be required to indemnify a Covered Person in connection with a proceeding (or
part thereof) commenced by such Covered Person only if the commencement of such
proceeding (or part thereof) by the Covered Person was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by a Covered Person 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 Covered Person to repay all
amounts advanced if it should be ultimately determined that the Covered Person
is not entitled to be indemnified under this Section 13 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 Covered Person has been received by the corporation, the Covered Person
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 Covered Person is not
<PAGE> 11
entitled to the requested indemnification or payment of expenses under
applicable law.
(4) The rights conferred on any Covered Person by this Section 13 shall
not be exclusive of any other rights which such Covered Person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Covered Person 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 Covered Person 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 13 shall not adversely affect any right or protection hereunder of any
Covered Person in respect of any act or omission occurring prior to the time of
such repeal or modification.
(7) This Section 13 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 Covered Persons when and as authorized by
appropriate corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned
shall be issued to each stockholder in such form not inconsistent with the
Restated Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any and all of the signatures on the certificates may be a
facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed and
filed with the Secretary of the corporation, and on the surrender of the
certificate or certificates of such shares, properly assigned. The corporation
may, if and whenever the Board shall so determine, maintain one or more offices
or agencies, each in charge of an agent designated by the Board, where the
shares of the capital stock of the corporation shall be transferred and/or
registered. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
<PAGE> 12
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 Bylaws; 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
<PAGE> 13
Board may fix a record date for such purpose which shall be no more than 10 days
after the date upon which the resolution fixing the record date is adopted by
the Board and shall not precede the date such resolution is adopted. If the
Board fails within 10 days after the corporation receives such notice to fix a
record date for such purpose, the record date shall be the day on which the
first written consent is delivered to the corporation in the manner described in
Section 2 below unless prior action by the Board is required under the General
Corporation Law of the State 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 stockholder consent as
he deems necessary or appropriate, including, without limitation, whether the
holders of a number of shares having the requisite voting power to authorize or
take the action specified in the 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.
<PAGE> 14
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 Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board, as
the case may be, need be specified in any waiver of notice of such meeting.
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 Bylaws, 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.
<PAGE> 15
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 Bylaws, but any Bylaws so made,
altered or repealed by the Board may be amended, altered or repealed by the
stockholders.
<PAGE> 16
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Tenneco Packaging 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 Bylaws of said
corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation,
this _________ day of _____________.
--------------------
Secretary
<PAGE> 1
EXHIBIT 4.2
---------------------
TENNECO PACKAGING INC.
AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK, AS RIGHTS AGENT
---------------------
FORM OF
QUALIFIED OFFER PLAN
RIGHTS AGREEMENT
DATED AS OF , 1999
---------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions......................................... 1
Section 2. Appointment of Rights Agent................................. 5
Section 3. Issue of Right Certificates................................. 6
Section 4. Form of Right Certificates.................................. 7
Section 5. Countersignature and Registration........................... 7
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.............................................. 7
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights.................................................... 8
Section 8. Cancellation and Destruction of Right Certificates.......... 9
Section 9. Availability of Shares of Preferred Stock................... 9
Section 10. Preferred Stock Record Date................................. 10
Section 11. Adjustment of Purchase Price, Number of Shares and Number of
Rights.................................................... 10
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares.................................................... 15
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power............................................. 15
Section 14. Fractional Rights and Fractional Shares..................... 18
Section 15. Rights of Action............................................ 19
Section 16. Agreement of Right Holders.................................. 19
Section 17. Right Certificate Holder Not Deemed a Stockholder........... 19
Section 18. Concerning the Rights Agent................................. 20
Section 19. Merger or Consolidation or Change of Name of Rights Agent... 20
Section 20. Duties of Rights Agent...................................... 20
Section 21. Change of Rights Agent...................................... 22
Section 22. Issuance of New Right Certificates.......................... 22
Section 23. Redemption.................................................. 22
Section 24. Exchange.................................................... 23
Section 25. Notice of Certain Events.................................... 24
Section 26. Notices..................................................... 24
Section 27. Supplements and Amendments.................................. 25
Section 28. Successors.................................................. 25
Section 29. Benefits of this Agreement.................................. 25
Section 30. Determinations and Actions by the Board of Directors........ 25
Section 31. Severability................................................ 25
Section 32. Governing Law............................................... 26
Section 33. Counterparts................................................ 26
Section 34. Descriptive Headings........................................ 26
</TABLE>
<PAGE> 3
QUALIFIED OFFER PLAN RIGHTS AGREEMENT
Qualified Offer Plan Rights Agreement, dated as of , 1999
("Agreement"), between Tenneco Packaging Inc., a Delaware corporation (the
"Company"), and First Chicago Trust Company of New York, as Rights Agent (the
"Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the Close
of Business (as hereinafter defined) on , 1999 (the "Record Date"),
each Right representing the right to purchase one one-thousandth (subject to
adjustment) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth, and has further authorized
and directed the issuance of one Right (subject to adjustment as provided
herein) with respect to each share of Common Stock that shall become outstanding
between the Record Date and the earlier of the Distribution Date and the
Expiration Date (as such terms are hereinafter defined); provided, however, that
Rights may be issued with respect to shares of Common Stock that shall become
outstanding after the Distribution Date and prior to the Expiration Date in
accordance with Section 22.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which shall be the Beneficial Owner (as such term is hereinafter
defined) of 20% or more of the shares of Common Stock then outstanding, but
shall not include an Exempt Person (as such term is hereinafter defined) or a
Person who becomes the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding pursuant to a Qualified Offer (as such term is
hereinafter defined); provided, however, that (i) if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person" became the Beneficial Owner of a number of shares of Common
Stock such that the Person would otherwise qualify as an "Acquiring Person"
inadvertently (including, without limitation, because (A) such Person was
unaware that it beneficially owned a percentage of Common Stock that would
otherwise cause such Person to be an "Acquiring Person" or (B) such Person was
aware of the extent of its Beneficial Ownership of Common Stock but had no
actual knowledge of the consequences of such Beneficial Ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement unless and until such
Person shall have failed to divest itself, as soon as practicable (as
determined, in good faith, by the Board of Directors of the Company), of
Beneficial Ownership of a sufficient number of shares of Common Stock so that
such Person would no longer otherwise qualify as an "Acquiring Person"; (ii) if,
as of the date hereof or prior to the first public announcement of the adoption
of this Agreement, any Person is or becomes the Beneficial Owner of 20% or more
of the shares of Common Stock outstanding, such Person shall not be deemed to be
or to become an "Acquiring Person" unless and until such time as such Person
shall, after the first public announcement of the adoption of this Agreement,
become the Beneficial Owner of additional shares of Common Stock (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), unless, upon becoming the Beneficial Owner of such
additional shares of Common Stock, such Person is not then the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding; and (iii) no
Person shall become an "Acquiring Person" as the result of an acquisition of
shares of Common Stock by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares of Common Stock
beneficially owned by such Person to 20% or more of the shares of Common Stock
then outstanding, provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding
by reason of such share acquisitions by the Company and shall thereafter become
the Beneficial Owner of any additional shares of Common Stock (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), then such Person shall be deemed to be an "Acquiring
1
<PAGE> 4
Person" unless upon becoming the Beneficial Owner of such additional shares of
Common Stock such Person does not beneficially own 20% or more of the shares of
Common Stock then outstanding. For all purposes of this Agreement, any
calculation of the number of shares of Common Stock outstanding at any
particular time, including for purposes of determining the particular percentage
of such outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i)
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as in effect on the date hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be deemed to
have "Beneficial Ownership" of and shall be deemed to "beneficially own" any
securities:
(i) which such Person or any of such Person's Affiliates or Associates
is deemed to beneficially own, directly or indirectly, within the meaning
of Rule 13d-3 of the General Rules and Regulations under the Exchange Act
as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (x) securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase, (y) securities which such Person has a right to acquire upon the
exercise of Rights at any time prior to the time that any Person becomes an
Acquiring Person or (z) securities issuable upon the exercise of Rights
from and after the time that any Person becomes an Acquiring Person if such
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof ("Original Rights") or pursuant to Section 11(i) or
Section 11(n) with respect to an adjustment to Original Rights; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, any security by reason of such agreement,
arrangement or understanding if the agreement, arrangement or understanding
to vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also then
reportable pursuant to Regulation 13D-G under the Exchange Act (or any
comparable or successor regulation); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person and with respect to which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of such
securities of the Company;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section 1(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of New York or the city in which
the principal office of the Rights Agent is located are authorized or obligated
by law or executive order to close.
2
<PAGE> 5
(e) "Close of Business" on any given date shall mean 5:00 p.m., New York
City time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 p.m., New York City time, on the next succeeding Business
Day.
(f) "Common Stock" when used with reference to the Company shall mean the
Common Stock, presently par value $.01 per share, of the Company. "Common Stock"
when used with reference to any Person other than the Company shall mean the
common stock (or, in the case of an unincorporated entity, the equivalent equity
interest) with the greatest voting power of such other Person or, if such other
Person is a subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
(h) "Current Value" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exempt Person" shall mean the Company or any Subsidiary (as such term
is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity or trustee holding
Common Stock for or pursuant to the terms of any such plan or for the purpose of
funding any such plan or funding other employee benefits for employees of the
Company or of any Subsidiary of the Company.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24 hereof.
(m) "Expiration Date" shall have the meaning set forth in Section 7 hereof.
(n) "Flip-In Event" shall have the meaning set forth in Section 11(a)(ii)
hereof.
(o) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(p) "NASDAQ" shall mean The Nasdaq Stock Market.
(q) "New York Stock Exchange" shall mean the New York Stock Exchange, Inc.
(r) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) to such entity.
(s) "Preferred Stock" shall mean the Series B Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the Form of Certificate of Designation attached to this
Agreement as Exhibit A.
(t) "Qualified Offer" shall mean an all-cash tender offer for all
outstanding shares of Common Stock which meets all of the following
requirements:
(i) on or prior to the date such offer is commenced within the meaning
of Rule 14d-2(a) of the General Rules and Regulations under the Exchange
Act, such Person:
(A) has on hand cash or cash equivalents for the full amount
necessary to consummate such offer and has irrevocably committed in
writing to the Company to utilize such cash or cash equivalents for
purposes of such offer if consummated and to set apart and maintain
available such cash or cash equivalents for such purposes until the
offer is consummated or withdrawn; or
(B) has all financing in the full amount necessary to consummate
such offer and has:
(1) entered into, and provided to the Company certified copies
of, definitive financing agreements (including exhibits and related
documents) for funds for such offer which, when added to the amount
of cash and cash equivalents available, committed in writing, set
apart and maintained in the same manner as described in clause (A)
above, are in an amount not less than the full amount necessary to
consummate such offer, which agreements are with one or more
responsible financial institutions or other entities having the
necessary financial capacity
3
<PAGE> 6
and ability to provide such funds, and are subject only to customary
terms and conditions (which shall in no event include conditions
requiring access by such financial institutions to non-public
information to be provided by the Company, conditions based on the
accuracy of any information concerning the Company, or conditions
requiring the Company to make any representations, warranties or
covenants in connection with such financing), and
(2) provided to the Company copies of all written materials
prepared by such Person for such financial institutions in connection
with entering into such financing agreements; provided that, "the
full amount necessary to consummate such offer" in either clause (A)
or (B) above shall be an amount sufficient to pay for all shares of
Common Stock outstanding on a fully diluted basis in cash pursuant to
the offer and the second-step transaction required by clause (v)
below and all related expenses;
(ii) after the consummation of such offer, such Person, alone or
together with one or more direct or indirect wholly-owned Subsidiaries of
such Person, owns (in fact) Common Stock representing eighty-five percent
(85%) or more of the then outstanding Common Stock, excluding for purposes
of determining the then outstanding Common Stock under this clause (ii)
those shares of Common Stock beneficially owned (x) by persons who are
directors and also officers of the Company and (y) employee stock plans of
the Company in which employee participants do not have the right to
determine confidentially whether shares of Common Stock held subject to the
plan will be tendered in a tender or exchange offer;
(iii) such offer remains open for at least 60 Business Days; provided,
however, that (x) if there is any increase in the price of such offer, such
offer must remain open for at least an additional 20 Business Days after
the last such increase, (y) such offer must remain open for at least 20
Business Days after the date that any bona fide alternative offer is made
which, in the opinion of one or more investment banking firms designated by
the Company, provides for consideration per share in excess of that
provided for in such offer, and (z) such offer must remain open for at
least 20 Business Days after the date, if any, on which such Person reduces
the per share price offered in accordance with clause (v)(y) below
(provided, in the case of each of clauses (x), (y) and (z) above, in no
event will such offer have been outstanding for less than 60 Business
Days); provided further, however, that such offer need not remain open, as
a result of this clause (iii), beyond (1) the time which any other offer
satisfying the criteria for a Qualified Offer is then required to be kept
open under this clause (iii), or (2) the scheduled expiration date, as such
date may be extended by public announcement on or prior to the then
scheduled expiration date, of any other tender or exchange offer for Common
Stock with respect to which the Board of Directors has agreed to redeem the
Rights immediately prior to acceptance for payment of Common Stock
thereunder (unless such other offer is terminated prior to its expiration
without any Common Stock having been purchased thereunder);
(iv) such offer is accompanied by a written opinion, in customary
form, of a nationally recognized investment banking firm which is addressed
to the Company and the holders of Common Stock other than such Person and
states that the price to be paid to holders pursuant to the offer is fair
from a financial point of view to such holders and includes any written
presentation of such firm showing the analysis and range of values
underlying such conclusions and such written opinion and any such
presentation is updated and provided to the Company within two Business
Days prior to the date such offer is consummated;
(v) prior to or on the date that such offer is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, such Person makes an irrevocable written commitment to the
Company and, with respect to clause (x) to its stockholders, (x) to
consummate a transaction or transactions promptly upon the completion of
such offer (and in no event later than five Business Days thereafter),
whereby all Common Stock not purchased in such offer will be acquired at
the same cash price per share paid in such offer, subject only to the
condition that the Board of Directors shall have granted any approvals
required to enable such Person to consummate such transaction or
transactions following consummation of such offer without obtaining the
vote of any other stockholder,
4
<PAGE> 7
(y) that such Person will not make any amendment to the original offer
which reduces the per share price offered (other than a reduction to
reflect any dividend declared by the Company, other than a regular
quarterly dividend, after the commencement of such offer or any material
change in the capital structure of the Company initiated by the Company
after the commencement of such offer, whether by way of reclassification,
recapitalization, reorganization, repurchase or otherwise), changes the
form of consideration offered, or reduces the number of shares being sought
or which is in any other respect materially adverse to the Company's
stockholders, and (z) that neither such Person nor any of its Affiliates or
Associates will make any offer for or purchase any equity securities of the
Company for a period of one year after the commencement of the original
offer if such original offer does not result in the tender of the number of
shares of Common Stock required to be purchased pursuant to clause (ii)
above, unless another tender offer by another party for all outstanding
Common Stock is commenced that (a) constitutes a Qualified Offer (in which
event, any new offer by such Person or of any Affiliates or Associates must
be at a price no less than that provided for in such original offer) or (b)
is approved by the Board of Directors of the Company (in which event, any
new offer by such Person or of any of its Affiliates or Associates must be
at a price no less than that provided for in such approved offer); and
(vi) in addition to each of the requirements set forth above, such
offer is not subject to any financing, funding or similar condition, nor
any condition relating to completion of or satisfaction with any due
diligence or similar investigation, and, subject to the foregoing,
otherwise provides for usual and customary terms and conditions.
(u) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(v) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(w) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(x) "Right Certificate" shall have the meaning set forth in Section 3
hereof.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
(z) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(aa) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(bb) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such, or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(cc) "Subsidiary" of any Person shall mean any corporation or other entity
of which securities or other ownership interests having ordinary voting power
sufficient to elect a majority of the board of directors or other persons
performing similar functions are owned, directly or indirectly, by such Person,
and any corporation or other entity that is otherwise controlled by such Person,
and a "wholly-owned Subsidiary" of any Person shall mean any corporation or
other entity of which all the securities or other ownership interests are owned
by such Person.
(dd) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ee) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.
(ff) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date be the
holders of Common Stock) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company may from time to
time appoint such co-Rights Agents as it may deem necessary or desirable.
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Section 3. Issue of Right Certificates.
(a) Until the Close of Business on the earlier of (i) the tenth day after
the Stock Acquisition Date or (ii) the tenth Business Day (or such later date as
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than an Exempt Person) of, or of the first public announcement of
the intention of such Person (other than an Exempt Person) to commence, a tender
or exchange offer (other than a Qualified Offer) the consummation of which would
result in any Person (other than an Exempt Person) becoming the Beneficial Owner
of shares of Common Stock aggregating 20% or more of the Common Stock then
outstanding (the earlier of such dates being herein referred to as the
"Distribution Date", provided, however, that if either of such dates occurs
after the date of this Agreement and on or prior to the Record Date, then the
Distribution Date shall be the Record Date), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Stock registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in connection
with the transfer of Common Stock. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage-prepaid mail, to each record
holder of Common Stock as of the close of business on the Distribution Date
(other than any Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right (subject to adjustment as provided herein)
for each share of Common Stock so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Shares of Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Stock as of
the Close of Business on the Record Date (other than any Acquiring Person or any
Associate or Affiliate of any Acquiring Person), at the address of such holder
shown on the records of the Company. With respect to certificates for Common
Stock outstanding as of the Record Date (notwithstanding any reference or legend
on such certificates relating to prior rights), until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Stock outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby.
(c) Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earlier of the
Distribution Date and the Expiration Date shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Qualified Offer Plan Rights Agreement between
Tenneco Packaging Inc. (the "Company") and First Chicago Trust Company of
New York, as Rights Agent, dated as of , 1999 and as amended from time
to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate.
The Company will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights owned by or transferred to any Person who is or becomes
an Acquiring Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no longer be
transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates
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<PAGE> 9
alone, and the surrender for transfer of any such certificate, except as
otherwise provided herein, shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby. In the event that the
Company purchases or otherwise acquires any Common Stock after the Record Date
but prior to the Distribution Date, any Rights associated with such Common Stock
shall be deemed canceled and retired so that the Company shall not be entitled
to exercise any Rights associated with the Common Stock which are no longer
outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or interdealer quotation system on which the Rights may from time to
time be listed or quoted, or to conform to usage. Subject to the provisions of
this Agreement, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock as
shall be set forth therein at the price per one one-thousandth of a share of
Preferred Stock set forth therein (the "Purchase Price"), but the number of such
one one-thousandths of a share of Preferred Stock and the Purchase Price shall
be subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the Company by
the Chairman and Chief Executive Officer of the Company, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof and shall be attested by the Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of this Agreement, at any time after the
Distribution Date and prior to the Expiration Date, any Right Certificate or
Right Certificates may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered holder
to purchase a like number of one one-thousandths of a share of Preferred Stock
as the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the office or agency of the Rights Agent designated for such
purpose. Thereupon the Rights Agent shall countersign and deliver to the Person
entitled thereto a Right Certificate or Right
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<PAGE> 10
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
(b) Subject to the provisions of this Agreement, at any time after the
Distribution Date and prior to the Expiration Date, upon receipt by the Company
and the Rights Agent of evidence reasonably satisfactory to them of the loss,
theft, destruction or mutilation of a Right Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to them,
and, at the Company's request, reimbursement to the Company and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Company will
make and deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the Close of Business on
, 2009 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof (the "Redemption Date") or
(iii) the time at which such Rights are exchanged as provided in Section 24
hereof.
(b) The Purchase Price shall be initially $ for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from a depositary agent
appointed by the Company depositary receipts representing interests in such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the Preferred Stock represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs any such depositary agent to comply with
such request, (ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt,
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) Except as otherwise provided herein, in case the registered holder of
any Right Certificate shall exercise less than all of the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to the exercisable
Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized assigns,
subject to the provisions of Section 14 hereof.
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<PAGE> 11
(e) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder of Rights upon the occurrence of any purported
transfer or exercise of Rights pursuant to Section 6 hereof or this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued shares of Preferred Stock or
any shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights.
(b) So long as the shares of Preferred Stock issuable upon the exercise of
Rights may be listed or admitted to trading on any national securities exchange,
or quoted on NASDAQ, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed or admitted to trading on such exchange, or quoted on
NASDAQ, upon official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the Company
shall use its best efforts, if then necessary to permit the issuance of shares
of Preferred Stock upon the exercise of Rights, to register and qualify such
shares of Preferred Stock under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act (if required) shall have been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all shares of Preferred Stock delivered upon
exercise of Rights shall, at the time of delivery of the certificates therefor
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Preferred Stock upon the exercise of Rights. The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right
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<PAGE> 12
Certificates to a Person other than, or the issuance or delivery of certificates
or depositary receipts for the Preferred Stock in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
Preferred Stock upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by that holder of such Right Certificate
at the time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for Preferred Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares and
Number of Rights. The Purchase Price, the number of shares of Preferred Stock or
other securities or property purchasable upon exercise of each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare and pay a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company were
open, the holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person (the first occurrence of such event being referred
to hereinafter as the "Flip-In Event"), then (A) the Purchase Price shall be
adjusted to be the Purchase Price in effect immediately prior to the Flip-In
Event multiplied by the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such Flip-In Event,
whether or not such Right was then exercisable, and (B) each holder of a Right,
except as otherwise provided in this Section 11(a)(ii) and Section 11(a)(iii)
hereof, shall thereafter have the right to receive, upon exercise thereof at a
price equal to the Purchase Price (as so adjusted), in accordance with the terms
of this Agreement and in lieu of shares of Preferred Stock, such number of
shares of Common Stock as shall equal the result obtained by dividing the
Purchase Price (as so adjusted) by 50% of the current per share market price of
the Common Stock (determined pursuant to Section 11(d) hereof) on the date of
such Flip-In Event; provided, however, that the Purchase Price (as so adjusted)
and the number of shares of Common Stock so receivable upon exercise of a Right
shall, following the Flip-In Event, be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in
this Agreement to the contrary, however, from and after the Flip-In Event, any
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<PAGE> 13
Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate
or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person
(or any such Affiliate or Associate) who becomes a transferee after the Flip-In
Event or (z) a transferee of any Acquiring Person (or any such Affiliate or
Associate) who became a transferee prior to or concurrently with the Flip-In
Event pursuant to either (I) a transfer from the Acquiring Person to holders of
its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (II)
a transfer which the Board of Directors has determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding the
provisions of this paragraph, and subsequent transferees of such Persons, shall
be void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any
provision of this Agreement. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 11(a)(ii) are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From and after
the Flip-In Event, no Right Certificate shall be issued pursuant to Section 3 or
Section 6 hereof that represents Rights that are or have become void pursuant to
the provisions of this paragraph, and any Right Certificate delivered to the
Rights Agent that represents Rights that are or have become void pursuant to the
provisions of this paragraph shall be canceled. From and after the occurrence of
an event specified in Section 13(a) hereof, any Rights that theretofore have not
been exercised pursuant to this Section 11(a)(ii) shall thereafter be
exercisable only in accordance with Section 13 and not pursuant to this Section
11(a)(ii).
(iii) The Company may at its option substitute for a share of Common Stock
issuable upon the exercise of Rights in accordance with the foregoing
subparagraph (ii) a number of shares of Preferred Stock or fraction thereof such
that the current per share market price of one share of Preferred Stock
multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess (such excess, the "Spread") of
(1) the value of the shares of Common Stock issuable upon the exercise of a
Right in accordance with the foregoing subparagraph (ii) (the "Current Value")
over (2) the Purchase Price (as adjusted in accordance with the foregoing
subparagraph (ii)), and (B) with respect to each Right (other than Rights which
have become void pursuant to the foregoing subparagraph (ii)), make adequate
provision to substitute for the shares of Common Stock issuable in accordance
with the foregoing subparagraph (ii) upon exercise of the Right and payment of
the Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a
reduction in such Purchase Price, (3) shares of Preferred Stock or other equity
securities of the Company (including, without limitation, shares or fractions of
shares of preferred stock which, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the shares of Common
Stock, are deemed in good faith by the Board of Directors to have substantially
the same value as the shares of Common Stock (such shares of Preferred Stock and
shares or fractions of shares of preferred stock are hereinafter referred to as
"Common Stock Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having a value which, when
added to the value of the shares of Common Stock issued upon exercise of such
Right, shall have an aggregate value equal to the Current Value (less the amount
of any reduction in such Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally recognized
investment banking firm selected in good faith by the Board of Directors;
provided, however, that if the Company shall not make adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
Flip-In Event (the "Section 11(a) (ii) Trigger Date"), then the Company shall be
obligated to deliver, to the extent permitted by applicable law and any material
agreements then in effect to which the Company is a party, upon the surrender
for exercise of a Right and without requiring payment of such Purchase Price,
shares of Common Stock (to the extent available), and then, if necessary, such
number or fractions of shares of Preferred Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If, upon the occurrence of the Flip-In Event, the Board of
Directors shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon exercise
in full of the
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<PAGE> 14
Rights, then, if the Board of Directors so elects, the thirty (30) day period
set forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a) (ii) Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such additional
shares (such thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the second and/or third sentence of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii)
hereof and the last sentence of this Section 11(a)(iii) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such second sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the shares of Common Stock shall be the current per share market
price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common Stock
Equivalent" shall be deemed to equal the current per share market price of the
Common Stock. The Board of Directors of the Company may, but shall not be
required to, establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights pursuant to
this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Stock (or shares having the same rights, privileges and
preferences as the Preferred Stock ("equivalent preferred shares")) or
securities convertible into Preferred Stock or equivalent preferred shares at a
price per share of Preferred Stock or equivalent preferred shares (or having a
conversion price per share, if a security convertible into shares of Preferred
Stock or equivalent preferred shares) less than the then current per share
market price of the Preferred Stock (determined pursuant to Section 11(d)
hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock and equivalent preferred shares
outstanding on such record date plus the number of shares of Preferred Stock and
equivalent preferred shares which the aggregate offering price of the total
number of shares of Preferred Stock and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of shares of Preferred Stock and
equivalent preferred shares outstanding on such record date plus the number of
additional shares of Preferred Stock and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Shares of Preferred Stock and equivalent preferred
shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock
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<PAGE> 15
(determined pursuant to Section 11(d) hereof) on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the
Company whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one share
of Preferred Stock, and the denominator of which shall be such current per share
market price (determined pursuant to Section 11(d) hereof) of the Preferred
Stock; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one Right.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed
to be the average of the daily closing prices per share of such Security for the
30 consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that the current per
share market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security, and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. 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 by the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security 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 on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security 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 NASDAQ
or such other system then in use, or, if on any such date the Security 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 Security
selected by the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred Stock
is publicly traded, the "current per share market price" of the Preferred Stock
shall be determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Stock is not publicly traded but the Common Stock is publicly
traded, the "current per share market price" of the Preferred Stock shall be
conclusively deemed to be the current per share market price of the Common Stock
as determined pursuant to Section 11(d)(i) multiplied by the then applicable
Adjustment Number (as defined in and determined in accordance with the
Certificate of Designation for the Preferred Stock). If neither the Common Stock
nor the Preferred Stock is publicly traded, "current per share market price"
shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one hundred-thousandth of a
share of Preferred Stock or one-hundredth of a share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any
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<PAGE> 16
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than the Preferred Stock,
thereafter the Purchase Price and the number of such other shares so receivable
upon exercise of a Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), 11(b), 11(c), 11(e),
11(h), 11(i) and 11(m) hereof, as applicable, and the provisions of Sections 7,
9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one
one-thousandths of a share of Preferred Stock (calculated to the nearest one
hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying
(x) the number of one one-thousandths of a share purchasable upon the exercise
of a Right immediately prior to such adjustment by (y) the Purchase Price in
effect immediately prior to such adjustment and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the number
of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of Preferred Stock purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
one-hundredth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. Such record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company may, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of a Right, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-
thousandths of a share of Preferred Stock which were expressed in the initial
Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the fraction of Preferred
Stock or other shares of capital stock issuable upon exercise of a
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<PAGE> 17
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event issuing
to the holder of any Right exercised after such record date the Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current market
price, issuance wholly for cash of Preferred Stock or securities which by their
terms are convertible into or exchangeable for Preferred Stock, dividends on
Preferred Stock payable in shares of Preferred Stock or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare and pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution Date or
the Stock Acquisition Date, it will not, except as permitted by Sections 23, 24
or 27 hereof, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
and the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) In the event, directly or indirectly, at any time after the Flip-In
Event (i) the Company shall consolidate with or shall merge into any other
Person, (ii) any Person shall merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
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<PAGE> 18
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more
wholly-owned Subsidiaries of the Company), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of a Right
(other than Rights which have become void pursuant to Section 11(a)(ii) hereof)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof), in accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall equal the result obtained by dividing the Purchase Price (as
theretofore adjusted in accordance with Section 11(a)(ii) hereof) by 50% of the
current per share market price of the Common Stock of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; provided, however, that the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) and the number of shares of Common Stock of such Principal Party so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof to reflect any events
occurring in respect of the Common Stock of such Principal Party after the
occurrence of such consolidation, merger, sale or transfer; (B) such Principal
Party shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (C) the term "Company" shall thereafter be
deemed to refer to such Principal Party; and (D) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (i) or (ii) of the
first sentence of Section 13(a) hereof: (A) the Person that is the issuer
of the securities into which the shares of Common Stock are converted in
such merger or consolidation, or, if there is more than one such issuer,
the issuer the shares of Common Stock of which have the greatest aggregate
market value of shares outstanding, or (B) if no securities are so issued,
(x) the Person that is the other party to the merger, if such Person
survives said merger, or, if there is more than one such Person, the Person
the shares of Common Stock of which have the greatest aggregate market
value of shares outstanding or (y) if the Person that is the other party to
the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting
from the consolidation; and
(ii) in the case of any transaction described in (iii) of the first
sentence of Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, whichever of
such Persons is the issuer of Common Stock having the greatest aggregate
market value of shares outstanding;
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<PAGE> 19
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale or
transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause
such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the Expiration
Date and similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal Party
shall be listed or admitted to trading on the New York Stock Exchange or on
another national securities exchange, to list or admit to trading (or
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be
listed or admitted to trading on the New York Stock Exchange or a national
securities exchange, to cause the Rights and the securities receivable upon
exercise of the Rights to be authorized for quotation on NASDAQ or on such
other system then in use;
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements
for registration on Form 10 (or any successor form) under the Exchange Act;
and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to
purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other instrument
governing its affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to this
Section 13), in connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, shares of Common Stock or Common
Stock Equivalents of such Principal Party at less than the then current market
price per share thereof (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Stock or Common Stock
Equivalents of such Principal Party at less than such then current market price,
or (ii) providing for any special payment, tax or similar provision in
connection with the issuance of the Common Stock of such Principal Party
pursuant to the provisions of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such
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<PAGE> 20
transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been canceled,
waived or amended, or that the authorized securities shall be redeemed, so that
the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time after
the Flip-In Event, enter into any transaction of the type described in clauses
(i) through (iii) of Section 13(a) hereof if (i) at the time of or immediately
after such consolidation, merger, sale, transfer or other transaction there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such consolidation, merger, sale,
transfer or other transaction, the stockholders of the Person who constitutes,
or would constitute, the Principal Party for purposes of Section 13(b) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates or (iii) the form or nature of organization
of the Principal Party would preclude or limit the exercisability of the Rights.
(f) The provisions of Sections 13(a), 13(b), 13(c), 13(d) and 13(e) hereof
shall not apply to a transaction which (i) is consummated following completion
of a Qualified Offer and (ii) complies with and is effected in accordance with
clause (v)(x) of Section 1(t) hereof.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights (except prior to
the Distribution Date in accordance with Section 11(n) hereof). In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock) or to distribute certificates which evidence
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock) upon the exercise
or exchange of Rights. Interests in fractions of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein
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<PAGE> 21
provided an amount in cash equal to the same fraction of the current market
value of a whole share of Preferred Stock (as determined in accordance with
Section 14(a) hereof) for the Trading Day immediately prior to the date of such
exercise or exchange.
(c) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock upon the exercise or exchange of Rights. In lieu of such fractional
shares of Common Stock, the Company shall pay to the registered holders of the
Right Certificates with regard to which such fractional shares of Common Stock
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock (as determined in
accordance with Section 14(a) hereof) for the Trading Day immediately prior to
the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided therein and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office or
agency of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in whose
name the Right Certificate (or, prior to the Distribution Date, the Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the Common Stock certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Stock or any other
securities of the Company which may at any time be issuable on the exercise or
exchange of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in this Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by such Right
Certificate shall have been exercised or exchanged in accordance with the
provisions hereof.
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<PAGE> 22
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Stock or Common Stock or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman and Chief Executive Officer
and the Secretary of the Company and delivered to the Rights Agent;
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<PAGE> 23
and such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any change or
adjustment in the terms of the Rights provided for in Sections 3, 11, 13, 23 and
24, or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of a certificate furnished pursuant to Section
12, describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock or other securities will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the Chairman and
Chief Executive Officer or the Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Agreement and the date on and/or after which such action shall be taken or
such omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for
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<PAGE> 24
any loss to the Company resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and, following
the Distribution Date, to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or the laws of any state of the
United States or the District of Columbia, in good standing, having an office in
the State of Connecticut, the State of New York or the State of New Jersey,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock or Preferred Stock, and, following
the Distribution Date, mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such forms as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Stock following the Distribution Date and prior to the Expiration
Date, the Company may with respect to shares of Common Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Company or (iv) a contractual obligation of
the Company, in each case existing prior to the Distribution Date, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at any time prior to the
Flip-In Event, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to
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<PAGE> 25
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (the redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish. The Redemption Price shall be payable, at the
option of the Company, in cash, shares of Common Stock, or such other form of
consideration as the Board of Directors shall determine.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any time
after the Flip-In Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such amount per Right being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after an Acquiring Person
shall have become the Beneficial Owner of shares of Common Stock aggregating 50%
or more of the shares of Common Stock then outstanding. From and after the
occurrence of an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be exercisable only in accordance with Section 13 and may not be
exchanged pursuant to this Section 24(a). The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders of the
Rights so exchanged at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
shares of Common Stock for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) The Company may at its option substitute, and, in the event that there
shall not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit an exchange of Rights for Common Stock as
contemplated in accordance with this Section 24, the Company shall substitute to
the extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange
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<PAGE> 26
of a Right, a number of shares of Preferred Stock or fraction thereof (or
equivalent preferred shares, as such term is defined in Section 11(b)) such that
the current per share market price (determined pursuant to Section 11(d) hereof)
of one share of Preferred Stock (or equivalent preferred share) multiplied by
such number or fraction is equal to the current per share market price of one
share of Common Stock (determined pursuant to Section 11(d) hereof) as of the
date of such exchange.
Section 25. Notice of Certain Events.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or
winding up of the Company, or (v) to pay any dividend on the Common Stock
payable in Common Stock or to effect a subdivision, combination or consolidation
of the Common Stock (by reclassification or otherwise than by payment of
dividends in Common Stock), then, in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such liquidation, dissolution or winding up is to take place and
the date of participation therein by the holders of the Common Stock and/or
Preferred Stock, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of the Preferred Stock for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Stock and/or Preferred Stock,
whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13 shall
occur then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate (or if occurring prior to the Distribution Date,
the holders of the Common Stock) in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) and
Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Tenneco Packaging Inc.
1900 West Field Court
Lake Forest, IL 60045
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Attention: Chairman and Chief Executive Officer
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage
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<PAGE> 27
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement in any respect without the approval of any holders of the Rights. At
any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights, provided that no such supplement or amendment
may (a) adversely affect the interests of the holders of Rights as such (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person),
(b) cause this Agreement again to become amendable other than in accordance with
this sentence or (c) cause the Rights again to become redeemable.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Stock).
Section 30. Determinations and Actions by the Board of Directors.
(a) The Board of Directors of the Company shall have the exclusive power
and authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination whether: to exchange the outstanding Rights for
Common Stock pursuant to Section 24; an offer is a Qualified Offer; to redeem or
not redeem the Rights; or to amend or not to amend this Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights.
(b) Nothing contained in this Agreement shall be deemed to be in derogation
of the obligation of the Board of Directors of the Company to exercise its
fiduciary duty. Without limiting the foregoing, nothing contained herein shall
be construed to suggest or imply that the Board of Directors shall not be
entitled to reject any Qualified Offer or any other tender offer or other
acquisition proposal, or to recommend that holders of Common Stock reject any
Qualified Offer or any other tender offer or other acquisition proposal, or to
take any other action (including, without limitation, the commencement,
prosecution, defense or settlement of any litigation and the submission of
additional or alternative offers or other proposals) with respect to any
Qualified Offer or any other tender offer or other acquisition proposal that the
Board of Directors believes is necessary or appropriate in the exercise of such
fiduciary duty.
Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the
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<PAGE> 28
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
TENNECO PACKAGING INC.
By:
----------------------------------
Name:
Title:
FIRST CHICAGO TRUST COMPANY OF NEW
YORK, as Rights Agent
By: /s/ CHARLES D. KERYC
----------------------------------
Charles D. Keryc
Vice President
26
<PAGE> 29
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
TENNECO PACKAGING INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
TENNECO PACKAGING INC. a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Restated Certificate of Incorporation of
the said Corporation, the said Board of Directors on , 1999
adopted the following resolution creating a series of shares of
Preferred Stock designated as "Series B Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Restated Certificate of Incorporation, a series of Preferred Stock, par
value $.01 per share, of the Corporation be and hereby is created, and that
the designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other rights
of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock that
shall be designated as "Series B Junior Participating Preferred Stock," and the
number of shares constituting such series shall be . Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series B Junior
Participating Preferred Stock to less than the number of shares then issued and
outstanding plus the number of shares issuable upon exercise of outstanding
rights, options or warrants or upon conversion of outstanding securities issued
by the Corporation.
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of any shares
of any class or series of stock of the Corporation ranking prior and superior to
the shares of Series B Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series B Junior Participating Preferred
Stock, in preference to the holders of shares of any class or series of stock of
the Corporation ranking junior to the Series B Junior Participating Preferred
Stock in respect thereof, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of January, April, July and
October, in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series B Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $25.00 or (b) the Adjustment Number (as
defined below) times the aggregate per share amount of all cash dividends, and
the Adjustment Number times the aggregate per share amount (payable in kind) 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 on the Common Stock, par
value $.01 per share, of the Corporation
A-1
<PAGE> 30
(the "Common Stock") since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series B Junior
Participating Preferred Stock. The "Adjustment Number" shall initially be 1000.
In the event the Corporation shall at any time after , 1999 (i)
declare and pay 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
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment 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) The Corporation shall declare a dividend or distribution on the Series
B Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series B Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series B Junior
Participating 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
B Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either 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 B Junior Participating 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 B Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series B Junior Participating
Preferred Stock shall have the following voting rights:
(A) Each share of Series B Junior Participating Preferred Stock shall
entitle the holder thereof to a number of votes equal to the Adjustment Number
on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series B Junior Participating Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) If, at the time of any annual meeting of stockholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series B Junior Participating
Preferred Stock are in default, the number of directors constituting the Board
of Directors of the Corporation shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the Corporation, the holders of record of the Series B Junior Participating
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears have
been paid or declared and set apart for payment prior thereto, to vote for the
election of two additional directors of the Corporation, the holders of any
Series B Junior Participating Preferred Stock being entitled to cast that number
of votes per share of Series B Junior Participating Preferred Stock as specified
in clause (A) of this Section 3. Each such additional director shall not be a
member of Class I, Class II or Class III of the Board of Directors of the
Company, but shall serve until the next annual meeting of
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<PAGE> 31
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 3(C). Until the default in payments
of all dividends which permitted the election of said directors shall cease to
exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time without cause only by the
affirmative vote of the holders of the shares of Series B Junior Participating
Preferred Stock at the time entitled to cast a majority of the votes entitled to
be cast for the election of any such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders. If and when such default shall cease to exist, the
holders of the Series B Junior Participating Preferred Stock shall be divested
of the foregoing special voting rights, subject to revesting in the event of
each and every subsequent like default in payments of dividends. Upon the
termination of the foregoing special voting rights, the terms of office of all
persons who may have been elected directors pursuant to said special voting
rights shall forthwith terminate, and the number of directors constituting the
Board of Directors shall be reduced by two. The voting rights granted by this
Section 3(C) shall be in addition to any other voting rights granted to the
holders of the Series B Junior Participating Preferred Stock in this Section 3.
(D) Except as required by law, by Section 3(C) and by Section 10 hereof,
holders of Series B Junior Participating Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series B Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Junior
Participating Preferred Stock, except dividends paid ratably on the Series
B Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any shares of
Series B Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series B Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
Series B Junior Participating Preferred Stock, or to such holders and
holders of any such shares ranking on a parity therewith, upon such terms
as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series B Junior Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement 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
any conditions and restrictions on issuance set forth herein.
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<PAGE> 32
6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series B Junior Participating Preferred Stock shall have received
an amount per share (the "Series B Liquidation Preference") equal to the greater
of (i) $500.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(ii) the Adjustment Number times the per share amount of all cash and other
property to be distributed in respect of the Common Stock upon such liquidation,
dissolution or winding up of the Corporation.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series B Liquidation Preference and the
liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series B Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series B
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation into or with
another corporation nor the merger or consolidation of any other corporation
into or with the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 6.
7. Consolidation, Merger, Etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the outstanding
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series B Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series B Junior Participating Preferred Stock
shall not be subject to redemption by the Company.
9. Ranking. The Series B Junior Participating Preferred Stock shall rank
junior to all other series of the Preferred Stock as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding
up, unless the terms of any such series shall provide otherwise, and shall rank
senior to the Common Stock as to such matters.
10. Amendment. At any time that any shares of Series B Junior Participating
Preferred Stock are outstanding, the Restated Certificate of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series B Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series B Junior Participating Preferred Stock, voting separately as a class.
11. Fractional Shares. Series B Junior Participating Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Junior Participating Preferred Stock.
A-4
<PAGE> 33
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
day of , 1999.
TENNECO PACKAGING INC.
By:
----------------------------------
Name:
Title:
A-5
<PAGE> 34
EXHIBIT B
FORM OF RIGHT CERTIFICATE
Certificate No. R- Rights
NOT EXERCISABLE AFTER , 2009 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND
TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT (AS DEFINED BELOW),
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING
PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF
WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
RIGHT CERTIFICATE
TENNECO PACKAGING INC.
This certifies that or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the
Qualified Offer Plan Rights Agreement, dated as of , 1999, as the
same may be amended from time to time (the "Rights Agreement"), between Tenneco
Packaging Inc., a Delaware corporation (the "Company"), and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 p.m., New York City time, on ,
2009 at the office or agency of the Rights Agent designated for such purpose, or
of its successor as Rights Agent, one one-thousandth of a fully paid
non-assessable share of Series B Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of the Company at a purchase price of
$ per one one-thousandth of a share of Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of one one-thousandths of a share of
Preferred Stock which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
, 1999, based on the Preferred Stock as constituted at such date. As
provided in the Rights Agreement, the Purchase Price, the number of one
one-thousandths of a share of Preferred Stock (or other securities or property)
which may be purchased upon the exercise of the Rights and the number of Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall
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<PAGE> 35
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common Stock, par value $.01 per share, or shares of Preferred Stock.
No fractional shares of Preferred Stock or Common Stock will be issued upon
the exercise or exchange of any Right or Rights evidenced hereby (other than
fractions of Preferred Stock which are integral multiples of one one-thousandth
of a share of Preferred Stock, which may, at the election of the Company, be
evidenced by depository receipts), but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred Stock
or of any other securities of the Company which may at any time be issuable on
the exercise or exchange hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised or exchanged as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the Chairman and Chief Executive Officer
and the Secretary of the Company and its corporate seal.
Dated as of
- ------------------------------.
TENNECO PACKAGING INC.
By:
----------------------------------
Chairman and Chief Executive
Officer
ATTEST:
- ------------------------------------
Secretary
Countersigned:
FIRST CHICAGO TRUST COMPANY OF NEW
YORK, as Rights Agent
By
- ------------------------------------
Its
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<PAGE> 36
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THE RIGHT CERTIFICATE)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
(Please print name and address of transferee)
Rights represented by this Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated:
- ------------------------------
------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker, dealer or
other eligible institution participating in a recognized signature guarantee
medallion program.
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, were not acquired by the undersigned
from, and are not being assigned to an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
------------------------------------
Signature
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<PAGE> 37
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE -- (CONTINUED)
FORM OF ELECTION TO PURCHASE
(TO BE EXECUTED IF HOLDER DESIRES TO EXERCISE
RIGHTS REPRESENTED BY THE RIGHTS CERTIFICATE)
To TENNECO PACKAGING INC.:
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the shares of Preferred Stock
(or other securities or property) issuable upon the exercise of such Rights and
requests that certificates for such shares of Preferred Stock (or such other
securities) be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
- ------------------------------
------------------------------------
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a bank, trust company, broker, dealer or
other eligible institution participating in a recognized signature guarantee
medallion program.
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
------------------------------------
Signature
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<PAGE> 38
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE -- (CONTINUED)
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, such
Assignment or Election to Purchase will not be honored.
B-5
<PAGE> 39
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT (AS
DEFINED BELOW), RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE
TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF PREFERRED STOCK OF
TENNECO PACKAGING INC.
On , 1999, the Board of Directors of Tenneco Packaging Inc. (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $.01 per share, of the
Company (the "Common Stock"). The dividend is payable on , 1999 (the
"Record Date") to the shareowners of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series B Junior Participating Preferred Stock, par value $.01 per share, of
the Company (the "Preferred Stock") at a price of $ per one one-thousandth
of a share of Preferred Stock (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Qualified Offer Plan
Rights Agreement dated as of , 1999, as the same may be amended from
time to time (the "Rights Agreement"), between the Company and First Chicago
Trust Company of New York, as Rights Agent (the "Rights Agent"). The Rights will
expire on , 2009 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in either case as described below.
In connection with the adoption of the Rights Agreement, the Board of
Directors also adopted a "TIDE" (Three-year Independent Director Evaluation)
mechanism. Under the TIDE mechanism, an independent Board committee will review,
on an ongoing basis, the Rights Agreement and developments in rights plans
generally, and, if it deems appropriate, recommend modification or termination
of the Rights Agreement. This independent committee will report to Tenneco
Packaging's Board at least every three years as to whether the Rights Agreement
continues to be in the best interests of Tenneco Packaging's shareowners.
The Rights are not exercisable until the "Distribution Date." Under the
Rights Agreement, a "Distribution Date" occurs upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons has become an "Acquiring Person" or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors prior
to such time as any person or group of affiliated or associated persons becomes
an Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
the outstanding shares of Common Stock. Except in certain situations, a person
or group of affiliated or associated persons becomes an "Acquiring Person" upon
acquiring beneficial ownership of 20% or more of the outstanding shares of
Common Stock. Until the Distribution Date, the Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificate together with a copy of this Summary of
Rights.
The Rights will not become exercisable in connection with a "Qualified
Offer," which is an all-cash tender offer for all outstanding Common Stock that
is fully financed, remains open for a period of at least 60 business days,
results in the offeror owning at least 85% of the Common Stock after
consummation of the offer, assures a prompt second-step acquisition of shares
not purchased in the initial offer at the same price as the initial offer and
meets certain other requirements.
The Rights Agreement provides that, until the Distribution Date (or earlier
expiration of the Rights), the Rights will be transferred with and only with the
Common Stock. Until the Distribution Date (or earlier expiration of the Rights),
new Common Stock certificates issued after the Record Date upon transfer or new
issuances of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier expiration of
the Rights), the surrender for transfer of any certificates for
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<PAGE> 40
shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights, will also constitute the transfer
of the Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights is subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for or purchase Preferred Stock at a price, or
securities convertible into Preferred Stock with a conversion price, less than
the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights is subject to adjustment in the event of a
stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of $25.00 per
share but will be entitled to an aggregate dividend of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential payment of $500.00 per share (plus any accrued but
unpaid dividends) but will be entitled to an aggregate payment of 1000 times the
payment made per share of Common Stock. Each share of Preferred Stock will have
1000 votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Common
Stock are converted or exchanged, each share of Preferred Stock will be entitled
to receive 1000 times the amount received per share of Common Stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.
In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provisions will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive upon the exercise of a Right that number of
shares of common stock of the person with whom the Company has engaged in the
foregoing transaction (or its parent) that at the time of such transaction have
a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or the
acquisition by such Acquiring Person of 50% or more of the outstanding shares of
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such Acquiring Person which will have become void),
in whole or in part, for shares of Common Stock or Preferred Stock (or a series
of the Company's preferred stock having equivalent rights, preferences and
privileges), at an exchange ratio of one share of Common Stock, or a fractional
share of Preferred Stock (or other preferred stock) equivalent in value thereto,
per Right.
C-2
<PAGE> 41
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof an adjustment in cash will be made based on the current market price of
the Preferred Stock or the Common Stock.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price") payable, at the option of the
Company, in cash, shares of Common Stock or such other form of consideration as
the Board of Directors of the Company shall determine. The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
For so long as the Rights are then redeemable, the Company may, except with
respect to the Redemption Price, amend the Rights Agreement in any manner. After
the Rights are no longer redeemable, the Company may, except with respect to the
Redemption Price, amend the Rights Agreement in any manner that does not
adversely affect the interests of holders of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a shareowner of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10. A copy
of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, as the same may
be amended from time to time, which is hereby incorporated herein by reference.
C-3
<PAGE> 1
EXHIBIT 12
THE BUSINESSES OF TENNECO PACKAGING
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------- ---------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1996 1995 1994 1999 1999 1998
----- ----- ----- ----- ---- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations......................... $ 85 $ 82 $ 106 $ 65 $(55) $ 18 $ 9 $ 6 $ 18
Add:
Interest........................... 133 133 124 102 91 48 33 36 33
Portion of rentals representative
of interest factor.............. 12 12 12 8 2 1 4 4 3
Preferred stock dividend
requirements of majority-owned
subsidiaries.................... 1 1 -- -- -- -- -- -- --
Income tax expense (benefit) and
other taxes on income........... 69 67 75 67 (3) 19 4 3 18
Amortization of interest
capitalized..................... -- -- -- 1 1 -- -- -- --
Undistributed (earnings) losses of
affiliated companies in which
less than a 50% voting interest
is owned........................ -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ---- ----- ----- ----- -----
Earnings as defined........ $ 300 $ 295 $ 317 $ 243 $ 36 $ 86 $ 50 $ 49 $ 72
===== ===== ===== ===== ==== ===== ===== ===== =====
Interest............................. $ 133 $ 133 $ 124 $ 102 $ 91 $ 48 $ 33 $ 36 $ 33
Interest capitalized................. 1 1 1 3 2 1 -- -- --
Portion of rentals representative of
interest factor.................... 12 12 12 8 2 1 4 4 3
Preferred stock dividend requirements
of majority-owned subsidiaries on a
pre-tax basis...................... 2 2 -- -- -- -- -- -- --
----- ----- ----- ----- ---- ----- ----- ----- -----
Fixed charges as defined... $ 148 $ 148 $ 137 $ 113 $ 95 $ 50 $ 37 $ 40 $ 36
===== ===== ===== ===== ==== ===== ===== ===== =====
Ratio of earnings to fixed charges... 2.03 1.99 2.31 2.15 NM 1.72 1.35 1.23 2.00
===== ===== ===== ===== ==== ===== ===== ===== =====
</TABLE>
In 1995 earnings were inadequate to cover fixed charges by $59 million.
<PAGE> 1
EXHIBIT 21
TENNECO PACKAGING INC.
LIST OF SUBSIDIARIES AND AFFILIATES
AS OF MAY 31, 1999
<TABLE>
<S> <C>
TENNECO PACKAGING INC. (DELAWARE)
A&E Plastics, Inc. (Delaware).....................................................................100 %
Counce Finance Corporation (Delaware).............................................................100
Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China).......................................50
(Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing &
Packaging Factory, an unaffiliated company, owns 50%)
EKCO Products, Inc. (Illinois)....................................................................100
E-Z Por Corporation (Delaware)....................................................................100
Glacier-Cor US Corporation (Delaware).............................................................100
Glacier-Cor US Holding Corporation (Delaware)................................................100
E. H. Carton Products - Management Company Ltd. (Israel)..................................50
(Glacier-Cor US Holding Corporation owns 50%; and
non-affiliates owns 50%)
Glacier-Cor 1995 L.P. (Israel).........................................................2
(E.H. Carton Products - Management Company Ltd. owns 2%;
Ha'Lakoach Ha'Neeman Ha'Sheesheen Ou'Shena'yim Ltd.
owns 49%; and non-affiliates own 49%)
Ha'Lakoach Ha'Neeman Ha'Sheesheem Ou'Shena'yim Ltd. (Israel).............................99
(Glacier-Cor US Holding Corporation owns 99%; and Hexacomb
Corporation owns 1%)
Glacier-Cor 1995 L.P. (Israel)........................................................49
(Ha'Lakoach Ha'Neeman Ha'Sheesheen Ou'Shena'yim Ltd.
owns 49%; non-affiliates own 49%; and E. H. Carton Products -
Management Company Ltd. owns 2%)
Kinarot Pallet Ltd. (Israel)..........................................................50
(Ha'Lakoach Ha'Neeman owns 50%; and I.M.A. Engineering,
an Israeli company and a non-affiliate, owns 50%)
Yamaton Ltd. (Israel..................................................................33.3
(Ha'Lakoach Ha'Neeman owns 33.3%; and non-affiliates,
Kibbutz Ein Hamifietz and Kibbutz Ga'aton own 66.7%)
Hexacomb Corporation (Illinois)...................................................................100
Ha'Lakoach Ha' Neeman Ha' Sheesheem Ou' Shena'yim Ltd. (Israel).................................1
(Hexacomb Corporation owns 1%; and Glacier-Cor US Holding Corporation
owns 99%. Subsidiaries are listed above.)
Hexajapan Company, Ltd. (Japan)................................................................60
(Hexacomb Corporation owns 60%; and non-affiliates own 40%)
Packaging Corporation of America (Delaware)........................................................45
(Tenneco Packaging Inc. owns 45%; and PCA Holdings LLC, an
unaffiliated limited liability company, owns 55%)
American Cellulose Corporation (Delaware)......................................................50
(Packaging Corporation of America owns 50%; and Larry E. Homan, an
unaffiliated individual, owns 50%)
Dahlonega Packaging Corporation (Delaware)....................................................100
Dixie Container Corporation (Virginia)........................................................100
</TABLE>
<PAGE> 2
TENNECO PACKAGING INC.
LIST OF SUBSIDIARIES AND AFFILIATES
AS OF MAY 31, 1999
<TABLE>
<S> <C>
SUBSIDIARIES OF TENNECO PACKAGING INC. (DELAWARE)
SUBSIDIARIES OF PACKAGING CORPORATION OF AMERICA (DELAWARE)
PCA Hydro, Inc. (Delaware)....................................................................100 %
PCA Tomahawk Corporation (Delaware)...........................................................100
PCA Valdosta Corporation (Delaware)...........................................................100
PCA Box Company (Delaware)1/......................................................................100
PCA Romania Srl (Romania)..........................................................................50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated
company, owns 50%)
PCA West Inc. (Delaware)..........................................................................100
Coast-Packaging Company (California General Partnership).......................................50
(PCA West Inc. owns 50%, as General Partner; and J. G. Haddy Sales
Company, an unaffiliated company, owns 50%, as General Partner)
Pressware International, Inc. (Delaware)..........................................................100
Revere Foil Containers, Inc. (Delaware)...........................................................100
Sentinel Polyolefins, L.L.C........................................................................50
(Tenneco Packaging Inc. owns 50%; and Sentinel Products Corp., an
unaffiliated company and its principals, own 50%)
Suncor, Inc. (South Carolina).....................................................................100
Tenneco AVI Acquisition Inc. (Delaware)...........................................................100
Tenneco CAP Acquisition Inc. (Delaware)1/.........................................................100
Tenneco CPI Holding Company (Delaware)............................................................100
Tenneco Forest Products GmbH (Germany)............................................................100
PCA Embalajes Espana S.L. (Spain)..............................................................99
(Tenneco Forest Products GmbH owns 99%; and Omni-Pac Ekco GmbH
Verpackungsmittel owns 1%)
Tenneco NHC Inc. (Nevada).........................................................................100
Tenneco Packaging de Mexico, S.A. de C.V. (Mexico)..................................................0.01
(Tenneco Packaging Inc. owns 1 share; and Tenneco Packaging
International Holdings Inc. owns 499,999 shares)
Tenneco Packaging Deutschland Holdinggesellschaft mbH (Germany)...................................100
Tenneco Omni-Pac GmbH & Co. KG Verpackungsmittel (Germany)...................................... *
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Omni-Pac Verpackungsmittel Verwaltungs-
gesellschaft mbH is the General Partner)
Tenneco Omni-Pac Ekco Verpackungsmittel GmbH & Co. KG (Germany)................................. *
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Omni-Pac Ekco Verpackungsmittel Verwaltungs-
gesellschaft mbH is the General Partner)
</TABLE>
_______________________
1/ In dissolution.
* Ownership interest percentage to be inserted by amendment [upon completion of
corporate restructuring transactions].
-2-
<PAGE> 3
TENNECO PACKAGING INC.
LIST OF SUBSIDIARIES AND AFFILIATES
AS OF MAY 31, 1999
<TABLE>
<S> <C>
SUBSIDIARIES OF TENNECO PACKAGING INC. (DELAWARE)
SUBSIDIARIES OF TENNECO PACKAGING DEUTSCHLAND HOLDINGGESELLSCHAFT MBH (GERMANY)
Tenneco Sengewald Verpackungen GmbH & Co. KG (Germany).......................................... * %
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Sengewald Verpackung Verwaltungs-
gesellschaft mbH is the General Partner)
Tenneco Kobusch-Folien GmbH & Co. KG (Germany).................................................. *
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Kobusch-Folien Verwaltungsgesellschaft mbH
is the General Partner)
Tenneco Nord-West Verpackung GmbH & Co. KG (Germany)............................................ *
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Nord-West Verpackung Verwaltungs-
gesellschaft mbH is the General Partner)
Tenneco Sengewald Klinikprodukte GmbH & Co. KG (Germany)........................................ *
(Tenneco Packaging Deutschland Holdinggesellschaft mbH is the
Limited Partner; and Sengewald Klinikprodukte Verwaltungs-
gesellschaft mbH is the General Partner)
Tenneco Packaging Hungary Packaging Material Limited (Hungary)2/..................................100
Budafok Recycling Waste Paper Recovery Ltd. (Hungary)....................................63.8
(Tenneco Packaging Hungary Packaging Material Limited owns 63.8%;
and Asco Hungaria Kft., an unaffiliated company, owns 36.2%)
Tenneco Packaging Specialty and Consumer Products Inc. (Delaware).................................100
Tenneco Protective Packaging Inc. (Delaware)......................................................100
AVI Technologies, Inc. (Delaware).............................................................100
Tenneco Rochester Acquisition Inc. (Delaware)3/...................................................100
Tenneco Windsor Box & Display, Inc. (Delaware)3/..................................................100
The Corinth and Counce Railroad Company (Mississippi).............................................100
Valdosta Southern Railroad Company (Florida)..................................................100
798795 Ontario Limited (Ontario)..................................................................100
Astro-Valcour, Ltd. (Ontario).................................................................100
Tenneco Packaging Canada Inc. (Ontario).......................................................100
Tenneco Packaging - Hexacomb Limited (Ontario)................................................100
Shearmat Structures Ltd. (Manitoba)......................................................100
Zhejing Zhongbao Packaging (Peoples Republic of China).............................................37.5
(Tenneco Packaging Inc. owns 37.5%; and non-affiliates own 62.5%)
</TABLE>
_______________________
2/ This company is commonly referred to as "Tenneco Packaging Hungary Kft."
3/ In dissolution.
* Ownership interest percentage to be inserted by amendment [upon completion of
corporate restructuring transactions].
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Business
of Tenneco Packaging Combined Financial Statements and is qualified in its
entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 336
<ALLOWANCES> 0
<INVENTORY> 412
<CURRENT-ASSETS> 917
<PP&E> 2,057
<DEPRECIATION> 501
<TOTAL-ASSETS> 4,798
<CURRENT-LIABILITIES> 1,142
<BONDS> 1,312
0
0
<COMMON> 0
<OTHER-SE> 1,776
<TOTAL-LIABILITY-AND-EQUITY> 4,798
<SALES> 2,791
<TOTAL-REVENUES> 2,791
<CGS> 1,903
<TOTAL-COSTS> 1,903
<OTHER-EXPENSES> 602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 150
<INCOME-TAX> 67
<INCOME-CONTINUING> 82
<DISCONTINUED> 57
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-BASIC> .83
<EPS-DILUTED> .83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Businesses Tenneco Packaging Combined. Financial Statements and is qualified in
its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 223
<ALLOWANCES> 0
<INVENTORY> 440
<CURRENT-ASSETS> 881
<PP&E> 1998
<DEPRECIATION> 503
<TOTAL-ASSETS> 4671
<CURRENT-LIABILITIES> 1384
<BONDS> 1337
0
0
<COMMON> 0
<OTHER-SE> 1470
<TOTAL-LIABILITY-AND-EQUITY> 4671
<SALES> 666
<TOTAL-REVENUES> 666
<CGS> 451
<TOTAL-COSTS> 451
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 9
<INCOME-TAX> 3
<INCOME-CONTINUING> 6
<DISCONTINUED> (172)
<EXTRAORDINARY> (7)
<CHANGES> (32)
<NET-INCOME> (205)
<EPS-BASIC> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
