<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) or 12(g) of
the Securities Exchange Act of 1934
------------------------------
TENNECO PACKAGING INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
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)
------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) of the Act:
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<CAPTION>
NAMES OF EACH EXCHANGE ON
TITLE OF CLASS TO BE SO REGISTERED WHICH CLASS IS TO BE REGISTERED
---------------------------------- -------------------------------
<S> <C>
Common Stock ($.01 Par Value) New York Stock Exchange
and associated Preferred Stock Purchase Rights
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) of the Act:
None
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<PAGE> 2
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
<TABLE>
<CAPTION>
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- -------- ------------ ---------------------------------
<C> <S> <C>
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.
</TABLE>
<PAGE> 3
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 June 30, 1999, and for the six months ended June 30, 1999
and for the year ended December 31, 1998;
(2) Combined Financial Statements of the Businesses of Tenneco
Packaging as of June 30, 1999 (unaudited), December 31, 1998 and
1997, and for the six months ended June 30, 1999 and 1998
(unaudited) and the years ended December 31, 1998, 1997 and
1996; and
(3) Schedule II -- Valuation and Qualifying Accounts.
(b)Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
2 -- Form of Distribution Agreement by and between Tenneco
Inc. and Tenneco Packaging Inc. (incorporated herein by
reference to Exhibit 2 to Tenneco Packaging Inc.'s
Registration Statement on Form S-4, File No. 333-82923).
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 and Restated 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 -- Indenture, dated September 29, 1999, by and between
Tenneco Packaging Inc. and The Chase Manhattan Bank, as
Trustee (incorporated herein by reference to Exhibit 4.1
to Tenneco Packaging Inc.'s Registration Statement on
Form S-4, File No. 333-82923).
4.4 -- Form of Registration Rights Agreement between Tenneco
Packaging Inc. and the trustees under the Tenneco
Packaging Inc. Rabbi Trust, to be adopted in connection
with the spin-off.**
4.5 -- Long Term Credit Agreement, dated as of September 29,
1999, among Tenneco Packaging Inc., Bank of America,
N.A., as Administrative Agent, Credit Suisse First
Boston, as Syndication Agent, Bank One, NA and Banque
Nationale de Paris, as Co-Documentation Agents, and the
other financial institutions party thereto (incorporated
herein by reference to Exhibit 4.3 to Tenneco Packaging
Inc.'s Registration Statement on Form S-4, File No.
333-82923).
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
4.6 -- Short Term Credit Agreement, dated as of September 29,
1999, among Tenneco Packaging Inc., Bank of America,
N.A., as Administrative Agent, Credit Suisse First
Boston, as Syndication Agent, Bank One, NA and Banque
Nationale de Paris, as Co-Documentation Agents, and the
other financial institutions party thereto (incorporated
herein by reference to Exhibit 4.4 to Tenneco Packaging
Inc.'s Registration Statement on Form S-4, File No.
333-82923).
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 Trademark Transition License Agreement by and
between Tenneco Inc. and Tenneco Packaging Inc.**
10.4 -- Form of Tenneco Packaging Inc. Executive Incentive
Compensation Plan, to be adopted in connection with the
spin-off.
10.5 -- Form of Tenneco Packaging Inc. Supplemental Executive
Retirement Plan, to be adopted in connection with the
spin-off.
10.6 -- Form of Tenneco Packaging Inc. Change in Control
Severance Benefit Plan for Key Executives, to be adopted
in connection with the spin-off.
10.7 -- Form of Tenneco Packaging Inc. Deferred Compensation
Plan, to be adopted in connection with the spin-off.
10.8 -- Form of Tenneco Packaging Inc. Stock Ownership Plan, to
be adopted in connection with the spin-off.
10.9 -- Professional Services Agreement, dated August 22, 1996,
by and between Tenneco Business Services Inc. and Newport
News Shipbuilding Inc. (incorporated herein by reference
to Exhibit 10.28 of Tenneco Inc.'s Form 10, File No.
1-12387).
10.10 -- Form of Tenneco Packaging Inc. Rabbi Trust, to be adopted
in connection with the spin-off.
10.11 -- Form of Tenneco Rabbi Trust Agreement, to be adopted in
connection with the spin-off.
10.12(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 to Exhibit
10.30 to Tenneco Inc.'s Current Report on Form 8-K dated
April 12, 1999, File No. 1-12387).
10.12(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
to Exhibit 10.31 to Tenneco Inc.'s Current Report on Form
8-K dated April 12, 1999, File No. 1-12387).
10.13 -- Stockholders Agreement, as amended, dated as of April 12,
1999, by and among Tenneco Packaging Inc., PCA Holdings
LLC and Packaging Corporation of America (incorporated
herein by reference to Exhibit 10.32 to Tenneco Inc.'s
Current Report on Form 8-K dated April 12, 1999, File No.
1-12387).
10.14 -- Registration Rights Agreement, as amended, dated as of
April 12, 1999, by and among Tenneco Packaging Inc., PCA
Holdings LLC and Packaging Corporation of America
(incorporated herein by reference to Exhibit 10.33 to
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Form of Release Agreement by and between Dana G. Mead and
Tenneco Management Company, to be executed in connection
with the spin-off.
10.16 -- Employment Agreement, dated as of March 11, 1997, by and
between Richard L. Wambold and Tenneco Inc.
10.17 -- Restricted Stock Contract, dated as of June 1, 1999, by
and between Paul J. Griswold and Tenneco Inc.
10.18 -- Restricted Stock Contract, dated as of June 1, 1999, by
and between Richard L. Wambold and Tenneco Inc.
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, June 30, 1999.**
99.1 -- Information Statement dated as of October , 1999
attached to this Registration Statement as Annex A.
99.2 -- Consents to be named as directors of Tenneco Packaging
Inc. for: Mark Andrews, Larry D. Brady, Roger B. Porter
and Paul T. Stecko (incorporated herein by reference to
Exhibit 99.5 to Tenneco Packaging Inc.'s Registration
Statement on Form S-4, File No. 333-82923).
</TABLE>
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* To be filed by amendment.
** Previously filed.
<PAGE> 6
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: October 4, 1999
<PAGE> 7
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 November ,
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
November , 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 received a ruling from the IRS that the spin-off will
be tax-free to Tenneco and its shareowners for federal income tax purposes.
In connection with the spin-off, Tenneco Inc. will change its name to
Tenneco Automotive Inc. ("Automotive") and Tenneco Packaging Inc. will change
its name to . 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, 17 and 88.
Yours sincerely,
/s/ DANA G. MEAD
Chairman and Chief Executive Officer
<PAGE> 8
INFORMATION STATEMENT
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SPIN-OFF OF
TENNECO PACKAGING INC.
(TO BE RENAMED)
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
(to be renamed) all of the common stock of Tenneco Packaging Inc.
1900 West Field Court (to be renamed) to owners of Tenneco common stock
Lake Forest, Illinois 60045 as of the close of business on October , 1999.
(847) 482-2000
</TABLE>
Proposed Trading Symbol:
New York Stock Exchange --
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THE SPIN-OFF AND THE OWNERSHIP OF THE STOCK OF TENNECO PACKAGING INC. (TO BE
RENAMED) INVOLVE RISKS. YOU SHOULD READ "RISK FACTORS" BEGINNING ON PAGE 12.
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. (TO BE RENAMED) 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
<PAGE> 9
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-
Recent Developments.................................... -11-
RISK FACTORS................................................ -12-
Risks Relating to Our Business......................... -12-
Risks Relating to Our Stock............................ -14-
Risks Relating to the Transaction...................... -15-
THE SPIN-OFF................................................ -17-
Introduction........................................... -17-
Reasons for the Spin-off............................... -17-
Manner of Spin-off..................................... -18-
Corporate Restructuring Transactions................... -18-
Debt Realignment....................................... -19-
Conditions to the Spin-off............................. -20-
Relationship Between Automotive and Packaging After the
Spin-off.............................................. -21-
Trading of Packaging Common Stock...................... -24-
U.S. Federal Income Tax Aspects of the Spin-off........ -25-
Reasons for Furnishing the Information Statement....... -27-
CAPITALIZATION AND FINANCING................................ -28-
Capitalization......................................... -28-
Financing.............................................. -28-
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PACKAGING................................................. -31-
SUPPLEMENTAL FINANCIAL INFORMATION.......................... -37-
COMBINED SELECTED FINANCIAL DATA............................ -38-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. -41-
BUSINESS.................................................... -59-
Industry Overview and Key Terms........................ -59-
Our Products and Markets............................... -60-
Growth Strategy........................................ -61-
Marketing, Distribution and Customers.................. -64-
Analysis of Revenues................................... -64-
Competition............................................ -65-
International.......................................... -65-
Properties............................................. -65-
Raw Materials.......................................... -66-
Environmental Regulation............................... -66-
Other.................................................. -66-
Legal Proceedings...................................... -67-
Containerboard Packaging Interest...................... -67-
</TABLE>
i
<PAGE> 10
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MANAGEMENT.................................................. -68-
Board of Directors..................................... -68-
Executive Officers..................................... -69-
Stock Ownership of Management.......................... -70-
Committees of the Board of Directors................... -70-
Executive Compensation................................. -71-
Liability and Indemnification of Directors and
Officers.............................................. -76-
PRINCIPAL SHAREOWNERS....................................... -78-
DESCRIPTION OF CAPITAL STOCK................................ -79-
Authorized Capital Stock............................... -79-
Packaging Common Stock................................. -79-
Packaging Preferred Stock.............................. -79-
Anti-takeover Effects of Certain Provisions............ -80-
ADDITIONAL INFORMATION...................................... -88-
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE OF THE
BUSINESSES OF TENNECO PACKAGING........................... F-1
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ii
<PAGE> 11
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:
- "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
, formerly known as Tenneco Packaging Inc. and its
subsidiaries.
- "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 those
companies that will be its subsidiaries when the spin-off is completed,
which will own and operate its automotive business and which will be
renamed Tenneco Automotive Inc.
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 received from the IRS a letter ruling that the
spin-off is 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.
1
<PAGE> 12
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 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 expects to issue new senior
subordinated debt.
If the debt realignment and spin-off had occurred on June 30, 1999, we
would have been allocated debt for money borrowed of about $2.2 billion on
a pro forma basis. 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 November ,
1999. If you owned Tenneco common stock as of 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 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."
2
<PAGE> 13
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 12. 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
<PAGE> 14
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 59.
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. The joint venture
manufactures containerboard, as well as corrugated containers and lumber and
related wood products. The 1998 pro forma revenues of the joint venture were
$1.57 billion. 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."
4
<PAGE> 15
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 November , 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 five 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 five ancillary
agreements cover human resources, insurance, 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> 16
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 received a ruling from the Internal Revenue
Service on August 20, 1999 that the spin-off will
be tax-free to Tenneco and its stockholders for
federal income tax purposes. The spin-off is
subject to, among other things, receipt and
continued effectiveness of a determination that the
spin-off will be tax-free for federal income tax
purposes. The spin-off is also conditioned upon the
successful completion of the corporate
restructuring transactions and the debt
realignment. See "The Spin-off -- Conditions to the
Spin-off."
6
<PAGE> 17
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 six months ended June
30, 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 six months ended
June 30, 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 six months ended June
30, 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 six months ended June 30, 1999, and for the year ended December 31,
1998, reflect the effects of:
- 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 June 30, 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 Financial Information" beginning on page 38 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 of Packaging (page 32);
- Combined Selected Financial Data (page 38);
- Management's Discussion and Analysis of Financial Condition and Results
of Operations (page 41); and
- Combined Financial Statements of the Businesses of Tenneco Packaging
(page F-1).
(continued on next page)
7
<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 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)....... 160 133 124 102
Income tax expense
(benefit)............... 58 67 75 67
Minority interest......... 1 1 1 --
----------- ----------- ----------- -----------
Income (loss) from
continuing operations... 69 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... $ .41 $ .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... $ .41 $ .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
</TABLE>
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
----------------------------- ---------------------------------------
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 $ 1,404 $ 1,404 $ 1,361
Other................. -- -- -- -- 10
----------- ----------- ----------- ----------- -----------
Total............... $ 845 $ 636 $ 1,404 $ 1,404 $ 1,371
=========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 39 $ 68 $ 190 $ 190 $ 175
Other(c).............. (6) 17 (43) (46) (2)
----------- ----------- ----------- ----------- -----------
Total............... 33 85 147 144 173
Interest expense(d)....... 91 48 80 68 67
Income tax expense
(benefit)............... (3) 19 20 24 37
Minority interest......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing operations... (55) 18 47 52 69
Income (loss) from
discontinued operations,
net of income tax(e).... 224 75 NA (163) 37
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 $ (150) $ 106
=========== =========== =========== ===========
Average number of shares of
common stock
outstanding(h) --
Basic..................... 172,764,198 162,307,189 166,937,362 166,937,362 169,341,555
Diluted................... 173,511,654 162,912,425 167,319,412 167,319,412 169,936,676
Earnings (loss) per average
share of common stock(h)--
Basic:
Continuing operations... $ (.32) $ .11 $ .28 $ .31 $ .41
Discontinued
operations(e)......... 1.30 .46 NA (.98) .22
Extraordinary loss(f)... -- -- NA (.04) --
Cumulative effect of
changes in accounting
principles(g)......... -- -- NA (.19) --
----------- ----------- ----------- -----------
$ .98 $ .57 $ (.90) $ .63
=========== =========== =========== ===========
Diluted:
Continuing operations... $ (.32) $ .11 $ .28 $ .31 $ .41
Discontinued
operations(e)......... 1.29 .46 NA (.98) .22
Extraordinary loss(f)... -- -- NA (.04) --
Cumulative effect of
changes in accounting
principles(g)......... -- -- NA (.19) --
----------- ----------- ----------- -----------
$ .97 $ .57 $ (.90) $ .63
=========== =========== =========== ===========
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(e)........... $ 393 $ 236 $ 133 $ 133 $ 382
Total assets.............. 3,358 1,630 4,749 4,486 4,788
Short-term debt(d)........ 205 49 1,196(i) 367 335
Long-term debt(d)......... 880 478 1,000(i) 1,494 1,488
Debt allocated to
discontinued
operations(d)........... 369 285 -- -- 479
Minority interest......... -- -- 14 14 15
Combined equity........... 1,531 703 1,286 1,340 1,829
</TABLE>
(continued on next page)
8
<PAGE> 19
<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).............. 1.71 1.99 2.31 2.15
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
----------------------------- ---------------------------------------
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 $ (45) $ 288
Net cash provided (used)
by investing
activities............ (1,791) (146) NA (866) (221)
Net cash provided (used)
by financing
activities............ 1,327 (142) NA 920 (66)
Capital expenditures for
continuing
operations............ (265) (134) NA (75) (101)
OTHER DATA:
EBITDA(j)................. $ 78 $ 121 $ 241 $ 238 $ 261
Ratio of earnings to fixed
charges(k).............. NM 1.72 1.76 2.00 2.45
</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 six months ended June 30, 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
Financial Information" 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 the debt realignment or of the debt and interest that may be
incurred by Packaging as a separate public entity. 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 six
months ended June 30, 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.
(continued on next page)
9
<PAGE> 20
(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 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. 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> 21
RECENT DEVELOPMENTS
Tenneco currently expects that operating income from its Packaging business
for the third quarter of 1999 will be $10 to $15 million below operating income
from this business for the third quarter of 1998. Based on Packaging's forecast
of resin costs, and pricing actions taken, Packaging's management expects the
negative impact on margin from increased resin costs to begin to be offset
sometime in the fourth quarter of 1999. During the third quarter of 1999,
Packaging also incurred increased advertising and promotional expenditures to
meet competitive market initiatives in its consumer business.
Packaging's management is evaluating Packaging's strategy in light of its
competitive position as a new stand-alone public company and, as part of this
evaluation, is analyzing its business operations and assets. Specifically, the
evaluation includes a review of Packaging's strategic and competitive position
in market segments and operations where results are not meeting management's
expectations. Although plans are still being developed and have not been
finalized or approved, potential options could include the disposition,
restructuring or rationalization of assets and operations. Packaging expects to
complete its evaluation in the fourth quarter of 1999. Based on its continuing
analysis, Packaging has revised its original estimate of the potential charge it
would expect to take upon final approval of the plan. Packaging currently
estimates that its evaluation could result in an aggregate pre-tax charge of up
to approximately $175 million, of which approximately 10% could be cash.
11
<PAGE> 22
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 Financial
Information," "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
CYCLICAL DEMAND -- THE CYCLICAL DEMAND FOR OUR PRODUCTS COULD ADVERSELY AFFECT
OUR OPERATING RESULTS BECAUSE LESS DEMAND FOR OUR PRODUCTS COULD REDUCE OUR
PROFITABILITY.
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 services
such as construction. 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 because less demand for our products
would reduce our profitability.
COST OF RAW MATERIALS -- VOLATILE RAW MATERIAL PRICES COULD ADVERSELY AFFECT OUR
OPERATING RESULTS BECAUSE HIGHER COSTS TO MANUFACTURE ITS PRODUCTS WOULD LIKELY
REDUCE PACKAGING'S PROFITABILITY.
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 because higher costs to manufacture our products would
likely reduce our profitability. See "Summary -- Recent Developments."
12
<PAGE> 23
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 adversely 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 BECAUSE OF OUR HIGHER OVERHEAD AND
MANUFACTURING COSTS AND REDUCED APPEAL OF OUR PRODUCTS.
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 will have to be
refined and updated as the underlying technologies advance. We cannot assure you
that, as 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. Higher overhead and manufacturing costs due
to a failure to update and improve processes could limit our ability to compete
favorably as to price.
YEAR 2000 ISSUE -- IF NOT FULLY RESOLVED, THE YEAR 2000 ISSUE COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND 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, hardware and equipment will not be able to
recognize dates properly beyond the year 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. This adverse effect could result from interruptions in our
ability to manufacture our products, process and ship orders, and properly bill
and collect accounts receivable.
For more information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000" beginning on page
50.
INDEPENDENT PUBLIC COMPANY -- WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO
SUCCESSFULLY TRANSITION TO AN INDEPENDENT PUBLIC COMPANY.
Upon completion of 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.
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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. For 1998, about 21% of our revenues
were derived from our international operations. 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.
RISKS RELATING TO OUR STOCK
MARKET VALUE -- THE COMBINED POST-SPIN-OFF VALUE OF PACKAGING AND TENNECO STOCK
MAY NOT EQUAL
OR EXCEED THE 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, including
the planned one-for-five reverse stock split of Automotive, 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."
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
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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 beginning on page 25."
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 the
financial condition and, as such, business of Packaging and/or Automotive, as
applicable.
Tenneco has received 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
is based upon various factual representations and assumptions. If any of those
factual representations and assumptions were untrue or incomplete in a material
respect, or the facts upon which that ruling is 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 stock. In addition,
the IRS letter ruling does 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 -- which after the spin-off will be Automotive -- would incur
a very substantial tax liability on the distribution of our common stock to its
shareowners. Packaging would be responsible for this resulting tax liability in
the case of a Packaging change in control, and Automotive would be responsible
for this 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
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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.
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.
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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 through an initial registered public offering. 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, which will be 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 may not contain information
about provisions that you think are important. These descriptions are qualified
in their entirety by references to the complete text of the agreements, which we
encourage you to read. 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 November , 1999. See "-- Conditions to the Spin-off."
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 June 30,
1999, which is attached to the distribution agreement as an exhibit;
- those assets that were acquired after June 30, 1999 and are of a nature
or type that would have been included on our June 30, 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;
- liabilities for possible violations of securities laws in connection with
the spin-off related to disclosures or omissions regarding Packaging's
business, results of operations, prospects or management; 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;
- liabilities for possible violations of securities laws in connection with
the spin-off related to disclosures or omissions regarding Automotive's
business, results of operations, prospects or management;
- 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.
In addition, Packaging and Automotive will each be responsible for one-half
of any third-party liability imposed on either party that is both (1) related to
the transactions undertaken as part of the spin-off, such as the debt
realignment, and (2) based on a claim (a) under Delaware corporate law, such as
a claim for a breach of fiduciary duties, or (b) under applicable securities
laws, but only to the extent the alleged violation is not specifically related
to disclosures or omissions about either party's business operations as provided
by such party.
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 June 30, 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
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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.
If the debt realignment and spin-off had occurred on June 30, 1999, we
would have had pro forma indebtedness for money borrowed of $2.2 billion. 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 issued by Automotive in connection with the
spin-off, and (c) borrowings by Packaging under one or more new credit
facilities 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. 333-82923) 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
facilities. 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;
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- 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) specified internal restructuring transactions involving Tenneco or
its subsidiaries to be effected pursuant to the corporate restructuring
transactions will also be tax-free;
- 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.
On August 20, 1999, we received an IRS letter ruling that satisfies the
federal income tax condition referred to above provided the ruling remains in
effect at the time of the spin-off. Even if all the conditions to the spin-off
are satisfied, Tenneco has reserved the right to amend or terminate the
distribution agreement and the related transactions before the spin-off. 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 summary 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 all its allocated liabilities according to their terms, and (b)
Packaging will assume, pay, perform and discharge 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 agree 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
will grant to each party access to specified information in the other's
possession, subject to confidentiality requirements and legal privilege issues.
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
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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 specified trade supply agreements will be
terminated.
Expenses. Tenneco will use a portion of the funds borrowed by Tenneco and
Packaging as part of the debt realignment to fund the payment of fees, costs and
expenses associated with the spin-off. Accordingly, the allocation of debt
described above under "-- Debt Realignment" includes additional debt incurred to
fund these fees, costs and expenses. Under the distribution agreement, other
specified fees, costs and expenses related to the spin-off but not funded in
connection with the debt realignment will be shared equally by Tenneco and
Packaging. All other fees, costs and expenses will be paid by the party
incurring such fees, costs or 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. 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
in accordance with their terms;
- recognize related incumbent labor organizations, subject to their rights
to seek changes in their relationships with the organizations; and
- continue sponsorship of hourly employee benefit plans in accordance with
their terms.
We will become the sponsor of the Tenneco Retirement Plan and of the
Tenneco Thrift Plan and Tenneco Thrift Plan for Hourly Employees (collectively
the "Tenneco Thrift Plan") on the spin-off date. Automotive will establish one
or more thrift plans 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
Tenneco Retirement Plan will be frozen as of the last day of the calendar month
including the spin-off date, and we will amend the Tenneco Retirement Plan to
provide that all benefits accrued through that day by Automotive employees are
fully vested and non-forfeitable. Generally, each of Automotive and Packaging
will retain liabilities with respect to benefits accrued by its current and
former employees under the Tenneco Inc. Supplemental Executive Retirement Plan
and with respect to the welfare benefits of its current and former employees and
their dependents. In addition, as the spin-off date, Packaging will succeed to
sponsorship of the Tenneco Inc. Deferred
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<PAGE> 33
Compensation Plan; participation by current and former employees of Automotive
in that plan will be discontinued, and Automotive will succeed to liabilities
with respect to its current and former employees under that plan. See
"Management -- Executive Compensation."
Under the human resources agreement, 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. Tenneco
common stock options held by Automotive employees will be adjusted to maintain
equivalent economic terms to the options outstanding immediately prior to the
spin-off.
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 requested and received by Tenneco in connection with the
spin-off, that entity, either 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, either 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 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 (1) financial
accounting services; (2) employee benefits administration for all major salaried
and hourly benefit plans; (3) human resources and payroll services; (4)
mainframes and distributed systems operations; (5) telecommunications and
network operations and management; (6) help desk support; and (7) 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 a
term to be determined before the spin-off. 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-
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<PAGE> 34
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 Transition License Agreement
After the spin-off, Automotive or one of its 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 and variations thereof
(collectively, the "Trademarks"), in the United States and throughout the world.
In connection with the spin-off, we will enter into a trademark transition
license agreement with Automotive. Under this agreement, Automotive or one of
its subsidiaries will grant to us a limited, royalty-free license to use the
Trademarks with respect to packaging businesses, subject to quality standards
and other conditions. The license will expire (1) 60 days after the spin-off,
with respect to the use of the Trademarks in corporate names, (2) 9 months after
the spin-off, with respect to stationery and similar supplies in inventory and
(3) 18 months after the spin-off, with respect to signage.
Insurance Agreement
The insurance agreement to be entered into between Automotive and Packaging
will provide for the separation and administration of existing insurance
programs and the purchase of "run-off " policies for fiduciaries and directors
and officers. In general, the insurance agreement will provide that Packaging
and Automotive will obtain coverage for the period ending in December 1996
through Tenneco's pre-existing policies. For the period between December 1996
and the spin-off, Automotive and Packaging will obtain coverage through
Tenneco's existing policies plus supplemental coverage to be purchased by
Tenneco. Tenneco also will purchase "run-off" insurance policies that remain in
effect for seven years and provide coverage for acts prior to the spin-off by
directors, officers and fiduciaries of benefit and pension plans. Packaging and
Automotive will each be responsible for administering their respective insurance
programs after the spin-off and for purchasing insurance as necessary to cover
their respective losses arising after the spin-off. The insurance agreement also
allocates responsibility for the payment of premiums and deductibles, and the
distribution of insurance proceeds.
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 endeavor 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. Any shares of common stock of Tenneco
sold between the record date and the spin-off date
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<PAGE> 35
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.
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 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 received an IRS 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.
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<PAGE> 36
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
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 have received an IRS letter ruling to the effect 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
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<PAGE> 37
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
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.
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CAPITALIZATION AND FINANCING
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
Packaging as of June 30, 1999, and unaudited pro forma capitalization of
Packaging as of June 30, 1999, after giving effect to 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 of Packaging" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of Packaging, each contained
elsewhere in this document.
<TABLE>
<CAPTION>
PACKAGING
------------------------
JUNE 30, 1999
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Allocated from Tenneco.................................... $ 358(a) $ --
Borrowings under new Packaging credit facilities.......... -- 1,187
Other..................................................... 9 9
------ ------
367 1,196(b)
------ ------
Long-term debt:
Allocated from Tenneco.................................... 1,474(a) --
New securities............................................ -- 980(c)
Other..................................................... 20 20
------ ------
1,494 1,000(b)
------ ------
Total debt.................................................. 1,861 2,196(b)
------ ------
Minority interest........................................... 14 14
------ ------
Common stock................................................ -- 2
Paid-in capital............................................. -- 1,284
Retained earnings........................................... -- --
Combined equity............................................. 1,340 --
------ ------
Total equity......................................... 1,340 1,286
------ ------
Total capitalization........................................ $3,215 $3,496
====== ======
</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 tendered
before the early exchange time and exchanged for new securities in the
exchange offers and that such new securities are not substantially different
from the original securities.
NEW FINANCING
In connection with the spin-off, Packaging has entered into the following
credit facilities: (1) a $750 million long-term revolving senior credit
facility; and (2) a $250 million 364-day revolving senior credit facility.
Packaging may also enter into a $1.5 billion term loan facility in connection
with the spin-off, as described below. A definitive agreement for the $1.5
billion term loan facility has not been
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<PAGE> 39
completed. Accordingly, the terms of the $1.5 billion term loan are preliminary
and may change as a result of the negotiation of a definitive agreement.
Initial borrowings under one or more of these facilities are expected to
occur on or shortly before the spin-off. See "The Spin-off -- Debt Realignment"
for a description of how Packaging intends to use the proceeds of the initial
borrowings.
$750 MILLION LONG-TERM SENIOR REVOLVING CREDIT FACILITY
Packaging has entered into a senior credit facility with a syndicate, or
group, of banks and financial institutions. This facility is a revolving credit
facility of up to $750 million, which will terminate on September 29, 2004. Part
of the total facility will be a swingline facility of up to $50 million, from
only one lender in the group, which provides for borrowings to be made on
shorter notice than for the other loans.
The proceeds of the loans made under this facility will be used by
Packaging for refinancing existing indebtedness of Tenneco or its subsidiaries,
including Packaging, as part of the debt realignment, for working capital and
for other general corporate purposes.
Maturity. This senior credit facility provides that all amounts outstanding
at the termination of the facility in 2004 will become due then. Prior to that
date, funds may be borrowed, repaid, and reborrowed, without premium or penalty.
Covenants. This facility will require Packaging to maintain compliance with
the following financial tests:
- minimum interest coverage ratio, which is the ratio of consolidated
earnings before interest expense, income taxes, minority interest,
depreciation and amortization ("EBITDA") to consolidated cash interest
expense, as of the last day of any fiscal period; and
- maximum total debt to EBITDA ratio, which is the ratio of Packaging's
indebtedness, less certain exclusions, to EBITDA.
The senior credit facility imposes prohibitions and limitations that are
customary for similar facilities and transactions, including, among other
things, on Packaging's ability to incur specified liens, incur subsidiary
indebtedness, dispose of all or substantially all of its assets, and discontinue
its primary businesses.
Interest. At Packaging's option, borrowings under this facility, except for
competitive bid loans and swingline facility loans, will bear interest at a
floating rate based on LIBOR, adjusted for reserve requirements, plus a
specified margin, or based on a specified prime or reference rate plus a
specified margin.
Each competitive bid loan will bear interest at the rate quoted in the
respective bid. Each swingline loan is expected to bear interest at a minimum
rate, which may be negotiated higher, based on the higher of a specified prime
or reference rate and the federal funds rate plus an applicable margin.
$250 MILLION 364 DAY SENIOR REVOLVING CREDIT FACILITY
Packaging has entered into an additional revolving credit facility of up to
$250 million.
This senior credit facility will terminate on September 27, 2000, 364 days
after its signing date, and all amounts outstanding at termination to become due
then.
Initial borrowings will occur under this facility at the same time as under
Packaging's $750 million Long-Term Senior Revolving Facility described above or
thereafter during its term, and that proceeds of the loans will be used for the
same purposes as the Long-Term Facility. The financial tests, prohibitions and
limitations, interest rates and other material terms of this facility are the
same as for the Long-Term Facility.
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<PAGE> 40
$1.5 BILLION TERM LOAN FACILITY
A lender has committed to provide Packaging up to $1.5 billion of term loan
financing which Packaging intends to use in the event it does not sell its
containerboard joint venture interest before the spin-off for general corporate
and other purposes. Although the terms of this financing have not been
finalized, Packaging expects that borrowings under this facility would be due 18
months after funding and bear interest at a floating rate based on LIBOR,
adjusted for reserve requirements, plus a specified margin, or based on a
specified prime or reference rate plus a specific margin, at Packaging's option.
Packaging expects this financing would include covenants similar to those
described above for the revolving credit facilities.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF PACKAGING
The following Unaudited Pro Forma Combined Balance Sheet of Packaging as of
June 30, 1999, and the Unaudited Pro Forma Combined Statements of Income for the
six months ended June 30, 1999 and the year ended December 31, 1998, reflect the
effects of:
- 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 June 30, 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 June 30, 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 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 does not occur before the spin-off, the net
proceeds will be used to retire our debt. You should also read the Combined
Financial Statements of The Businesses of Tenneco Packaging, and related notes,
included elsewhere in this document.
31
<PAGE> 42
PACKAGING
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
SPIN-OFF PACKAGING
PACKAGING DEBT AND RELATED PRO FORMA
HISTORICAL REALIGNMENT TRANSACTIONS COMBINED
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash
investments................................. $ 18 $ -- $ -- $ 18
Receivables.................................... 375 -- 119(b) 494
Inventories.................................... 447 -- -- 447
Prepayments and other.......................... 72 -- -- 72
------ ------ ------- ------
Total current assets...................... 912 -- 119 1,031
Plant, property, and equipment, net.............. 1,495 -- -- 1,495
Goodwill and intangibles, net.................... 1,028 -- -- 1,028
Other assets and deferred charges................ 918 59(a) 85(c) 1,062
Net assets of discontinued
operations..................................... 133 -- -- 133
------ ------ ------- ------
Total assets.............................. $4,486 $ 59 $ 204 $4,749
====== ====== ======= ======
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt................................ $ 367 $ 829(a) $ -- $1,196(e)
Trade payables................................. 357 -- -- 357
Other current liabilities...................... 336 -- -- 336
------ ------ ------- ------
Total current liabilities................. 1,060 829 -- 1,889
Long-term debt................................... 1,494 (494)(a) -- 1,000(e)
Deferred income taxes............................ 380 (52)(a) 34(c) 362
Other liabilities and deferred credits........... 198 -- -- 198
Minority interest................................ 14 -- -- 14
Equity:
Combined equity................................ 1,340 (224)(a) 119(b) --
51(c)
(1,286)(d)
Common stock................................... -- -- 2(d) 2
Paid-in capital................................ -- -- 1,284(d) 1,284
Retained earnings.............................. -- -- --(d) --
------ ------ ------- ------
Total liabilities and equity.............. $4,486 $ 59 $ 204 $4,749
====== ====== ======= ======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
32
<PAGE> 43
PACKAGING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 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.......... $ 1,404 $-- $-- $ 1,404
Other income, net......................... (18) -- -- (18)
------------ --- --- ------------
1,386 -- -- 1,386
------------ --- --- ------------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below)........................... 924 -- -- 924
Engineering, research, and development.... 18 -- -- 18
Selling, general, and administrative...... 206 -- (3)(c) 203
Depreciation and amortization............. 94 -- -- 94
------------ --- --- ------------
1,242 -- (3) 1,239
------------ --- --- ------------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST.............. 144 -- 3 147
Interest expense............................ 68 12(f) -- 80(e)(f)
Income tax expense.......................... 24 (5)(g) 1(g) 20
Minority interest........................... -- -- -- --
------------ --- --- ------------
INCOME FROM CONTINUING OPERATIONS........... $ 52 $(7) $ 2 $ 47(e)
============ === === ============
EARNINGS PER SHARE
Average shares of common stock --
Basic................................ 166,937,362 166,937,362
Diluted.............................. 167,319,412 167,319,412
Income from continuing operations
Basic................................ $ .31 $ .28
Diluted.............................. $ .31 $ .28
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
33
<PAGE> 44
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)(c) 422
Depreciation and amortization........ 175 -- -- 175
------------ ---- ---- ------------
2,505 -- (5) 2,500
------------ ---- ---- ------------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST......... 283 -- 5 288
Interest expense....................... 133 27(f) -- 160(e)(f)
Income tax expense..................... 67 (11)(g) 2(g) 58
Minority interest...................... 1 -- -- 1
------------ ---- ---- ------------
INCOME FROM CONTINUING OPERATIONS...... $ 82 $(16) $ 3 $ 69(e)
============ ==== ==== ============
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........................... $ .49 $ .41
Diluted......................... $ .49 $ .41
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
34
<PAGE> 45
PACKAGING
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(a) To reflect debt allocated to Packaging in the debt realignment. The
adjustment to equity reflects the net impact of the debt realignment, the
recording of debt issue costs and deferred income taxes related to the
exchange offers and other transaction costs. 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
$1,187 million borrowed under Packaging's new credit facilities to be
entered into as part of this debt realignment and $9 million of short-term
debt of Packaging subsidiaries. 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 tendered before the early exchange
time and exchanged for new securities and the new securities will be
recorded at the net carrying amount of the original securities (in other
words, the new securities are assumed not to be "substantially different").
The results of the exchange offers could vary based on a number of factors,
including the timing and level of acceptance of the exchange offers, the
interest rate of the exchanged securities and whether the exchanges will be
considered extinguishments for accounting purposes. Based on current
interest rate markets, Packaging expects that the exchange offers will not
be extinguishments for accounting purposes. Therefore, Packaging does not
expect to recognize an extraordinary loss attributable to the debt exchange.
Other costs, including transaction costs related to the spin-off and
contractual employment obligations, are expected to be incurred by Packaging
in connection with the corporate restructuring transactions and the spin-off
which Packaging estimates will be approximately $70 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.
(b) To reflect the purchase of Packaging accounts receivable at fair value which
had previously been sold to a third party.
(c) 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 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.
(d) 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.
(e) 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. In September 1999, the grant venture, Packaging
Corporation of America, filed a registration statement for Packaging to sell
its interest in a registered public offering. Based on indications of value
in that registration statement, estimated proceeds ranging from $525 million
to $600 million are anticipated to be received from the sale of Packaging's
remaining interest in its containerboard joint venture. 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.
35
<PAGE> 46
PACKAGING
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(f) To reflect the adjustment to interest expense from the allocation of Tenneco
debt to Packaging in the debt realignment as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------
(IN MILLIONS)
<S> <C> <C>
Interest expense on historical debt(1)....... $(68) $(133)
Interest expense on the new securities(2).... 39 78
Interest expense on Packaging's new credit
facilities(3).............................. 37 75
Amortization of debt financing costs(4)...... 4 7
---- -----
Adjustment to interest expense............... $ 12 $ 27
==== =====
</TABLE>
------------------------
(1) Weighted average outstanding debt and average annual effective
interest rates were $1,836 million and 7.3% for the six months
ended June 30, 1999, and $1,900 million and 7.0% for the year ended
December 31, 1998.
(2) Weighted average outstanding debt and average annual effective
interest rate for the new securities were assumed to be
approximately $980 million and 7 3/4% for the six months ended June
30, 1999 and the year ended December 31, 1998.
(3) Weighted average outstanding debt and average annual effective rate
for Packaging's new credit facilities were assumed to be $1,187
million and 6 1/4% for the six months ended June 30, 1999 and the
year ended December 31, 1998.
(4) Represents the amortization of deferred debt financing costs.
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.
(g) To reflect the income tax expense effects of pro forma adjustments at an
assumed statutory tax rate of 40%.
36
<PAGE> 47
SUPPLEMENTAL FINANCIAL INFORMATION
RESULTS OF OPERATIONS
Packaging's historical and pro forma earnings before interest expense,
income taxes, and minority interest ("EBIT") are shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
(MILLIONS)
<S> <C> <C>
Historical EBIT............................................. $283 $144
Pro forma EBIT.............................................. $288 $147
</TABLE>
These historical and pro forma results include certain items that Packaging
believes require additional explanation. These items include costs which Tenneco
incurred at the corporate level but did not fully allocate to its operating
divisions, such as administrative services, corporate overhead, and costs
related to Tenneco's operation as a public company. Because these functions will
become part of Packaging following the spin-off, these costs have been included
in Packaging's historical and pro forma EBIT. These items also included a
restructuring charge recorded in the fourth quarter of 1998. The following
information discusses these items in detail and their financial impact on
Packaging's EBIT.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
(MILLIONS)
<S> <C> <C>
- Restructuring charge -- Packaging recorded a
restructuring charge in the fourth quarter of 1998
designed to reduce administrative and operational
costs. Refer to Note 4, "Restructuring and Other
Charges," on page F-14 of The Combined Financial
Statements of the Businesses of Tenneco Packaging for
further information.................................. $32 $29
- Restructuring savings -- The portion of the
restructuring plan designed to reduce operational
costs is expected to result in lower costs of sales.
See "Restructuring and Other Charges" in Packaging's
Management's Discussion and Analysis for a discussion
of expected savings from restructuring............... $13 $ 6
- Corporate overhead reductions -- Packaging's smaller,
less complex corporate structure is expected to
result in corporate overhead costs that are lower by
approximately $12 million than Tenneco incurred
historically. Also, Packaging's EBIT includes costs
associated with Tenneco's administrative services
operations. Although the administrative services
operations 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. Had all the administrative services
operations costs been allocated based on a usage
charge, Packaging estimates that approximately $28
million would have been billed to Automotive for
1998. See page F-11, "General and Administrative
Expenses" in Note 3 to the Combined Financial
Statements of the Businesses of Tenneco Packaging.... $40 $20
</TABLE>
37
<PAGE> 48
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 six months ended June
30, 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 six months ended June
30, 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 six months ended June
30, 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 Financial Information" 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 of The Businesses of Tenneco Packaging, 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
============ ============ ============ ============ ============
(continued on next page)
<CAPTION>
Six Months
Ended
June 30,
---------------------------
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............. $ 1,404 $ 1,361
Other................. -- 10
------------ ------------
Total............... $ 1,404 $ 1,371
============ ============
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 190 $ 175
Other(c).............. (46) (2)
------------ ------------
Total............... 144 173
Interest expense(d)....... 68 67
Income tax expense
(benefit)............... 24 37
Minority interest......... -- --
------------ ------------
Income (loss) from
continuing operations... 52 69
Income (loss) from
discontinued operations,
net of income tax(e).... (163) 37
Extraordinary loss, net of
income tax(f)........... (7) --
Cumulative effect of
changes in accounting
principles, net of
income tax(g)........... (32) --
------------ ------------
Net income (loss)......... $ (150) $ 106
============ ============
</TABLE>
38
<PAGE> 49
<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>
Six Months
Ended
June 30,
---------------------------
1999(a) 1998(a)
------- -------
(Dollars in millions except per share amounts)
<S> <C> <C>
Average number of shares of
common stock
outstanding(h) --
Basic..................... 166,937,362 169,341,555
Diluted................... 167,319,412 169,936,676
Earnings (loss) per average
share of common
stock(h) --
Basic:
Continuing operations... $ .31 $ .41
Discontinued
operations(e)......... (.98) .22
Extraordinary loss(f)... (.04) --
Cumulative effect of
changes in accounting
principles(g)......... (.19) --
------------ ------------
$ (.90) $ .63
============ ============
Diluted:
Continuing operations... $ .31 $ .41
Discontinued
operations(e)......... (.98) .22
Extraordinary loss(f)... (.04) --
Cumulative effect of
changes in accounting
principles(g)......... (.19) --
------------ ------------
$ (.90) $ .63
============ ============
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(e)........... $ 133 $ 382
Total assets.............. 4,486 4,788
Short-term debt(d)........ 367 335
Long-term debt(d)......... 1,494 1,488
Debt allocated to
discontinued
operations(d)........... -- 479
Minority interest......... 14 15
Combined equity........... 1,340 1,829
STATEMENT OF CASH FLOWS
DATA(b):
Net cash provided (used)
by operating
activities.............. $ (45) $ 288
Net cash provided (used)
by investing
activities.............. (866) (221)
Net cash provided (used)
by financing
activities.............. 920 (66)
Capital expenditures for
continuing operations... (75) (101)
OTHER DATA:
EBITDA(i)................. $ 238 $ 261
Ratio of earnings to fixed
charges(j).............. 2.00 2.45
</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 six months ended June 30, 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 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 those functions will be a
part of Packaging upon the spin-off, they are included in Packaging's
historical
(continued on next page)
39
<PAGE> 50
combined financial statements. Packaging expects its costs for these
functions will differ following the spin-off. See "Supplemental Financial
Information" 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 six
months ended June 30, 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 generally accepted accounting principles. 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.
40
<PAGE> 51
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-31. 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 of the containerboard assets 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 valued at approximately $200
million. Packaging now owns a 43 percent common equity interest due to
subsequent management equity issuances.
- 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 its containerboard joint venture. In
September 1999, the joint venture, Packaging Corporation of America,
filed a registration statement for Packaging to sell its interest in a
registered public offering. 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
controlling interest in approximately 950,000 acres of timberland. Before the
transaction, Packaging borrowed approximately $1.8 billion and used
approximately $1.2 billion to acquire assets used by the containerboard business
under 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 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. This loss was included in discontinued
operations 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 ("Specialty"), Tenneco's administrative services
operations, and the remaining interest in the containerboard joint venture if
the sale has not been completed.
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<PAGE> 52
Tenneco and Packaging are, however, currently analyzing the alternatives with
respect 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. This debt realignment will be financed by internally
generated cash, borrowings by Tenneco under a new credit facility, the issuance
by Tenneco of senior subordinated notes and borrowings by Packaging under new
credit facilities. See "The Spin-off -- Debt Realignment." 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.
Also before the spin-off, Tenneco will restructure its existing businesses,
assets, and liabilities through a series of corporate restructuring
transactions. 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 by Packaging, and the assets, liabilities, and operations of its
automotive businesses will be owned by Tenneco.
The spin-off is subject to conditions, including formal declaration of the
spin-off by the Tenneco Board of Directors, Tenneco's receipt, and the continued
effectiveness, of a 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. In August 1999, Tenneco
received a letter ruling from the Internal Revenue Service that the spin-off
will be tax-free for U.S. federal income tax purposes to Tenneco and its
shareowners and as a result the specialty packaging segment is presented as a
discontinued operation in the accompanying financial statements. After
discontinuing the specialty packaging segment, Tenneco's sole continuing
operation is its Automotive segment. Refer to Notes to Combined Financial
Statements of the Businesses of Tenneco Packaging contained elsewhere in this
document for further information.
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 fair value, less costs to
sell, in the fourth quarter of 1998. Fair value for the production lines was
estimated at scrap value less removal costs. Fair value for the joint ventures
was determined to be zero as Packaging is relinquishing its interests in the
ventures. No significant net cash proceeds are expected to be received from the
ultimate disposal of these assets, which should be complete by the fourth
quarter of 1999. The effect of suspending depreciation for the production lines
is approximately $1 million on an annual basis.
As of December 31, 1998 and June 30, 1999, approximately 158 and 233
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.
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<PAGE> 53
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. Tenneco reached an agreement to sell its headquarters facility in
Greenwich, and recorded an impairment charge in the first quarter of 1999, based
on the selling price less costs to sell. The carrying value of the facility
before the impairment was $43 million. Annual depreciation will be reduced by $3
million as a result of the sale. 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. 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>
SIX MONTHS ENDED
JUNE 30, 1999
-----------------------------------
1998 CHARGED BALANCE AT CHARGED BALANCE AT
RESTRUCTURING CASH TO ASSET DECEMBER 31, RESTRUCTURING CASH TO ASSET JUNE 30,
CHARGE PAYMENTS ACCOUNTS 1998 CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- -------- ------------ ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance............... $20 $5 $-- $15 $16 $12 $-- $19
Asset impairments....... 12 -- 12 -- 13 -- 13 --
--- -- --- --- --- -- --- ---
$32 $5 $12 $15 $29 $12 $13 $19
=== == === === === == === ===
</TABLE>
Packaging expects to realize annual savings of $13 million related to the
operational restructuring plans and $40 million related to the fourth quarter
1998 staff and cost reduction plan. In addition, Packaging expects to realize
annual savings of $11 million related to its plan to realign its headquarters
functions. These annual savings will be fully realized upon completion of the
restructuring actions in the fourth quarter of 1999.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
RESULTS OF CONTINUING OPERATIONS
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Specialty........................................... $1,404 $1,361 3%
Intergroup sales and other.......................... -- 10 NM
------ ------
$1,404 $1,371 2%
====== ======
</TABLE>
Packaging's revenue in its specialty segment increased by 3 percent over
the first half of 1998. The second half 1998 acquisitions of Sentinel and
Champion International's Belvidere, Illinois dual-ovenable paperboard tray
manufacturing facility generated $21 million of the revenue increase. Lower
prices due to lower raw material costs were offset by overall unit volume growth
of 8 percent. The largest increases were in North American protective packaging,
Hefty OneZip(R) bags, foodservice containers, disposable tableware and
industrial products.
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<PAGE> 54
Income Before Interest Expense, Income Taxes and Minority Interest
("Operating Income")
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Specialty............................................ $ 190 $ 175 9%
Other................................................ (46) (2) NM
----- -----
$ 144 $ 173 (17%)
===== =====
</TABLE>
Packaging's operating income in its specialty segment increased by $15
million over the comparable period of 1998. The second half 1998 acquisitions of
Sentinel and Champion International's Belvidere, Illinois dual-ovenable
paperboard tray manufacturing facility produced $4 million of operating income
during the first half of 1999. First half operating income also reflected $5
million of non-recurring Year 2000 and systems implementation costs, and $3
million of overhead costs related to the separation of the paperboard segment.
Adjusting for these two items, Specialty Packaging's operating income improved
by 13 percent. This improvement was driven by lower manufacturing costs and
strong unit volumes, partially offset by lags in passing through rising raw
material costs.
Packaging's "Other" operating loss for both periods reflects unallocated
corporate overhead and costs at Packaging's data center and administrative
services operations. In addition, the first half of 1999 includes a $29 million
charge recorded in the first quarter to realign Tenneco's headquarters functions
as discussed above in the " Restructuring and Other Charges" section.
Operating Income as a Percentage of Revenue
Operating income as a percentage of revenue for the first six months of
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998 % CHANGE
----- ----- ---------
<S> <C> <C> <C>
Specialty.............................................. 13.5% 12.9% 5%
Total.................................................. 10.3% 12.6% (18%)
</TABLE>
Specialty's operating income as a percentage of revenue increased as the
operating income of the segment grew at three times the rate of revenue growth.
On a consolidated basis, total operating income as a percentage of revenue
declined as the operating income decreased 17 percent while revenue grew 2
percent.
Excluding the first quarter 1999 restructuring charge, operating income as
a percentage of revenue was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998 % CHANGE
----- ----- ---------
<S> <C> <C> <C>
Specialty.............................................. 13.5% 12.9% 5%
Total.................................................. 12.3% 12.6% (2%)
</TABLE>
Interest Expense, net of interest capitalized
Interest expense for the first half of 1999 was even with the first half 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.
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<PAGE> 55
Income Taxes
Packaging's effective tax rate for the first half of 1999 was 31 percent,
compared to 35 percent in last year's period.
DISCONTINUED OPERATIONS AND EXTRAORDINARY CHARGE
Loss from discontinued operations in the first half of 1999 was $163
million, net of an income tax benefit of $102 million, or $.98 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 $37 million, net of income tax
expense of $25 million, or $.22 per diluted common share, during the first half
of 1998.
The current year's first six months 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 $3 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.
OUTLOOK
See "Summary -- Recent Developments" for information concerning Packaging's
expectations for third quarter 1999 results of operations.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 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 costs related to the start-up of 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
$4 million, net of $2 million in income tax expense, or $.02 per diluted common
share, for the six months ended June 30, 1999. If the new accounting method had
been applied retroactively, net income for the six months ended June 30, 1998,
and the years ended December 31, 1998, 1997, and 1996, would have been lower by
$7 million, net of a $5 million income tax benefit, or $.04 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 issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes new accounting and reporting
standards requiring that all derivative instruments, including derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or
45
<PAGE> 56
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.
EARNINGS PER SHARE
Packaging's income from continuing operations was $.31 per diluted common
share for the first half of 1999, compared to $.41 per diluted common share for
last year's first half. 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
period also included a loss from discontinued operations of $.98 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 half 1998 included $.22 per diluted
common share of income from discontinued operations. Net income per diluted
common share was $.63 in the first half of 1998, as compared to a loss of $.90
per diluted common share in this year's period.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, %
1999 1998 CHANGE
-------- ------------ ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities........... $ 367 $ 595
Long-term debt................................... 1,494 1,312
Debt allocated to discontinued operations........ -- 548
------ ------ ---
Total debt.................................. 1,861 2,455 (24%)
Minority interest................................ 14 14 --%
Combined equity.................................. 1,340 1,776 (25%)
------ ------
Total capitalization........................ $3,215 $4,245 (24%)
====== ======
</TABLE>
Packaging's debt to total capitalization ratio was 57.8 percent at both
June 30, 1999, and December 31, 1998. Debt allocated from Tenneco to Packaging
declined due to the contribution by Packaging of its containerboard assets to
the joint venture.
Equity declined primarily as a result of the net loss for the first six
months, 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.
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<PAGE> 57
Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ (45) $ 288
Investing activities...................................... (866) (221)
Financing activities...................................... 920 (66)
</TABLE>
Cash flow provided by continuing operating activities declined by $163
million for the first six months of 1999 compared to the same period in 1998,
primarily due to higher working capital levels. This was mainly attributable to
higher receivables, lower payables and a seasonal build in inventories during
the 1999 period.
Cash flow from Tenneco's discontinued paperboard operations declined by
$170 million in the first six months of 1999 compared to the 1998 period. This
is primarily attributable to the purchase of containerboard business accounts
receivable in contemplation of the contribution of the containerboard business
to the joint venture in April 1999. Additionally, lower linerboard and medium
prices resulted in lower operating cash flow for the containerboard business.
Excluding the effects of the discontinued paperboard operations, cash used
by investing activities was lower during the first six months of 1999 by $127
million compared to the first six months of 1998. Reduced capital spending,
lower systems related expenditures and lower acquisition activity contributed to
the decline.
As described above, Packaging borrowed approximately $1.8 billion in the
second quarter in connection with the formation of the containerboard joint
venture and used approximately $1.2 billion of that amount to purchase leased
assets and timber cutting rights of that business. The remaining proceeds of
these borrowings, plus additional cash proceeds of approximately $306 million
from the containerboard and folding carton transactions, were used to retire
Tenneco's short-term debt in the second quarter. Accordingly, absent the
borrowings described above, cash used by financing activities was $840 million
for the first six months of 1999.
Packaging contributed the containerboard business to the new joint venture
subject to the approximately $2.2 billion in new debt. The debt reduction which
resulted from this contribution is shown on the statements of cash flows as a
non-cash financing activity.
Capital Commitments
Packaging estimates that expenditures aggregating approximately $110
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 combined with
available borrowing capacity under the new credit facilities described below,
will generally be sufficient to meet its future capital requirements for the
following year.
As described under "The Spin-Off-Debt Realignment," Tenneco intends to
realign its debt before the spin-off. As part of this debt realignment,
Packaging will (1) issue the new securities in the exchange
47
<PAGE> 58
offers and (2) make new borrowings under new credit facilities entered into in
connection with the spin-off. Cash proceeds will be remitted to Tenneco to fund
the debt realignment. Funding under these financings will be subject to the
satisfaction of numerous conditions.
The terms of the new public debt securities will be substantially identical
to the terms of the corresponding series of Tenneco's original securities for
which they are exchanged, except that (1) Packaging will be the issuer and (2)
the interest rates will be different. The terms of the new securities will not
restrict Packaging's ability to make dividends or capital expenditures or incur
additional unsecured debt.
In addition, Packaging has entered into a five year $750 million long-term
revolving credit facility and a $250 million 364-day revolving credit facility
in connection with the spin-off. Initial borrowings under these facilities will
be used to fund a portion of the debt realignment. After the spin-off,
additional borrowings may be used for general corporate purposes. These
facilities do not include any general restrictions on Packaging's ability to pay
dividends or make capital expenditures. They do, however, include limitations on
incurring liens and subsidiary debt, disposing of all or substantially all of
its assets and discontinuing its primary businesses. These facilities require
Packaging to comply with specified financial ratios, as well as other customary
covenants and agreements. Borrowings under these facilities will bear interest
at a floating rate based on LIBOR, adjusted for reserve requirements, plus a
specified margin, or based on a specified prime or reference rate plus a
specified margin, at Packaging's option. Borrowings under these facilities also
may bear interest based on competitive bids.
A lender has committed to provide Packaging up to $1.5 billion of term loan
financing, which Packaging intends to use in the event it does not sell its
containerboard joint venture interest before the spin-off, for general corporate
and other purposes . Although the terms of this financing have not been
finalized, Packaging expects that borrowings under this facility would be due 18
months after funding and bear interest at a floating rate based on LIBOR,
adjusted for reserve requirements, plus a specified margin or based on a
specified prime or reference rate plus a specified margin, at Packaging's
option. Packaging expects this financing would include covenants similar to
those described above for the revolving credit facilities. See "Capitalization
and Financing -- Financing" for further information.
Before the spin-off Packaging expects to enter into a $175 million
syndicated lease facility with a third party lessor and various lenders, the
proceeds of which will be used to restructure or replace certain existing
operating leases and public warehouse arrangements and to facilitate additional
leasing arrangements for other operating facilities. Packaging expects that the
syndicated lease facility will contain customary terms and conditions, including
a residual value guarantee, default provisions and financial covenants.
ENVIRONMENTAL MATTERS
Packaging and a number of its subsidiaries and affiliates are parties to
environmental proceedings. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws and regulations
taking into consideration the likely effects of inflation and other societal and
economic factors. All available evidence is considered including prior
experience in remediation of contaminated sites, other companies' clean-up
experience and data released by the United States Environmental Protection
Agency or other organizations. These estimated liabilities are subject to
revision in future periods based on actual costs or new information. These
liabilities are included in the balance sheet at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when assured, are
recorded and reported separately from the associated liability in the combined
financial statements.
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<PAGE> 59
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
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's 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 June 30, 1999 and December
31, 1998 were not materially different.
Interest Rate Risk
Tenneco's financial instruments that are sensitive to market risk for
changes in interest rates are its debt securities. Tenneco primarily uses
commercial paper to finance its short-term capital requirements. Since
commercial paper generally matures in three months or less, Tenneco pays a
current market rate of interest on these borrowings. Tenneco finances its
long-term capital requirements with long-term debt 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
49
<PAGE> 60
interest rate changes on its long-term debt portfolio. Should Tenneco decide to
redeem its long-term debt securities prior to their stated maturities, it would
generally incur costs based on the fair value of the debt at that time.
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 below provides
information about Tenneco's financial instruments that are sensitive to interest
rate risk as of December 31, 1998.
<TABLE>
<CAPTION>
Estimated Maturity Dates Fair Value 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. Corporate debt
allocated to Packaging's discontinued operations was $548 million at
December 31, 1998.
Tenneco's financial instruments that are sensitive to interest rate risk as
of June 30, 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.
In connection with the spin-off, the above described instruments, which are
sensitive to interest rate risk, are expected to be refinanced.
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 field.
Consequently, these systems, hardware and equipment 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 have been and
are being
50
<PAGE> 61
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.
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 $17 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.
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 critical suppliers, have responded by
advising as to the status of their efforts and by stating that they expect to
become Year 2000 compliant in a timely manner. Based on these responses,
critical suppliers have been assigned a risk rating. This process is ongoing.
Packaging intends to continue corresponding with critical high risk third
parties to obtain information and updates on their Year 2000 efforts, and to
assess new suppliers, financial institutions and others with whom it begins to
conduct business.
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.
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.
51
<PAGE> 62
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 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 N.V. Koninklijke KNP BT in 1997 and from the
May 1998 acquisition of Richter Manufacturing. The KNP BT 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.
52
<PAGE> 63
Operating Income
The following table presents operating income by segment for the years 1998
and 1997:
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Specialty.............................................. $328 $308 6%
Other.................................................. (45) (2) NM
---- ----
$283 $306 (8%)
==== ====
</TABLE>
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
---- ---- ------
(MILLIONS)
<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.
Operating Income as a Percentage of Revenue
Operating income as a percentage of revenue for 1998 and 1997, including
the fourth quarter 1998 restructuring charge, were as follows:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Specialty.................................................. 11.8% 12.1% (2%)
Total...................................................... 10.1% 11.9% (15%)
</TABLE>
The Specialty segment's operating income as a percentage of revenue
contracted as the growth rate of operating income, including the restructuring
charge, was 6 percent compared with the 9 percent growth rate of revenues. On a
consolidated basis, total operating income as a percentage of revenue contracted
even further, as the operating income, including both the restructuring charge
and the increased costs in the other segment, decreased 8 percent while revenue
grew 9 percent.
Excluding the fourth quarter 1998 restructuring charge, operating income as
a percentage of revenue for the same periods were as follows:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Specialty.................................................. 12.4% 12.1% 2%
Total...................................................... 11.3% 11.9% (5%)
</TABLE>
53
<PAGE> 64
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.
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
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 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.
54
<PAGE> 65
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities................ $ 595 $ 158
Long-term debt........................................ 1,312 1,492
Debt allocated to discontinued operations............. 548 473
------ ------
Total debt..................................... 2,455 2,123 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 some 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 $82 million less
debt during 1998. During 1998, Packaging remitted $56 million to Tenneco. During
1997, Tenneco contributed $331 million to Packaging.
55
<PAGE> 66
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.
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
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 operation,
which began operation in late 1996.
Operating Income as a Percentage of Revenue
Operating income as a percentage of revenue for 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Specialty............................................... 12.1% 12.5% (3%)
Total................................................... 11.9% 11.8% 1%
</TABLE>
Specialty segment's operating income as a percentage of revenue contracted
from 1996 to 1997 as the growth rate of operating income was 24 percent compared
with the 28 percent growth rate of revenues. On a consolidated basis, total
operating income as a percentage of revenue expanded slightly, as the operating
income grew 31 percent while revenue grew 29 percent.
56
<PAGE> 67
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.
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
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.
57
<PAGE> 68
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities................ $ 158 $ 123
Long-term debt........................................ 1,492 1,073
Debt allocated to discontinued operations............. 473 394
------ ------
Total debt.................................. 2,123 1,590 34%
Minority interest..................................... 15 -- NM
Combined equity....................................... 1,839 1,843 --
------ ------
Total capitalization........................ $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 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.
58
<PAGE> 69
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.
59
<PAGE> 70
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;
- 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; and
- 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.
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
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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 as well as
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 distribution sector. We intend to use these
relationships to quickly identify and capture new growth
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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 with respect to four
of our five main product categories based on unit volume. Management estimates
that 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. In the
United States 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 Propyflex(R)medical bags for
fluids. Propyflex(R), a non-polyvinyl chloride barrier film, satisfies
the requirements for flexibility and transparency even after
sterilization and provides a cost-effective packaging by eliminating the
need for secondary wrap.
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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 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 unit 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. Management estimates that 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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- 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, Sentinel Polyolefin LLC, with Sentinel 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 six months ended June 30, 1999, information relating to our sales from
continuing operations:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
-------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
JUNE 30, 1999 1998 1997 1996
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Disposable plastic, fiber, and aluminum packaging
products.............................................. $1,038 $2,126 $2,105 $1,862
Plastic and fiber protective/flexible packaging
products.............................................. 311 607 399 78
Other................................................... 55 52 49 47
------ ------ ------ ------
Total.............................................. $1,404 $2,785 $2,553 $1,987
====== ====== ====== ======
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
JUNE 30, 1999 1998 1997 1996
------------- ---- ---- ----
<S> <C> <C> <C> <C>
TOTAL SALES
Disposable plastic, fiber, and aluminum packaging
products.............................................. 74% 76% 83% 94%
Plastic and fiber protective/flexible packaging
products.............................................. 22 22 15 4
Other................................................... 4 2 2 2
--- --- --- ---
Total.............................................. 100% 100% 100% 100%
=== === === ===
SALES BY GEOGRAPHIC AREA(a)
United States........................................... 78% 80% 83% 89%
European Union.......................................... 18 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 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. 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
foreign countries where Packaging does business, 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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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 REGULATION
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.
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
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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 those
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LEGAL PROCEEDINGS
See "-- Management's Discussion and Analysis of Financial Condition and
Results of Operations" for information about Packaging's potential environmental
liability.
In May 1999, Tenneco Inc., Tenneco Packaging Inc. and a number of
containerboard manufacturers were named as defendants in a civil class action
antitrust lawsuit pending in the United States District Court for the Eastern
District of Pennsylvania (the Winoff case). Tenneco Packaging Inc. also was
named as a defendant in a related class action antitrust lawsuit (the General
Refractories case). In re Linerboard Antitrust Litigation; Winoff v. Stone
Container Corp., et al; General Refractories v. Stone Container Corp., et al.
(MDL No. 1261; E. D. Penn.). The lawsuits allege that the defendants conspired
to raise linerboard prices for corrugated containers and corrugated sheets,
respectively, from October 1, 1993 through November 30, 1995, in violation of
Section 1 of the Sherman Act. The lawsuits seek treble damages in an unspecified
amount, plus attorney fees. Tenneco and Packaging believe that the allegations
have no merit, are vigorously defending the claims, and believe the outcome of
this litigation will not have a material adverse effect on Tenneco's or
Packaging's financial position or results of operations. Under and in accordance
with the distribution agreement, as between Tenneco and Packaging, Packaging is
responsible for defending the claims and for any liability resulting from these
actions.
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 to a new joint venture, in which it now owns a 43 percent common equity
interest. For a description of the contribution and Packaging's plans to sell
its remaining joint venture interest in a registered public offering, 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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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 73 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. In August 1999, he became the President and Chief Operating Officer
of UNOVA, Inc., an industrial technologies company. 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 53 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 November 1998, Mr. Stecko served as Chief
Operating Officer of Tenneco. From December 1993 through January 1997, Mr.
Stecko served as 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
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units. Prior to joining Packaging in 1994, Mr. Wambold was Executive Vice
President of Case Corporation's construction equipment and worldwide parts
business.
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 J. Griswold............... 47 Senior Vice President -- Protective and Flexible
Packaging
James V. Faulkner, Jr. ........ 55 Vice President and General Counsel
James D. Morris................ 45 Vice President and GM Operations
Peter Lazaredes................ 48 Vice President -- Supermarket and Foodservice
Packaging
Andrew A. Campbell............. 53 Vice President and Chief Financial Officer
</TABLE>
RICHARD L. WAMBOLD -- See "-- Board of 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.
ANDREW A. CAMPBELL, -- Mr. Campbell will be Vice President and Chief
Financial Officer upon the spin-off. Since May 1999 he has served as Acting
Chief Financial Officer and Financial Consultant of Foamex International Inc.
Prior to that, he served as Executive Vice President, Finance and Administration
and Chief Financial Officer of Dominick's Supermarkets Inc. from July 1998 to
November 1998. Prior to that, Mr. Campbell had been Senior Vice President,
Finance and Chief Financial Officer for Safety Kleen Corporation from April 1997
to June 1998. Prior to that, Mr. Campbell was President of
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<PAGE> 80
Duplex Products, Inc. from 1995 to May 1996 and Vice President, Finance and
Chief Financial Officer of that company from November 1994 to 1995.
STOCK OWNERSHIP OF MANAGEMENT
The following table shows, as of June 30, 1999, the number of shares of
Tenneco common stock beneficially owned by: (1) each person who will be a
director of Packaging upon the spin-off; (2) each person who is named in the
Summary Compensation Table below; and (3) all persons who will be directors or
executive officers of Packaging upon the spin-off, as a group. The table also
shows: (a) Tenneco common stock equivalents held by these directors and
executive officers under benefit plans; and (b) the total number of shares of
Tenneco common stock and common stock equivalents held. Upon the spin-off,
holders of Tenneco common stock will receive one share of Packaging common stock
for each share of Tenneco common stock held.
<TABLE>
<CAPTION>
SHARES OF TENNECO TOTAL TENNECO
TENNECO COMMON STOCK COMMON STOCK SHARES AND
DIRECTORS OWNED(1)(2)(3) EQUIVALENTS(4) EQUIVALENTS
- --------- -------------------- -------------- -------------
<S> <C> <C> <C>
Mark Andrews......................... 14,155 1,600 15,755
Larry D. Brady....................... 2,000 3,381 5,381
Dana G. Mead......................... 765,821 44,737 810,558
Roger B. Porter...................... 2,000 3,420 5,420
Paul T. Stecko....................... 314,362 -- 314,362
Richard L. Wambold................... 90,872 -- 90,872
EXECUTIVE OFFICERS
Paul J. Griswold..................... 34,574 -- 34,574
James V. Faulkner, Jr................ 22,086 -- 22,086
James D. Morris...................... 27,827 -- 27,827
Peter J. Lazaredes................... 17,147 -- 17,147
All executive officers and directors
as a group......................... 1,290,844(5) 53,138 1,343,982(5)
</TABLE>
- ---------------
(1) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
described in note (2) below) as set forth in this column, except for: (a)
restricted shares; and (b) shares that executive officers and directors have
the right to acquire pursuant to stock options. Generally, Tenneco
restricted shares will be vested prior to the spin-off. In connection with
the spin-off the Tenneco stock options held by the executive officers listed
above will be replaced with Packaging stock options which have equivalent
economic terms. Tenneco stock options held by directors will be replaced in
the same manner, except that one-half of the options held by Messrs. Mead,
Andrews and Porter will continue as Tenneco options, adjusted to maintain
equivalent economic terms upon the spin-off, and options held by Mr. Stecko
will terminate unless exercised prior to the spin-off.
(2) Includes restricted shares. At June 30, 1999, Messrs. Andrews, Mead,
Wambold, Griswold, Morris and Lazaredes held 6,547; 66,025; 15,000; 10,000;
5,000; and 5,000 restricted shares, respectively. Also includes shares that
are subject to options which are exercisable within 60 days of June 30, 1999
for Messrs. Andrews, Brady, Mead, Porter, Stecko, Wambold, Griswold,
Faulkner, Morris and Lazaredes to purchase 2,000; 2,000; 616,176; 2,000;
288,814; 49,077; 19,357; 19,312; 14,993; and 8,603 shares, respectively.
(3) Less than one percent of the outstanding shares of Tenneco common stock.
(4) Common stock equivalents are distributed in shares of Tenneco common stock
or, in some circumstances cash after the individual ceases to serve as a
director or officer. Common stock equivalents held by directors who are not
employees of Tenneco will be vested and distributed prior to the spin-off.
Mr. Mead's stock equivalent units are credited to his account under the
Tenneco Inc. Deferred Compensation Plan and are, therefore, already vested.
(5) Includes 1,022,332 shares that are subject to options that are exercisable
within 60 days of June 30, 1999, by all executive officers and directors as
a group, and includes 107,572 restricted shares for all executive officers
and directors as a group.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board will establish three standing committees as permitted by our
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: (1) recommend the selection of our
independent public accountants; (2) review and approve
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<PAGE> 81
the scope of the independent public accountants' audit activity and extent of
non-audit services; (3) 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; (4) review with management and the
independent public accountants our certified financial statements and exercise
general oversight of our financial reporting process; and (5) 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: (1)
establish the salary rate of officers and employees of Packaging and its
subsidiaries; (2) examine periodically our compensation structure; and (3)
supervise our welfare and pension plans and compensation plans. It will also
have significant corporate governance responsibilities, among other things, to:
(a) review and determine the desirable balance of experience, qualifications and
expertise among members of the our Board; (b) review possible candidates for
membership on our Board and recommend a slate of nominees for election as
directors at our annual shareowners' meeting; (c) review the function and
composition of the other committees of our Board and recommend membership on
these committees; and (d) 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, for 1998, to: (1) the
person who will become our Chief Executive Officer upon the spin-off; and (2)
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 our Chief Executive Officer. The table shows the amounts paid to
these persons for all services provided to Tenneco and its subsidiaries,
including Packaging. Mr. Campbell had no compensation from Tenneco and its
subsidiaries prior to 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
-------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) AWARDS(3) OPTIONS(4) COMPENSATION(5)
--------------------------- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Wambold......................... $355,472 $220,000 $152,685 $187,800 45,000 $11,643
Chief Executive Officer
Paul J. Griswold........................... $275,500 $125,000 $ 31,165 $187,800 20,000 $ 9,812
Senior Vice President --
Protective and Flexible Packaging
James V. Faulkner, Jr. .................... $266,568 $ 82,000 $ 25,760 -- 10,000 $17,674
Vice President and
General Counsel
James D. Morris............................ $206,004 $115,000 $ 29,405 $187,800 20,000 $14,139
Vice President and
GM Operations
Peter J. Lazaredes......................... $182,773 $ 73,000 $ 30,730 $177,800 20,000 $12,704
Vice President --
Supermarket and
Protective Packaging
</TABLE>
- ---------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Tenneco Thrift Plan.
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(2) Includes amounts attributable to: (a) the value of personal benefits
provided by Tenneco to executive officers, such as the personal use of
Tenneco-owned property and relocation expenses; (b) reimbursement for taxes;
and (c) amounts paid as dividend equivalents on performance share equivalent
units ("Dividend Equivalents"). The amount of each personal benefit that
exceeds 25% of the estimated value of the total personal benefits provided
by Tenneco, reimbursement for taxes, and amounts paid as Dividend
Equivalents to the individuals named in the table for 1998 was as follows:
$58,908 for relocation expenses, $47,171 for reimbursement of taxes, $15,600
in Dividend Equivalents and $30,000 perquisite allowance for Mr. Wambold;
$342 for reimbursement of taxes, $10,320 in Dividend Equivalents and $20,000
perquisite allowance for Mr. Griswold; $5,760 in Dividend Equivalents and
$20,000 perquisite allowance for Mr. Faulkner; $6,600 in Dividend
Equivalents and $20,000 perquisite allowance for Mr. Morris, and $17,530 in
relocation expenses, $1,200 in Dividend Equivalents and $12,000 perquisite
allowance for Mr. Lazaredes.
(3) Includes the dollar value of grants of restricted shares based on the price
of Tenneco common stock on the date of grant. At December 31, 1998, Messrs.
Wambold, Griswold, Faulkner, Morris and Lazaredes held 28,000 18,600 4,800
10,500 and 6,000 restricted shares and/or performance share equivalent
units, respectively. The value at December 31, 1998, based on a per share/
equivalent unit price of $34.063 on that date, of all restricted
shares/performance units held was $953,764 for Mr. Wambold, $633,572 for Mr.
Griswold, $163,502 for Mr. Faulkner, $357,662 for Mr. Morris and $204,378
for Mr. Lazaredes. Generally, restricted shares and performance share
equivalent units will be vested prior to the spin-off. Dividends/Dividend
Equivalents will be paid on the restricted shares/performance share
equivalent units held by each individual.
(4) In connection with the spin-off, the Tenneco stock options held by the
persons listed above will be replaced with options to purchase Packaging
common stock, the number and exercise price of which will be adjusted so
that the new Packaging options have equivalent economic terms as the old
Tenneco options.
(5) Includes amounts attributable during 1998 to benefit plans of Tenneco as
follows:
(a) The amounts contributed pursuant to Tenneco's Thrift Plan for the
accounts of Messrs. Wambold, Griswold, Faulkner, Morris and Lazaredes
were $10,000; $6,650; $8,000; $10,000 and $10,000, respectively.
(b) The dollar values paid by Tenneco for insurance premiums under the
Tenneco group life insurance plan (including dependent life) for Messrs.
Wambold, Griswold, Faulkner, Morris and Lazaredes were $1,643; $3,162;
$9,674; $4,139 and $2,704, respectively.
Packaging anticipates that, at the time of the spin-off, the annual salary
of Messrs. Wambold, Griswold and Morris will be increased to $600,000, $325,000
and $325,000, respectively, and that bonus targets after the spin-off will be
adjusted and may result in higher bonuses for some or all of the persons named
in the Summary Compensation Table.
Packaging also anticipates making a grant of stock options immediately
following the spin-off. This grant is intended to represent a three-year award.
Messrs. Wambold, Griswold, Faulkner, Morris and Lazaredes are expected to
receive options to purchase 750,000, 300,000, 200,000, 200,000 and 200,000
shares of Packaging common stock, respectively.
Packaging anticipates that in 2000, Messrs. Wambold, Griswold, Faulkner,
Morris and Lazaredes will be granted 30,000, 15,000, 10,000, 10,000, and 10,000
performance share equivalent units, respectively.
OPTIONS GRANTED IN 1998
The following table shows the number of options to purchase Tenneco common
stock that were granted by Tenneco during 1998 to the persons named in the
Summary Compensation Table above.
<TABLE>
<CAPTION>
SHARES OF
COMMON PERCENT OF
STOCK TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO TENNECO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN 1998 (%) PRICE($)(2) DATE PRESENT VALUE(3)
- ---- ------------- -------------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Mr. Wambold................ 45,000 2.6% $36.63 2008 $463,050
Mr. Griswold............... 20,000 1.1% $36.63 2008 $205,800
Mr. Faulkner............... 10,000 .5% $36.63 2008 $102,900
Mr. Morris................. 20,000 1.1% $36.63 2008 $205,800
Mr. Lazaredes.............. 10,000 .5% $36.63 2008 $102,900
10,000 .5% $37.31 2018 $104,500
</TABLE>
- ---------------
(1) In connection with the spin-off, the Tenneco stock options held by the
persons listed above will be replaced with options to purchase Packaging
common stock, the number and exercise price of which will be adjusted so
that the new Packaging options have equivalent economic terms to the old
Tenneco options.
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<PAGE> 83
(2) All options were granted with exercise prices equal to 100% of the fair
market value of a share of Tenneco common stock on the date of grant.
(3) The Black-Scholes valuation was performed using the following assumptions:
25.6% volatility, 5.7% risk free interest rate, 3.2% expected dividend rate
and 10 year option life. Mr. Lazaredes' option grant that expires in 2018 is
valued assuming that such options are exercised by the 10th year.
OPTIONS AT 1998 YEAR-END
The following table shows the number of options to purchase Tenneco common
stock held as of December 31, 1998 by the persons named in the Summary
Compensation Table above. No Tenneco options were exercised in 1998, and there
were no in-the-money options as of December 31, 1998.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
UNEXERCISED OPTIONS HELD
AT DECEMBER 31, 1998(1)
-------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
Mr. Wambold................................................. 29,820 107,023
Mr. Griswold................................................ 10,949 58,109
Mr. Faulkner................................................ 14,043 31,501
Mr. Morris.................................................. 6,662 48,330
Mr. Lazaredes............................................... 5,269 19,634
</TABLE>
- ---------------
(1) In connection with the spin-off, the Tenneco stock options held by the
persons listed above will be replaced with options to purchase Packaging
common stock, the number and exercise price of which will be adjusted so
that the new Packaging options have equivalent economic terms to the old
Tenneco options.
LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN 1998
The following table shows information concerning performance-based awards
made to the persons named in the Summary Compensation Table above, during 1998
by Tenneco.
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS
SHARES, UNITS PERIOD UNTIL UNDER NON-STOCK PRICE BASED PLANS(1)
OR OTHER MATURATION OR ---------------------------------------
NAME RIGHTS(1)(2) PAYOUT(3) THRESHOLD(4) TARGET(4) MAXIMUM(4)
- ---- ------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Wambold.................. 6,500 4 years 25% 100% 150%
Mr. Griswold................. 5,000 4 years 25% 100% 150%
Mr. Faulkner................. 2,400 4 years 25% 100% 150%
Mr. Morris................... 3,000 4 years 25% 100% 150%
Mr. Lazaredes................ 1,000 4 years 25% 100% 150%
</TABLE>
- ---------------
(1) Estimated future payouts are based on earnings per share ("EPS") from
continuing operations; however, generally, performance share equivalent
units will be deemed to be earned at the target level and vested prior to
the spin-off.
(2) Each performance share equivalent unit represents one share of Tenneco's
common stock that may be earned and the number of performance share
equivalent units listed in this column represents the maximum number of
performance share equivalent units that may be earned under this award.
(3) Performance share equivalent units are earned at the rate of 25% per year
based on achievement of annual EPS goals; however, generally performance
share equivalent units will be deemed to be earned at the target level and
vested prior to the spin-off.
(4) Represents maximum performance share equivalent units earned where the goals
were consistently within the indicated performance range on an individual
year and accumulated four-year basis; however, generally performance share
equivalent units will be deemed to be earned at the target level and vested
prior to the spin-off.
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<PAGE> 84
PENSION PLAN TABLE
The following table shows the aggregate estimated annual benefits payable
upon normal retirement pursuant to the Tenneco Retirement Plan and the Tenneco
Inc. Supplemental Executive Retirement Plan to persons in specified remuneration
and years of credited participation classifications. The Tenneco Retirement Plan
will be assumed by Packaging in connection with the spin-off, and Packaging will
adopt a supplemental executive retirement plan that is substantially identical
to Tenneco's current plan.
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
ANNUAL -------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
- ------------ ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000............. $19,642 $ 39,285 $ 58,928 $ 78,571 $ 98,214 $117,857 $137,500
300,000............. 23,571 47,142 70,714 94,285 117,857 141,428 165,000
350,000............. 27,500 55,000 82,500 110,000 137,500 165,000 192,500
400,000............. 31,428 62,857 94,285 125,714 157,142 188,571 220,000
450,000............. 35,357 70,714 106,071 141,428 176,785 212,142 247,500
500,000............. 39,285 78,571 117,857 157,142 196,428 235,714 275,000
550,000............. 43,214 86,428 129,642 172,857 216,071 259,285 302,500
600,000............. 47,142 94,285 141,428 188,571 235,714 282,857 330,000
650,000............. 51,071 102,142 153,214 204,285 255,357 306,428 357,500
700,000............. 55,000 110,000 165,000 220,000 275,000 330,000 385,000
</TABLE>
- ---------------
(1) The benefits shown above are computed as a straight life annuity and are
based on years of credited participation and the employee's average
compensation (salary and bonus). These benefits are not subject to any
deduction for Social Security or other offset amounts. The years of credited
participation for Messrs. Wambold, Griswold, Faulkner, Morris and Lazaredes
are 21, 4, 5, 24 and 18, respectively. See the Summary Compensation Table
above for salary and bonus information for these individuals.
(2) If Mr. Wambold completes five years of service in the period commencing
January 1, 1997, he will be entitled to benefits commencing at age 55
determined by multiplying his average salary plus bonus, determined over a
three-year period, by 25% plus 2.5% for each year of service in the period
commencing January 1, 1997, up to a maximum of 50%. Mr. Faulkner is entitled
to special early retirement benefits and, if he remains with Packaging
through December 31, 2002, his benefit will be determined by adding three
years of participation and age to his actual participation and age.
Compensation of Directors
Fee Structure. 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% or $14,000, of the fee paid in cash. These
outside directors 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 one who serves as a Chairman of the
Audit Committee or the Compensation/ Nominating/Governance Committee will be
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.
Common Stock Equivalents/Options. As described above, all or a portion of
an outside director's retainer fee will be paid in common stock equivalent
units. These 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 these 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 as additional incentive compensation. 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.
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<PAGE> 85
We expect that restricted shares of Tenneco common stock and director's
stock equivalents held by outside directors will be vested prior to the
completion of the spin-off, and these directors will be paid an amount in cash
to defray taxes incurred on that vesting.
Deferred Compensation Plan. 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 some or all of the
cash portion, that is up to 40% or $14,000, of his or her retainer fee and some
or all of his or her meeting fees credited to a deferred compensation account.
The plan will provide these directors with various investment options. The
investment options will include stock equivalent units of our common stock,
which may be paid out in either cash or shares of our common stock.
Termination of Employment and Change-in-Control Arrangements
We will maintain a key executive change-in-control severance benefit plan
similar to the existing Tenneco plan and incorporating some provisions of the
Tenneco benefits protection trust. 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 the provision of
severance benefits for key employees and officers whose positions are terminated
following a change-in-control, as provided in the plan. Under the plan, we
expect that Messrs. Wambold, Griswold, Faulkner, Morris and Lazaredes would have
become entitled to receive payments from us in the amount of $2,040,000,
$1,305,000, $1,146,999, $1,115,001 and $999,000, respectively, had their
positions been terminated on August 31, 1999 following a change-in-control based
on their current 1999 salaries of $450,000, $300,000, $285,000, $260,000 and
$260,000, respectively. 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
Tenneco or Packaging change-in-control severance benefit plans. The Tenneco
benefits protection trust will be terminated prior to the spin-off.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the spin-off, Messrs. Wambold and Griswold will be granted Packaging
restricted stock with a value on the grant date equal to the pre-spin-off value
of 25,000 and 15,000 shares of Tenneco common stock, respectively. One-third of
such restricted stock will vest each year following the spin-off, assuming that
the grantee remains employed through that date.
In connection with the spin-off, Mr. Mead will resign as Chief Executive
Officer of Tenneco, and he is expected to enter into a revised agreement. Under
that agreement, it is expected that: (1) Mr. Mead will be paid an amount
equivalent to three times the total of his annual salary plus bonus; (2) if
certain performance goals are met, he will be entitled to an adjusted target
bonus for 1999 prorated through the date of his separation; (3) his stock
options will be made exercisable, one-half will be replaced by Packaging options
and one-half will continue as Automotive options (the number and exercise price
of such options being determined under the generally applicable rules to be
applied in connection with the spin-off and which maintain the economic
equivalent of the currently outstanding options); (4) for purposes of Tenneco's
Supplemental Executive Retirement Plan, he will be treated as though he had
remained employed until age 65; and (5) he will be granted options to purchase
up to 50,000 shares of Packaging common stock and options to purchase up to
50,000 shares of Automotive common stock at the time of the spin-off. Mr. Mead's
agreement is with an entity which will be a subsidiary of Packaging after the
spin-off and the expense associated therewith is included in the spin-off
expenses and is part of the debt realignment.
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<PAGE> 86
During 1999, Mr. Mead was indebted to an affiliate of Tenneco in connection
with a relocation loan of approximately $400,000. In September 1999, that
obligation was canceled.
Benefit Plans Following the Spin-off
We will succeed to sponsorship of the Tenneco Retirement Plan and the
Tenneco Thrift Plan. The plans are qualified under Section 401(a) of the Code.
The Tenneco Retirement Plan is a defined benefit pension plan. The Tenneco
Thrift Plan is comprised of 401(k) plans with 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 two non-qualified deferred
compensation plans as to our employees or directors: (1) the 1997 Tenneco Inc.
Board of Directors Deferred Compensation Plan; and (2) the Tenneco Inc. Deferred
Compensation Plan. Packaging will succeed to liabilities for benefits under the
Tenneco Inc. Supplemental Executive Retirement Plan as to all participants other
than those who are employees or former employers of Automotive. The 1997 Tenneco
Inc. Board of Directors Deferred Compensation Plan and the Tenneco Inc. Deferred
Compensation Plan will be merged as of the spin-off. All of these plans are
unfunded; however, we will establish one or more rabbi trusts, from which assets
may be available to pay benefits in specified circumstances.
We will adopt an executive incentive compensation plan similar to Tenneco's
plan to provide annual cash bonuses to eligible employees.
We may adopt an employee stock purchase plan similar to the one maintained
by Tenneco, under which approximately 4,000,000 shares of our common stock would
be available for purchase. Tenneco will approve the adoption of such a plan as
our sole shareowner 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 24,000,000 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.
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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") 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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<PAGE> 88
PRINCIPAL 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>
SHARES OF COMMON PERCENT OF EXPECTED
NAME AND ADDRESS STOCK EXPECTED OUTSTANDING PACKAGING
OF BENEFICIAL OWNER(1) TO BE OWNED(1) COMMON STOCK(1)
- ---------------------------------------------------------- ---------------- ---------------------
<S> <C> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc.................. 20,761,040(2) 12.18%(2)
One McKinney Plaza
3232 McKinney Avenue
15th Floor
Dallas, Texas 75204-2429
Morgan Stanley Dean Witter & Co. ......................... 10,662,171(3) 6.26%(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 4,533,840 shares of Tenneco common stock, shared voting
power over 16,227,200 shares of Tenneco common stock, and sole dispositive
power over 20,761,040 shares of Tenneco common stock. Barrow, Hanley also
advised Tenneco that it is a registered investment advisor and these shares
are held on behalf of various clients.
(3) Morgan Stanley Dean Witter & Co. has indicated that it has sole voting power
over 10,504,928 shares of Tenneco common stock.
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<PAGE> 89
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 Stockholder 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 Stockholder, 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.
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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 and that 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 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
- 1000 times the payment made per share of Packaging common stock.
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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.
86
<PAGE> 97
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.
87
<PAGE> 98
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. You may inspect and copy the reports, proxy statements and other
information filed by Tenneco and to be filed by Automotive and Packaging with
the SEC 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. You may obtain copies of
such information by mail at prescribed rates from the Public Reference Section
of the SEC at 450 Fifth Street, N.W. Street, N.W., Washington, D.C. 20549 or
accessed electronically on the SEC'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 SEC 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. THIS INFORMATION
STATEMENT SUMMARIZES THE PROVISIONS OF THE CONTRACTS, AGREEMENTS OR OTHER
DOCUMENTS THAT IT REFERS YOU TO. FOR MORE INFORMATION AS TO THESE MATTERS, YOU
SHOULD READ THE APPLICABLE EXHIBIT OR SCHEDULE TO THE REGISTRATION STATEMENT.
YOU MAY INSPECT THE REGISTRATION STATEMENT AND THE RELATED EXHIBITS FILED BY
PACKAGING WITH THE SEC AT THE PUBLIC REFERENCE FACILITIES OF THE SEC 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.
88
<PAGE> 99
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 six months
ended June 30, 1999 (unaudited) and 1998 (unaudited)...... F-3
Combined balance sheets -- December 31, 1998 and 1997, and
June 30, 1999 (unaudited)................................. F-4
Combined statements of cash flows for each of the three
years in the period ended December 31, 1998, and the six
months ended June 30, 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 six
months ended June 30, 1999 (unaudited).................... F-6
Statements of comprehensive income for each of the three
years in the period ended December 31, 1998, and the six
months ended June 30, 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> 100
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> 101
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF INCOME
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
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 $1,404 $1,361
Other..................................... 6 10 -- -- 10
------ ------ ------ ------ ------
2,791 2,563 1,987 1,404 1,371
Gain (loss) on sale of businesses and assets,
net....................................... (9) -- 15 (21) (1)
Other income, net............................ 6 6 34 3 9
------ ------ ------ ------ ------
2,788 2,569 2,036 1,386 1,379
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below).............................. 1,870 1,796 1,417 924 931
Engineering, research, and development....... 33 34 22 18 13
Selling, general, and administrative......... 427 270 232 206 174
Depreciation and amortization................ 175 163 131 94 88
------ ------ ------ ------ ------
2,505 2,263 1,802 1,242 1,206
------ ------ ------ ------ ------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES,
AND MINORITY INTEREST........................ 283 306 234 144 173
Interest expense (net of interest
capitalized)............................ 133 124 102 68 67
Income tax expense........................ 67 75 67 24 37
Minority interest......................... 1 1 -- -- --
------ ------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS.............. 82 106 65 52 69
Income (loss) from discontinued operations, net
of income tax................................ 57 21 71 (163) 37
------ ------ ------ ------ ------
Income (loss) before extraordinary loss........ 139 127 136 (111) 106
Extraordinary loss, net of income tax.......... -- -- (2) (7) --
------ ------ ------ ------ ------
Income (loss) before cumulative effect of
change in accounting principle............... 139 127 134 (118) 106
Cumulative effect of change in accounting
principle, net of income tax................. -- (38) -- (32) --
------ ------ ------ ------ ------
NET INCOME (LOSS).............................. $ 139 $ 89 $ 134 $ (150) $ 106
====== ====== ====== ====== ======
EARNINGS (LOSS) PER SHARE
Basic earnings per share of common stock --
Continuing operations........................ $ .49 $ .63 $ .38 $ .31 $ .41
Discontinued operations...................... .34 .12 .42 (.98) .22
Extraordinary loss........................... -- -- (.01) (.04) --
Cumulative effect of change in accounting
principle................................. -- (.23) -- (.19) --
------ ------ ------ ------ ------
$ .83 $ .52 $ .79 $ (.90) $ .63
====== ====== ====== ====== ======
Diluted earnings per share of common stock --
Continuing operations........................ $ .49 $ .63 $ .38 $ .31 $ .41
Discontinued operations...................... .34 .12 .42 (.98) .22
Extraordinary loss........................... -- -- (.01) (.04) --
Cumulative effect of change in accounting
principle................................. -- (.23) -- (.19) --
------ ------ ------ ------ ------
$ .83 $ .52 $ .79 $ (.90) $ .63
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined statements of income.
F-3
<PAGE> 102
THE BUSINESSES OF TENNECO PACKAGING
COMBINED BALANCE SHEETS
(MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1998 1997 1999
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 7 $ 11 $ 18
Receivables --
Customer notes and accounts, net....................... 336 301 320
Affiliated companies................................... 44 74 20
Income taxes........................................... 15 36 7
Other.................................................. 52 10 28
Inventories............................................... 412 404 447
Deferred income taxes..................................... 6 41 46
Prepayments and other..................................... 45 47 26
------ ------ ------
917 924 912
------ ------ ------
Other assets:
Long-term notes receivable, net........................... 22 21 16
Goodwill and intangibles, net............................. 1,052 1,009 1,028
Pension assets............................................ 742 654 795
Other..................................................... 143 129 107
------ ------ ------
1,959 1,813 1,946
------ ------ ------
Plant, property, and equipment, at cost..................... 2,057 1,856 2,025
Less -- Reserves for depreciation and amortization........ 501 398 530
------ ------ ------
1,556 1,458 1,495
------ ------ ------
Net assets of discontinued operations....................... 366 423 133
------ ------ ------
$4,798 $4,618 $4,486
====== ====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $ 595 $ 158 $ 367
Payables --
Trade.................................................. 255 252 257
Affiliated companies................................... 6 6 100
Taxes accrued............................................. 13 12 14
Accrued liabilities....................................... 188 192 215
Other..................................................... 85 124 107
------ ------ ------
1,142 744 1,060
------ ------ ------
Long-term debt.............................................. 1,312 1,492 1,494
------ ------ ------
Deferred income taxes....................................... 291 270 380
------ ------ ------
Postretirement benefits..................................... 163 114 149
------ ------ ------
Deferred credits and other liabilities...................... 100 144 49
------ ------ ------
Commitments and contingencies
Minority interest........................................... 14 15 14
------ ------ ------
Combined equity............................................. 1,776 1,839 1,340
------ ------ ------
$4,798 $4,618 $4,486
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined balance sheets.
F-4
<PAGE> 103
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF CASH FLOWS
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 82 $ 106 $ 65 $ 52 $ 69
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations --
Depreciation and amortization........................... 175 163 131 94 88
Deferred income taxes................................... 77 118 4 89 27
(Gain) loss on sale of businesses and assets, net....... 9 -- (15) 21 1
Allocated interest, net of tax.......................... 85 78 63 44 44
Changes in components of working capital --
(Increase) decrease in receivables................... 28 (1) (59) (103) 37
(Increase) decrease in inventories................... 8 (12) (5) (45) (5)
(Increase) decrease in prepayments and other current
assets............................................. (1) (30) 8 1 (5)
Increase (decrease) in payables...................... (13) (44) 13 (44) (21)
Increase (decrease) in taxes accrued................. (23) (36) 40 1 (6)
Increase (decrease) in interest accrued.............. -- (1) (1) (1) --
Increase (decrease) in other current liabilities..... 35 (5) (8) (2) 9
Other................................................... (90) (38) 30 (90) (58)
----- ----- ----- ------- -----
Cash provided (used) by continuing operations............... 372 298 266 17 180
Cash provided (used) by discontinued operations............. 205 107 (3) (62) 108
----- ----- ----- ------- -----
Net cash provided (used) by operating activities............ 577 405 263 (45) 288
----- ----- ----- ------- -----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- 10 123 306 --
Net proceeds from sale of businesses and assets............. 22 14 23 28 12
Expenditures for plant, property, and equipment............. (194) (229) (216) (75) (101)
Acquisitions of businesses and assets....................... (101) (285) (323) (2) (58)
Expenditures for plant, property, and equipment and business
acquisitions -- discontinued operations................... (203) (108) (169) (1,129) (51)
Investments and other....................................... (38) (56) (107) 6 (23)
----- ----- ----- ------- -----
Net cash provided (used) by investing activities............ (514) (654) (669) (866) (221)
----- ----- ----- ------- -----
FINANCING ACTIVITIES
Issuance of long-term debt.................................. 3 4 -- 1,760 2
Retirement of long-term debt................................ (18) (18) (7) (29) (14)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 4 (78) (16) (1) 5
Cash contributions from (distributions to) Tenneco.......... (56) 331 422 (810) (59)
----- ----- ----- ------- -----
Net cash provided (used) by financing activities............ (67) 239 399 920 (66)
----- ----- ----- ------- -----
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) 11 1
Cash and temporary cash investments, beginning of period.... 11 22 30 7 11
----- ----- ----- ------- -----
Cash and temporary cash investments, end of
period.................................................... $ 7 $ 11 $ 22 $ 18 $ 12
===== ===== ===== ======= =====
Cash paid during the period for interest.................... $ 6 $ 9 $ 8 $ 2 $ 4
Cash paid during the period for income taxes (net of
refunds).................................................. $ 21 $ (68) $ 60 $ 17 $ 10
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common equity interest received related to the sale of
containerboard operations................................. $ -- $ -- $ -- $ 194 $ --
Principal amount of long-term debt assumed by buyers of
containerboard operations................................. $ -- $ -- $ -- $(1,760) $ --
</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> 104
THE BUSINESSES OF TENNECO PACKAGING
STATEMENTS OF CHANGES IN COMBINED EQUITY
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------- SIX MONTHS ENDED
1998 1997 1996 JUNE 30, 1999
---- ---- ---- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, January 1................................. $1,839 $1,843 $1,531 $1,776
Net income (loss)................................ 139 89 134 (150)
Accumulated other comprehensive income (loss).... 22 (24) (7) (29)
Allocated interest, net of tax................... 111 102 86 49
Change in allocated corporate debt............... (333) (549) (137) 573
Cash contributions from (distributions to)
Tenneco....................................... (56) 331 422 (810)
Noncash contributions from (distributions to)
Tenneco....................................... 54 47 (186) (69)
------ ------ ------ ------
Balance, end of period............................. $1,776 $1,839 $1,843 $1,340
====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these
statements of changes in combined equity.
F-6
<PAGE> 105
THE BUSINESSES OF TENNECO PACKAGING
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(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
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET INCOME (LOSS)........................................... $(150) $106
----- ----
ACCUMULATED OTHER COMPREHENSIVE INCOME:
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, January 1........................................ $ 3 $(21)
Translation of foreign currency statements.............. (29) (29) (5) (5)
Hedges of net investment in foreign subsidiaries........ -- -- -- --
Income tax benefit (expense)............................ -- -- -- --
---- ----
Balance, end of period.................................... (26) (26)
---- ----
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...................................... $(28) $(26)
==== ----- ==== ----
Other comprehensive income (loss)........................... (29) (5)
----- ----
COMPREHENSIVE INCOME (LOSS)................................. $(179) $101
===== ====
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these combined statements of comprehensive income (loss).
F-7
<PAGE> 106
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 a new credit facility, the issuance
by Tenneco of subordinated debt, and borrowings by Packaging under new credit
facilities.
The Spin-off is subject to conditions, including formal declaration of the
Spin-off by the Tenneco Board of Directors, Tenneco's receipt, and the continued
effectiveness of a determination that the Spin-off
F-8
<PAGE> 107
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
will be tax-free for U.S. federal income tax purposes and the successful
completion of the debt realignment and corporate restructuring transactions. In
August 1999, Tenneco received a letter ruling from the Internal Revenue Service
that the Spin-off will be tax-free for U.S. federal income tax purposes to
Tenneco and its shareowners (unaudited).
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 June 30, 1999,
and for the six month periods ended June 30, 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> 108
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 $4 million (net of $2 million in income tax expense), or
$.02 per diluted common share for the six months ended June 30, 1999. If the new
accounting method had been applied retroactively, net income for the six months
ended June 30, 1998, and the years ended December 31, 1998, 1997, and 1996,
would have been lower by $7 million (net of a $5 million tax benefit), or $.04
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> 109
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. Packaging's
management believes the method for allocating corporate general and
administrative expenses is reasonable. 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 $119 million at June 30, 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
F-11
<PAGE> 110
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
inventories are valued on the "first-in, first-out" ("FIFO") or "average"
methods. If the FIFO or average method of inventory accounting had been used by
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> 111
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, ranging
from 3 to 12 years, 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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -------------------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic......................... 168,505,573 170,264,731 169,609,373 166,937,362 169,341,555
Diluted....................... 168,834,531 170,801,636 170,526,112 167,319,412 169,936,676
</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> 112
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 corporate operations.
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 fair value, less costs to
sell, in the fourth quarter of 1998. Fair value for the production lines was
estimated at scrap value less removal costs. Fair value for the joint ventures
were determined to be zero as Packaging is relinquishing their interest. No
significant net cash proceeds are expected to be received from the ultimate
disposal of these assets which should be complete by the fourth quarter of 1999.
The effect of suspending depreciation for the production lines is approximately
$1 million on an annual basis.
F-14
<PAGE> 113
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, and June 30, 1999, approximately 158 and 233
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 Packaging'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 facility. Tenneco reached an agreement to sell its headquarters
facility in Greenwich and recorded an impairment charge based on the selling
price, less costs to sell. The carrying value of the facility before the
impairment was $43 million. Annual depreciation expense was reduced by
approximately $3 million as a result of the sale. 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. 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>
SIX MONTHS ENDED
JUNE 30, 1999
-----------------------------------
1998 CHARGED BALANCE AT CHARGED BALANCE AT
RESTRUCTURING CASH TO ASSET DECEMBER 31, RESTRUCTURING CASH TO ASSET JUNE 30,
CHARGE PAYMENTS ACCOUNTS 1998 CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- -------- ------------ ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance............... $20 $ 5 $-- $15 $16 $12 $-- $19
Asset impairments....... 12 -- 12 -- 13 -- 13 --
--- --- --- --- --- --- --- ---
$32 $ 5 $12 $15 $29 $12 $13 $19
=== === === === === === === ===
</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 six months ended June 30, 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
F-15
<PAGE> 114
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
Noncash contributions from (distributions to) Tenneco result primarily from
transfers of assets and liabilities to or from Tenneco, such as transfers of
acquired net assets and tax assets and liabilities.
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.
F-16
<PAGE> 115
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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."
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 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 other assets, its folding carton operations, to Caraustar
Industries. Packaging received cash proceeds of $73 million from this
transaction which closed in June 1999. As a result of the sale transaction,
Packaging recognized a pre-tax gain of $14 million, $9 million after-tax or $.05
per diluted share and is included in discontinued operations in the second
quarter of 1999.
F-17
<PAGE> 116
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-18
<PAGE> 117
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 June
30, 1999, Packaging's purchase and sell contracts were not significant.
F-19
<PAGE> 118
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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> 119
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 in a combined basis, liability is
allocated in a manner similar to federal income tax.
F-21
<PAGE> 120
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,
outstanding restricted stock, restricted units and performance shares will
generally 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> 121
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 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> 122
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> 123
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 --
--- --- --
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> 124
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> 125
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
--------- ------ ------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
AT JUNE 30, 1999, AND FOR THE SIX MONTHS THEN ENDED
Revenues from external customers........................ $1,404 $ -- $ -- $1,404
Depreciation and amortization........................... 84 10 -- 94
Income before interest, income taxes, and minority
interest.............................................. 190 (46)(b) -- 144
Extraordinary loss...................................... -- (7) -- (7)
Cumulative effect of change in accounting principle..... (17) (15) -- (32)
Total assets............................................ 3,296 1,309(a) (119) 4,486
Net assets of discontinued operations................... -- 133 -- 133
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)(c) -- 283
Total assets............................................ 3,260 1,580(a) (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 JUNE 30, 1998, AND FOR THE SIX MONTHS THEN ENDED
Revenues from external customers........................ $1,361 $ 10 $ -- $1,371
Depreciation and amortization........................... 77 11 -- 88
Income before interest, income taxes, and minority
interest.............................................. 175 (2) -- 173
Total assets............................................ 3,373 1,468(a) (53) 4,788
Net assets of discontinued operations................... -- 382 -- 382
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............................................ 3,244 1,412(a) (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............................................ 2,655 1,421(a) (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>
F-27
<PAGE> 126
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- -------------------------
Notes: (a) 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.
(b) The Other segment's income before interest expense, income taxes and
minority interest for the six months ended June 30, 1999 includes a
$29 million charge relating to the severance of corporate employees
and the closing of the Greenwich, Connecticut headquarters facility
(see Note 4).
(c) The Other segment's income before interest expense, income taxes and
minority interest for the year ended December 31, 1998 includes
restructuring charges of $10 million relating to severance of
corporate employees (see Note 4) and approximately $50 million of
operating costs relating to Packaging's information technology
service center that began operation in 1998.
<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.
F-28
<PAGE> 127
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 $44 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.
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.
F-29
<PAGE> 128
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
INCOME (LOSS)
INCOME BEFORE BEFORE
INTEREST CUMULATIVE
NET SALES EXPENSE, INCOME (LOSS) INCOME (LOSS) INCOME (LOSS) EFFECT OF
AND INCOME TAXES, FROM FROM BEFORE CHANGE IN
OPERATING AND MINORITY CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY ACCOUNTING
QUARTER REVENUES INTEREST OPERATIONS OPERATIONS LOSS LOSS PRINCIPLE
- ------- --------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
1st................. $ 666 $ 45 $ 6 $(172) $(166) $ (7) $(173)
2nd................. 738 99 46 9 55 -- 55
------ ---- ---- ----- ----- ---- -----
$1,404 $144 $ 52 $(163) $(111) $ (7) $(118)
====== ==== ==== ===== ===== ==== =====
1998
1st................. $ 633 $ 69 $ 18 $ 14 $ 32 $ -- $ 32
2nd................. 738 104 51 23 74 -- 74
3rd................. 696 74 15 25 40 -- 40
4th................. 724 36 (2) (5) (7) -- (7)
------ ---- ---- ----- ----- ---- -----
$2,791 $283 $ 82 $ 57 $ 139 $ -- $ 139
====== ==== ==== ===== ===== ==== =====
1997
1st................. $ 510 $ 48 $ 9 $ 13 $ 22 $ -- $ 22
2nd................. 675 87 31 (11) 20 -- 20
3rd................. 682 89 32 11 43 -- 43
4th................. 696 82 34 8 42 -- 42
------ ---- ---- ----- ----- ---- -----
$2,563 $306 $106 $ 21 $ 127 $ -- $ 127
====== ==== ==== ===== ===== ==== =====
<CAPTION>
CUMULATIVE
EFFECT OF
CHANGE IN NET
ACCOUNTING INCOME
QUARTER PRINCIPLE (LOSS)
- ------- ---------- ------
<S> <C> <C>
1999
1st................. $(32) $(205)
2nd................. -- 55
---- -----
$(32) $(150)
==== =====
1998
1st................. $ -- $ 32
2nd................. -- 74
3rd................. -- 40
4th................. -- (7)
---- -----
$ -- $ 139
==== =====
1997
1st................. $ -- $ 22
2nd................. -- 20
3rd................. -- 43
4th................. (38) 4
---- -----
$(38) $ 89
==== =====
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
---------------------------------------------------------------------------------------------------------
BEFORE CUMULATIVE
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)
2nd................ .28 .05 .33 -- .33 -- .33
----- ------ ------ ----- ------ ----- ------
$ .31 $ (.98) $ (.67) $(.04) $ (.71) $(.19) $ (.90)
===== ====== ====== ===== ====== ===== ======
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-30
<PAGE> 129
THE BUSINESSES OF TENNECO PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
---------------------------------------------------------------------------------------------------------
BEFORE CUMULATIVE
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)
2nd................ .28 .05 .33 -- .33 -- .33
----- ------ ------ ----- ------ ----- ------
$ .31 $ (.98) $ (.67) $(.04) $ (.71) $(.19) $ (.90)
===== ====== ====== ===== ====== ===== ======
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 sum of the quarters may not equal the
total of the respective year's earnings per share on either a basic or
diluted basis due to changes in the weighted average shares outstanding
throughout the year.
(The preceding notes are an integral part of the foregoing combined financial
statements.)
F-31
<PAGE> 130
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 3.4
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. Except
as may be otherwise determined by the Board, 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................................. 6
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.............................................. 8
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............................................. 16
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........... 20
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...................................... 21
Section 21. Change of Rights Agent...................................... 22
Section 22. Issuance of New Right Certificates.......................... 22
Section 23. Redemption.................................................. 23
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................................................ 26
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 immediately
prior to the Distribution (as defined in the Distribution Agreement by and
between Tenneco (as hereinafter defined) and the Company) (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
1
<PAGE> 4
split or subdivision of the outstanding Common Stock), then such Person shall be
deemed to be an "Acquiring 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.
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(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.
(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 (i) 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 and (ii) until immediately following
the Distribution, the corporation known as of the date hereof as Tenneco Inc., a
Delaware corporation ("Tenneco"), or any Subsidiary of Tenneco.
(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 A 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
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<PAGE> 6
(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 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;
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<PAGE> 7
(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, (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 beneficially 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 beneficially 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.
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<PAGE> 8
(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.
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") to each
record holder of Common Stock as of 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, 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) Rights shall be issued in respect of all shares of Common Stock issued
or disposed of (including, without limitation, upon 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, or in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates issued
for Common Stock (including, without limitation, upon transfer of outstanding
Common Stock, disposition of Common Stock out of treasury stock or issuance or
reissuance of Common Stock out of authorized but unissued shares) after the
Record Date but prior to the earlier of the Distribution Date 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
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<PAGE> 9
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 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.
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<PAGE> 10
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 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, or make available if the Rights Agent is the transfer agent
for 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
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<PAGE> 11
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.
(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
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<PAGE> 12
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 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 number and kind of shares of capital stock issuable upon exercise of a Right
as of the record date for such dividend or the effective date of such
subdivision, combination or reclassification, 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
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<PAGE> 13
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 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
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<PAGE> 14
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 date of the Flip-In Event being 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 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
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<PAGE> 15
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 (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
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<PAGE> 16
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 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
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<PAGE> 17
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 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
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<PAGE> 18
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
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
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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;
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
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(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
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
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<PAGE> 21
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 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
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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.
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.
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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; 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,
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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 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) or a transferee 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 Illinois, 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
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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 reflect any stock
split, stock dividend or similar transaction occurring in respect of the Common
Stock 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 in
respect of the Common Stock 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
23
<PAGE> 26
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 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
24
<PAGE> 27
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 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 supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment,
provided that any supplement or amendment that does not amend Sections 18, 19,
20 or 21 hereof in a manner adverse to the Rights Agent shall become effective
immediately upon execution by the Company, whether or not also executed by the
Rights Agent.
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.
25
<PAGE> 28
(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 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 A 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 (the "Corporation"), 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 A 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 A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock that
shall be designated as "Series A 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 A 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 A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A 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 A 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 A 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 A 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
A 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 A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A 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
A 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 A 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 A 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 A Junior Participating
Preferred Stock shall have the following voting rights:
(A) Each share of Series A 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 required by law, by Section 3(C) and by Section 10 hereof,
holders of Series A 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.
(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 A 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 A 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 on
the Series A Junior Participating Preferred Stock have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Corporation, the holders of any Series A Junior Participating Preferred
Stock being entitled to cast a number of votes per share of Series A Junior
Participating Preferred Stock as is specified in paragraph (A) of this Section
3. 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 provisions of this Section 3(C) may be removed at any
time without cause
A-2
<PAGE> 31
only by the affirmative vote of the holders of the shares of Series A 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 A 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 A Junior Participating Preferred Stock in this Section 3.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A 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 A 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 A 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 A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A 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 A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A 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 A 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 A 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.
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 A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received
an amount per share (the "Series A 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.
A-3
<PAGE> 32
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A 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 A Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series A
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 A 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 A Junior Participating Preferred Stock
shall not be subject to redemption by the Corporation.
9. Ranking. The Series A 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 A 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 A 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 A Junior Participating Preferred Stock, voting separately as a class.
11. Fractional Shares. Series A 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 A 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 A 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
B-1
<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.
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<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 immediately prior to the
Distribution (as defined in the Distribution Agreement by and between Tenneco
Inc. and the Company) (the "Record Date") to the shareowners of record as of
such time. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series A 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
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<PAGE> 40
the Distribution Date (or earlier expiration of the Rights), the surrender for
transfer of any certificates for 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 the greater of
(a) $25.00 per share, and (b) an amount equal to 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 the greater of (a) $500.00 per share (plus
any accrued but unpaid dividends), and (b) an amount equal to 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
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<PAGE> 41
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.
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.
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<PAGE> 1
EXHIBIT 10.1
FORM OF
HUMAN RESOURCES AGREEMENT
THIS HUMAN RESOURCES AGREEMENT is made and entered into as of this
day of , 19 , by, between and among TENNECO INC., a Delaware
corporation to be renamed Tenneco Automotive Inc. ("Tenneco" or "Automotive
Company"), and Tenneco Packaging Inc. (to be renamed), a Delaware corporation
("Packaging Company").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by
and between Tenneco and Packaging Company and dated as of (the
"Distribution Agreement"), the parties have entered into this Agreement
regarding certain labor, employment, compensation and benefit matters occasioned
by the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each other entity over which it has
direct or indirect legal or effective control, hereby agrees as follows:
SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall
have the meanings set forth below in this Section 1. All other capitalized terms
which are used but are not otherwise defined herein shall have the meanings
ascribed to them in the Distribution Agreement.
"ACTIVE EMPLOYEES" means, with respect to each Group, all employees
regularly engaged in the performance of services to, for or on behalf of
any member of such Group as of the close of business on the Distribution
Date; provided, that all such employees of Tenneco Management Company
("TMC") who are employed by a member of the Automotive Group immediately
after the Distribution shall, for all purposes hereunder, be treated as
Active Employees of the Automotive Group and; provided further that for
purposes of allocation of liabilities, non-employee officers of Tenneco
Inc. shall be treated as Active Employees of TMC.
"COMMON STOCK" means Tenneco Common Stock or Packaging Common Stock,
as applicable.
"FORMER EMPLOYEES" means, with respect to each Group, all former
employees of Tenneco and/or its Subsidiaries (including, but not limited
to, such employees who, as of the close of business on the Distribution
Date, are on leave of absence, long-term disability or layoff with recall
rights) who, if they were regularly engaged in the performance of services
to, for or on behalf of Tenneco or any of its Subsidiaries at the close of
business on the Distribution Date, would be an Active Employee of such
Group, determined on a basis consistent with the determination of the
Active Employees of such Group.
<PAGE> 2
"Tenneco Salaried Welfare Plans" means, collectively, the Tenneco Inc.
------------------------------
Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco
Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance
Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and
the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan.
SECTION 2. General Employment Matters.
--------------------------
2.01 General Obligations. From and after the Distribution Date, each of
-------------------
Automotive Company and Packaging Company shall (and shall, as applicable, cause
each of the other members of its respective Group over which it has direct or
indirect legal or effective control to) (a) continue the employment of all of
the Active Employees of its respective Group, subject, however to the terms of
Section 2.03 below and (b) except as otherwise specifically provided herein,
pay, perform and discharge any and all labor, employment, compensation and
benefit liabilities, whether arising prior to, on or after the Distribution
Date, with respect to all such Active Employees and all Former Employees of its
respective Group. Notwithstanding the foregoing, all payments to be made to
Active Employees and Former Employees of TMC who are not employed by the
Automotive Group or the Packaging Group (excluding TMC) immediately after the
Distribution out of general corporate assets shall be made, processed and
administered by Tenneco Business Services Inc. ("TBS") (rather than by Packaging
Company or another member of the Packaging Group). Packaging Group shall
maintain one or more rabbi trusts to facilitate such payments.
2.02 Initial Compensation of Active Employees. The initial compensation
----------------------------------------
(base salary or wage level) of each Active Employee of each such Group as of the
Distribution Date shall be the same as the compensation (base salary or wage
level) of such Active Employee immediately prior to the Distribution Date.
2.03 No Additional Employment Rights Created. Nothing in this Agreement
---------------------------------------
shall give any Active Employee of any Group any right to continued employment by
any member of that Group or the other Group beyond the Distribution Date, which
is in addition to or supplemental to any such right he or she may have arising
under contract or otherwise.
SECTION 3. Collective Bargaining.
---------------------
3.01 Continuation of Existing Collective Bargaining Agreements. Each of
---------------------------------------------------------
Automotive Company and Packaging Company shall (and shall cause, as applicable,
each other member of its Group over which it has direct or indirect legal or
effective control to) continue to honor all collective bargaining agreements
covering the Active Employees of its respective Group which are in effect as of
the close of business on the Distribution Date, in accordance with and subject
to the terms of each such collective bargaining agreement.
3.02 Recognition of Incumbent Labor Organizations. Each of Automotive
--------------------------------------------
Company and Packaging Company shall (and shall cause, as applicable, each other
member of its Group over which it has direct or indirect legal or effective
control to) continue to recognize all
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<PAGE> 3
incumbent labor organizations which, as of the close of business on the
Distribution Date, have established collective bargaining relationships in
respect of the Active Employees of its respective Group.
3.03 Continued Sponsorship of Hourly Employee Benefit Plans. Except as
------------------------------------------------------
otherwise specifically provided herein, each of Automotive Company and Packaging
Company shall continue (and shall, as applicable, cause each other member of its
respective Group over which it has direct or indirect legal or effective control
to continue) to sponsor all employee benefit plans for hourly employees which,
as of the close of business on the Distribution Date, are in existence and
relate to the Active Employees and/or Former Employees of its respective Group,
subject to its rights under such plans to amend or terminate such plans.
3.04 Provisions of Wages, Rights and Other Employment Benefits Required
------------------------------------------------------------------
Under Existing Collective Bargaining Agreements. Without limiting the generality
- -----------------------------------------------
of the foregoing, each of Automotive Company and Packaging Company shall (and
shall cause each other member of its respective Group over which it has direct
or indirect legal or effective control to) provide those of its Active Employees
whose employment is subject to collective bargaining agreements and/or
established collective bargaining relationships as of the close of business on
the Distribution Date with the wages, benefits, and terms and conditions of
employment required by such agreements or relationships, except that (i)
participation in the Tenneco Inc. Employee Stock Purchase Plan will be suspended
as provided in Section 4.06 hereof, and (ii) the provisions of any defined
contribution plan calling for contributions or investment in the common stock of
Tenneco Inc. shall be amended in accordance with Section 4.05 hereof.
3.05 Limitation on Obligations. Each of the parties hereto hereby agrees
-------------------------
and acknowledges that nothing contained in this Agreement, including its
obligation to continue its applicable collective bargaining agreements or
relationships, shall be construed to restrict any right it, or any other member
of its respective Group, may have to terminate, renegotiate, reopen or otherwise
seek changes in any of its collective bargaining agreements or relationships.
SECTION 4. United States Salaried Pension and Thrift Benefits and Stock
------------------------------------------------------------
Purchase Plan.
- -------------
4.01 Tenneco Retirement Plan. Effective as of the Impact Date (as defined
-----------------------
below), Automotive Company and all other members of that Group shall cease to be
sponsors of the Tenneco Retirement Plan (the "TRP"), and Packaging Company shall
become the sponsor of the TRP; provided that Packaging's sponsorship shall be
subject to the terms and conditions of the TRP. The TRP shall retain liability
for all pension benefits accrued by the Active Employees and Former Employees of
the Automotive Group who are or were formerly participants in the TRP through
the last day of the calendar month in which the Distribution Date occurs (the
"Impact Date"). Following the Distribution Date, Automotive Group will have no
liability, contingent or otherwise, with respect to the TRP, including without
limitation any liability for benefits accrued through the Impact Date (including
early retirement benefits and related subsidies, as to which all age, service
and participation requirements were satisfied on or before
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<PAGE> 4
the Impact Date) for Active Employees or Former Employees of the Automotive
Group, and Packaging Company shall assume or retain, as the case may be, all
such liabilities.
Packaging Company shall succeed Tenneco Inc. under and with respect to
the Tenneco General Employee Benefit Trust (the "GEBT"). As soon as practicable
after the Distribution Date, Packaging Company shall cause the GEBT to transfer
to a trustee designated by Automotive Company the assets of the GEBT
attributable to the Automotive Group's hourly defined benefit pension plans.
Such transfer shall be in cash, except that Tenneco Common Stock may be
transferred, subject to the limitations of applicable law, and the assets
managed by one or more managers may be transferred.
Packaging Company shall create an investment committee (the "New
Committee") to manage the assets of the GEBT, equivalent to the committee which
performed those functions as of the Distribution Date (the "Old Committee"), and
the New Committee shall have as members, the members of the Old Committee as of
the Distribution Date until the earlier of March 31, 2000 or the date such
persons die, resign or are removed in accordance with rules equivalent to the
rules applicable to the Old Committee.
4.02 Amendment of TRP. The sponsor of the TRP shall amend the TRP to (a)
----------------
"freeze" the benefit accruals of the Active Employees of the Automotive Group as
of the Impact Date, and (b) provide that all benefits accrued as of the Impact
Date by the Active Employees of the Automotive Group shall be fully vested and
non-forfeitable (as will the benefits to Former Employees of the Automotive
Group to the extent required by applicable laws) and the sponsor shall inform,
in writing, as soon as practicable following the Impact Date, each such Employee
of his or her accrued benefits under the TRP as of the Impact Date.
4.03 No Credit for Post-Impact Date Service. Except as may be required by
--------------------------------------
law, the TRP shall not be required to count service with any entity other than a
member of the Packaging Group after the Impact Date for any purpose, nor shall
there be any requirement that Active Employees of the Automotive Group be
permitted to "grow into" normal or early retirement benefits under the TRP based
upon events occurring after the Impact Date.
4.04 Tenneco Thrift Plan. The active participation in the Tenneco Thrift
-------------------
Plan and the Tenneco Thrift Plan for Hourly Employees (collectively the "Tenneco
DC Plan") by persons other than the Active Employees of the Packaging Group
shall cease effective as of January 31, 2000 (the "Transition Date"). In
addition, Automotive Company and all other members of that Group shall cease to
be sponsors of the Tenneco DC Plan as of the Transition Date, and Packaging
Company shall become the sponsor of the Tenneco DC Plan from and after the
Transition Date. Automotive Group shall bear the costs of employer matching
contributions attributable to the participation of its employees in the Tenneco
DC Plan for the period commencing with the Distribution Date.
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<PAGE> 5
4.05 Establishment of DC Plans.
-------------------------
(a) Automotive Thrift Plan. Automotive Company shall (and/or cause its
----------------------
respective Group members to) establish or make available on or with effect from
the Transition Date, one or more defined contribution plans for the benefit of
its Active Employees (collectively, the "Automotive Thrift Plan") which may,
subject to Section 4.05(d) hereof, be subject to amendment or termination by
Automotive Company or the applicable member of the Automotive Group.
(b) Transfer of Account Balances to Automotive Thrift Plan. As soon as
------------------------------------------------------
practicable following the Transition Date, Packaging Company shall cause the
Tenneco DC Plan to transfer to the Automotive Thrift Plan, the account balances
of each Active Employee of the Automotive Group and each Former Employee of the
Automotive Group with respect to whom the Tenneco DC Plan maintains an account
as of the close of business on the Transition Date. Such transfers shall be in
cash, except that the Automotive Thrift Plan will accept the following: (i)
Tenneco Common Stock, Packaging Common Stock received in the Distribution, stock
of Newport News Shipbuilding Inc. (if any remains in such account balances) and
stock of El Paso Energy Corporation (if any remains in such account balances)
for the Tenneco Common Stock fund portion of such account balances; (ii) amounts
credited to the Tenneco DC Plan which are held in mutual funds which are also
investment media in the Automotive Thrift Plan; and (iii) participant loans.
(c) Investment Options. Tenneco Common Stock shall not be offered as
------------------
an investment option with respect to contributions made after the Distribution
Date by the Packaging Group employees to the thrift plans of the Packaging
Group. The sponsor of each of the Tenneco DC Plan and the Automotive Thrift Plan
shall cause the plan to afford each participant therein, for a period of at
least 90 days following the Distribution Date, an election to sell the Common
Stock of the entities held in the plan's stock fund which does not directly or
indirectly employ him or her immediately following the Distribution Date. From
and after the Distribution Date employer stock contributions with respect to
Packaging Group employees shall be in Packaging Common Stock and employer stock
contributions with respect to the Automotive Group employees shall be in Tenneco
Common Stock.
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<PAGE> 6
(d) Certain Automotive Obligations. The Automotive Company shall (and
------------------------------
shall cause each member of its Group over which it has legal or effective
direct or indirect control to) sponsor, establish, administer, maintain,
amend and otherwise deal with one or more defined contribution pension
plans (including the Automotive Thrift Plan) in a manner consistent with
any and all representations which Tenneco or its affiliates at the time
makes or has made to the Internal Revenue Service, including without
limitation, any actions that may be required to increase and/or maintain
the amount of Tenneco Common Stock held by such plans.
4.06 Tenneco Stock Purchase Plan. Participation in the Tenneco Inc.
---------------------------
Employee Stock Purchase Plan will be suspended effective June 30, 1999 and will
not resume prior to the Distribution Date.
SECTION 5. Pension Matters Outside the United States. With respect to the
-----------------------------------------
business and operations of each Group in jurisdictions outside the United
States, each of the parties hereto shall (and, as applicable, shall cause each
other member of its Group over which it has direct or indirect legal or
effective control to) assume and retain any and all pension liabilities and
attendant plans and their assets related to its Active Employees and Former
Employees.
SECTION 6. Executive and Directors' Compensation.
-------------------------------------
6.01 Tenneco Supplemental Executive Retirement Plan. Effective upon the
----------------------------------------------
Distribution Date, Tenneco and Packaging Company shall cause the Tenneco Inc.
Supplemental Executive Retirement Plan and the Tenneco Inc. Pilots' Supplemental
Retirement Plan (collectively, the "SERP") to be amended to cause the separation
of participation in, and liabilities under, the SERP as follows: (1) Packaging
Company shall (a) become the sponsor of the SERP with respect to all Active
Employees and Former Employees of its respective Group and, subject to the terms
of the 1996 Benefits Agreement (as defined below), all active and former
employees of the Shipbuilding Group and Energy Group (each as defined below),
and all other participants in the SERP not specifically allocated to Automotive
Company below and (b) assume and agree to pay, perform and discharge all
liabilities under the SERP with respect to such employees, whether accrued
before, on or after the Distribution Date; and (2) Automotive Company shall
continue sponsorship of the SERP with respect to all Active Employees and Former
Employees of its respective Group and shall assume and agree to pay, perform and
discharge all liabilities under the SERP with respect to such employees, whether
accrued before, on or after the Distribution Date. All accrued benefits under
the SERP as of the close of business on the Distribution Date shall be fully
vested and nonforfeitable; provided, that this rule shall not be applied to
grant an employee an amount equal to the benefit he or she has accrued under the
Tenneco Retirement Plan but only the amount provided by the SERP, nor shall it
be applied to alter or diminish any service requirement contained in any special
appendix or other document providing benefits in addition to those called for by
the SERP generally.
6.01A Pullman Supplemental Pension Benefits. Notwithstanding any other
-------------------------------------
provision hereof, the Automotive Company shall retain and succeed to any and all
liabilities for non-qualified defined benefit pension benefits for Active
Employees and Former Employees of its
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<PAGE> 7
respective Group who were formerly employed by The Pullman Company, Peabody
International Corporation or any predecessor of either, including without
limitation, benefits under the Peabody Special Benefits Plan, the Peabody
Supplemental Plan and the Pullman Supplemental Plan (the "Pullman Plans").
Automotive Company shall retain sponsorship of the rabbi trust created in
connection with the Pullman Plans.
6.02 Tenneco Inc. Deferred Compensation Plan. The participation of the
Active Employees and Former Employees of the Automotive Group in the Tenneco
Inc. Deferred Compensation Plan (the "DC Plan") shall cease as of the
Distribution Date. As of the Distribution Date, (i) Automotive Company shall
assume the liability for the accounts of its Active Employees and Former
Employees in the DC Plan, (ii) Packaging Company shall assume the liability for
the accounts of the Active Employees and Former Employees of the Packaging Group
in the DC Plan, and (iii) Packaging Company shall succeed to sponsorship of the
DC Plan. The Automotive Group Active Employee's or Former Employee's account in
the DC Plan as of the Distribution Date shall become the opening balance of such
Active Employee's or Former Employee's account in a nonqualified deferred
compensation plan created, as of the Distribution Date by the Automotive Group.
Such opening balances shall become fully vested as of the close of business on
the Distribution Date.
6.03 Tenneco Benefits Protection Program and Rabbi Trust. The Tenneco Inc.
Benefits Protection Trust (the "BPT") and the Tenneco Inc. Rabbi Trust
(collectively the "Trusts") shall be terminated prior to the Distribution, and
neither Packaging Company nor Automotive Company shall have any liability with
respect to either of the Trusts or any of the terms of either.
6.04 [RESERVED]
6.05 Stock Options. Effective as of the Distribution Date, Tenneco shall
cause all outstanding options to purchase Tenneco Common Stock held by employees
and officers other than (i) Active Employees and Former Employees of Automotive
Group, (ii) employees of Packaging Corporation of America and (iii) employees of
the folding carton division (or persons who have succeeded to the rights of any
persons described in (i), (ii) or (iii) with respect to options to purchase
Tenneco Common Stock) to be replaced by options to purchase Packaging Common
Stock. Subject to the requirements of applicable law and generally accepted
accounting principles, the number, exercise price and other terms of such
replacement options shall be determined in a manner consistent with that
described in Exhibit A attached hereto. Options held by persons described in
clause (ii) or (iii) above, not exercised prior to the Distribution Date shall
be canceled effective as of the Distribution Date.
Options held by Active Employees and Former Employees of Automotive
Group (or persons who have succeeded to the rights of such persons) shall,
unless exercised prior to the Distribution Date, remain outstanding as adjusted
as provided herein after the Distribution Date, subject to the requirements of
applicable law and generally accepted accounting principles. The parties
recognize that in some jurisdictions, Automotive employees were granted rights
other than stock options in lieu of the Special Stock Option Award of 100
options per grantee, and in
-7-
<PAGE> 8
those jurisdictions, the outstanding rights will be adjusted comparably. The
Automotive Company options and rights shall have the same terms and conditions
as prior to the Distribution Date except that the number of options and the
option exercise price shall be adjusted as described in Exhibit A attached
hereto.
To the extent that the exercisability of options to purchase Tenneco
Common Stock currently is subject to the attainment of share price hurdles,
those hurdles will also be adjusted with respect to both options to purchase
Packaging Common Stock and Tenneco Common Stock.
Tenneco may grant special pre-Distribution Date exercisability with
respect to some or all options which are not otherwise exercisable.
6.06 Directors. Except for stock options which will expire at the
Distribution in accordance with their terms, stock options held by directors of
Tenneco and/or Packaging Company shall be treated as provided in Section 6.05
hereof as if the director in question were an employee. Notwithstanding the
foregoing, stock options held by directors who do not continue on the board of
Packaging Company or Automotive Company will be replaced by Packaging Company
options in accordance with Section 6.05 hereof. The 1997 Tenneco Inc. Board of
Directors Deferred Compensation Plan shall be treated as provided in Section
6.02 hereof, and the directors' accounts shall be treated as if the directors
were employees; however, the accounts of directors who do not continue on the
board of Packaging Company or Automotive Company shall be the obligation of
Packaging Company. If an individual becomes a director of both Packaging Company
and Automotive Company immediately after the Distribution Date, his or her
options, unless they expire at the Distribution, shall be split and maintained
one-half by Packaging Company and one-half by Automotive Company; and with
respect to individuals who were outside directors prior to the Distribution
Date, their deferred compensation accounts shall be split similarly.
Any continuing liabilities under the terminated Outside Directors'
Retirement Plan including the obligation to grant restricted stock in lieu of
such plan shall be retained and performed by Automotive Company.
SECTION 7. Welfare Plans.
7.01 Tenneco Salaried Welfare Plans. Effective on December 31, 1999, each
member of the Automotive Group shall cease to be a sponsor of the Tenneco
Salaried Welfare Plans, Active Employees and Former Employees of Automotive
Group shall cease to participate in the Tenneco Salaried Welfare Plans as of
that date, and Packaging Company shall serve as the sponsor of the Tenneco
Salaried Welfare Plans from and after that date. Automotive Company shall
reimburse Packaging Company for all claims paid with respect to the
participation of its employees in such plans.
SECTION 8. General.
8.01 Post-Distribution Administration of Plans. The parties hereto agree to
administer all plans consistently herewith, and to the extent necessary to amend
plans accordingly.
-8-
<PAGE> 9
8.02 Cost and Expenses. Except as otherwise expressly provided herein, each
-----------------
party shall bear all costs and expenses, including but not limited to legal,
administrative and actuarial fees, incurred in the design, drafting,
administration and implementation of any and all plans and compensation
structures which it enables or creates and the amendment of its existing plans
or compensation structures.
8.03 RESERVED
--------
8.04 Human Resources Support Services. Subject to the rules set forth
--------------------------------
below, Packaging Company shall provide (or have provided by TBS or otherwise to)
Automotive Company or its Affiliates the following corporate-wide human resource
support services that are currently being provided to the Automotive Company
and/or members of the Automotive Group:
a. Benefits administration by Hewitt & Associates LLC
and other outside administrators. Packaging Company
will provide management of the services that are
outsourced and continue benefits administration
services currently being provided by TBS.
b. Assistance in executive compensation plans, including
stock options, restricted stock, performance shares,
deferred compensation, director's stock options, and
director's restricted stock.
c. Generation of EEO reports.
d. Packaging Company will prepare, process and disburse
invoices and check requests for Prudential
relocations or cause such services to be provided.
Packaging Company shall provide the services described in this Section 8.04
for the period from the Distribution Date through the earlier of (i) December
31, 2000 and (ii) the date as of which Automotive Company no longer desires such
services, provided that Automotive Company shall have given Packaging Company at
least 60 days' advance written notice of such date.
In consideration for such services, other than third party fees as
described in the next sentence, Automotive Company shall pay Packaging Company
per . Any third party fees for such services for outsourced
providers utilized with respect to the Automotive Group as of the date hereof,
or for new outsourced providers selected with prior consent of Automotive
Company (which consent shall not be unreasonably withheld or delayed), will be
billed directly by the third party to Automotive Company; provided, that if the
third party refuses to bill Automotive Company directly, Automotive Company
shall reimburse Packaging Group for all amounts which it pays such third party
on behalf of Automotive Company. Reference is made to the Transition Services
Agreement between Tenneco and Packaging Company of even date herewith (the
"Transition Services Agreement"). The services described in this Section 8.04
shall be considered Packaging Services (as such term is defined in the
Transition Services Agreement) for purposes of Sections 2.3, 3, 4, 5 and 7 of
the Transition
-9-
<PAGE> 10
Services Agreement and shall be provided in accordance with and subject to the
terms and conditions thereof. The provisions of Sections 4.2, 4.3, 4.4 and 7 of
the Transition Services Agreement shall survive termination of the provision of
services hereunder.
SECTION 9. Miscellaneous.
-------------
9.01 1996 Benefits Agreement. Effective on the Distribution Date, Tenneco
-----------------------
shall assign to Packaging Company all of its rights under, and Packaging Company
shall assume and agree to pay, perform and discharge when due (and will
thereafter indemnify each member of the Automotive Group against) all
obligations, liabilities and responsibilities of Industrial Company under, the
certain Benefits Agreement (the "1996 Benefits Agreement"), dated as of December
11, 1996, by and among New Tenneco Inc., Newport News Shipbuilding Inc. and the
company then known as Tenneco Inc. The rights Tenneco shall assign to Packaging
Company under the 1996 Benefits Agreement shall include, without limitation, the
right to receive and retain all reimbursements for the payment of SERP benefits
to employees and former employees of the Shipbuilding Group and Energy Group
(capitalized terms used in this Section 9.01 and in Section 6.01 and not
otherwise defined in this Agreement shall have the meanings ascribed to such
terms in the 1996 Benefits Agreement).
9.02 Complete Agreement; Construction. This Agreement and the Distribution
--------------------------------
Agreement shall constitute the entire agreement between the parties with respect
to the subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. Notwithstanding
any other provisions in this Agreement or the Distribution Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of the Distribution
Agreement or any other Ancillary Agreement, this Agreement shall
control.
9.03 Other Ancillary Agreements. This Agreement is not intended to address,
--------------------------
and should not be interpreted to address, the matters specifically and expressly
covered by any of the other Ancillary Agreements.
9.04 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
9.05 Survival of Agreements. Except as otherwise expressly provided herein,
----------------------
all covenants and agreements of the parties contained in this Agreement shall
survive the Distribution Date.
9.06 Notices. All notices and other communications to a party hereunder
-------
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to such party (and
will be deemed given on the date on which the notice is received by such party)
at the address for such party set forth in the Distribution Agreement (or at
such other
-10-
<PAGE> 11
address for the party as the party shall, from time to time, specify by like
notice to the other parties).
9.07 Waivers. The failure of any party hereto to require strict performance
-------
by any other party of any provision in this Agreement will not waive or diminish
the party's right to demand strict performance thereafter of that or any other
provision hereof.
9.08 Amendments. This Agreement may not be modified or amended except by an
----------
agreement in writing signed by the parties hereto.
9.09 Assignment. This Agreement shall be assignable in whole in connection
----------
with a merger or consolidation or the sale of all or substantially all the
assets of a party hereto so long as the resulting, surviving or transferee
entity assumes all the obligations of the relevant party hereto by operation of
law or pursuant to an agreement in form and substance reasonably satisfactory to
the other parties to this Agreement. Otherwise this Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any party hereto
without the prior written consent of the other (which consent shall not be
unreasonably withheld or delayed), and any attempt to assign any rights or
obligations arising under this Agreement without such consent shall be void.
9.10 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
9.11 No Third Party Beneficiaries. This Agreement is solely for the benefit
----------------------------
of the parties hereto and the members of their respective Groups, after giving
effect to the Distribution, and should not be deemed to confer upon other third
parties any remedy, claim, liability, right of reimbursement, claim of action or
other right in excess of those existing without reference to this
Agreement.
9.12 Attorney Fees. A party determined to be in breach of this Agreement
-------------
shall, on demand, indemnify and hold harmless the other party hereto for and
against all out-of-pocket expenses, including, without limitation, reasonable
legal fees, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement; provided, that such determination
shall be effective only when made by the court having final jurisdiction of the
matter and the period for appeal from that court, if any, shall have expired.
The payment of such expenses is in addition to any other relief to which such
other party may be entitled hereunder or otherwise.
9.13 Title and Headings. Titles and headings to sections herein are
------------------
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
-11-
<PAGE> 12
9.14 Governing Law. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
-------------
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS
TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL
COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY IS NOT
OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY
APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF
DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON
ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND
EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE.
9.15 Severability. In the event any one or more of the provisions contained
------------
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
9.16 Subsidiaries. Each of the parties hereto shall cause to be performed,
------------
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
TENNECO INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
----------------------------------------
TENNECO PACKAGING INC. (to be renamed)
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
-13-
<PAGE> 14
EXHIBIT A
OPTION CONVERSION FORMULA*/
<TABLE>
<CAPTION>
Formula
- -------
<S> <C> <C>
Original option exercise price x New market price of Tenneco = New option exercise price
- ------------------------------ Common Stock or Packaging ("New Option Price")
Original market price of Tenneco Common Stock, as applicable***/
Common Stock**/
No. of shares underlying original option x original option exercise price = Number of shares
- -------------------------------------------------------------------------
New Option Price underlying new option
</TABLE>
Assume
- ------
1,000 No. of shares Tenneco Common Stock underlying original option
$ 45.31 Original option exercise price
$ 25.00 Original market price of Tenneco Common Stock
$ 7.00 New market price for Tenneco Common Stock
$ 18.00 New market price for Packaging Common Stock
Adjusted Tenneco Options (for Automotive Group employees)
- ------------------------
$45.31 x $7.00 = $12.69 New Option Price
------
$25.00
1,000 x $45.31 = 3,571 shares Tenneco Common Stock
-------------- underlying new option
$12.69
- ----------------------------
*/ May be adjusted, as necessary, to reflect a reverse stock split by Tenneco
which becomes effective after the Distribution.
**/ Based on the closing sale price of the "full value" Tenneco Common Stock
(i.e. not giving effect to the declaration of any dividend) on the New York
Stock Exchange ("NYSE") on the day immediately prior to the Distribution Date.
***/ For the new market price of Tenneco Common Stock: Based on the closing sale
price of Tenneco Common Stock "without due bills" on the day immediately prior
to the Distribution Date, unless "when issued" trading for Tenneco Automotive
Inc. Common Stock exists on such date, in which case the new market price of the
Tenneco Common Stock would be based on the closing "when issued" market sale
price of Tenneco Automotive Inc. Common Stock on such date. For the new market
price of Packaging Common Stock: Based on the closing "when issued" market sale
price of Packaging Common Stock on the day immediately prior to the Distribution
Date, as applicable.
-14-
<PAGE> 15
New Packaging Company Options (for Packaging Group employees)
- -----------------------------
$45.31 x $18.00 = $32.62 New Option Price
------
$25.00
1,000 x $45.31 = 1,389 shares Packaging Common Stock
-------------- underlying new option
$32.62
-15-
<PAGE> 1
EXHIBIT 10.4
FORM OF
TENNECO PACKAGING INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
(the "Plan")
Section 1. Establishment and Purpose
1.1 Establishment of the Plan. Tenneco Packaging Inc. (the
"Company") hereby establishes the Plan effective upon the distribution of the
Company's stock to the shareholders of Tenneco Inc.
1.2 Purpose. The objectives of the Plan are to:
(a) Reinforce a results-oriented management culture with
executive pay that varies according to overall Corporate and individual
performance against aggressive business goals and core behavioral standards.
(b) Provide incentives, in the form of substantial reward
potential, for Executives to remain employees of the Company.
(c) Focus on business results that include financial measures
such as return on capital employed, net income, cash flow, working capital, and
earnings per share, with improvement in customer satisfaction, quality, safety,
environmental, effective leadership and workforce diversity.
(d) Place greater emphasis on variable performance-based
(versus fixed) compensation.
(e) Provide key Executives with competitive levels of total
current compensation and incentive earning opportunities commensurate with the
business results achieved and individual performance.
(f) Provide a plan that is easy to describe and understand.
Section 2. Plan Definitions
(a) "Company" includes any successor employer which adopts the
Plan and any subsidiary corporation designated by the Compensation / Nominating
/ Governance Committee of the Board of Directors of the Company (the
"Committee") as eligible to participate in the Plan; except that when used with
reference to authority under the Plan, Company shall mean Company as defined in
Section 1.1 hereof.
(b) "Corporate" means the entity which is responsible for the
overall management and staff support functions of the Company.
(c) "Division" means each operating organizational entity
which, through the conduct of its business, produces revenues for the Company.
-1-
<PAGE> 2
(d) "Executive" means a regular, full-time salaried employee
of the Company who is in a position meeting the defined eligibility criteria for
participation in the Plan.
(e) "Participant" means an Executive who has been approved for
participation in the Plan.
(f) "Plan Year" means the calendar year.
(g) "Salary Grade" means the position classification assigned
to the Participant in accordance with the position evaluation system adopted by
Company Management for Plan purposes.
(h) "EICP Objectives" means the "Target" (Budget) level of
financial objectives (e.g., net income, cash flow, and earnings per share) or
other operating measurements for the Plan Year, assigned annually by the Company
to each Division. This represents the expected level of achievement for the Plan
Year. The target goal (budget) for Corporate will be the Company's consolidated
operating measurements.
(i) "Individual Incentive Target Award" means the anticipated
individual incentive award to be allocated to a Participant in the event EICP
Objectives are met and his/her individual performance is fully satisfactory. The
schedule of individual incentive target awards applicable to the various Salary
Grades shall be determined by the Company.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Eligibility for participation in the
Plan will be limited to those key Executives who, by the nature and scope of
their positions, regularly and directly make or influence policy decisions which
significantly impact the overall results and success of the Company. The Company
will receive recommendations for participation from Division Heads and
appropriate Corporate Staff Officers. Each such nominated Executive shall become
a Participant upon being approved by the Company. All such Executives approved
for participation shall be notified of their selection as soon as practical
following approval.
3.2 Cessation of Participation. The Company may withdraw its approval
of an existing position at any time during the Plan Year. Participants whose
employment is terminated during the Plan Year for reasons other than disability,
death, or normal retirement under a Company retirement plan shall forfeit
participation in the Plan unless otherwise authorized by the Company. At the
sole discretion of the Company, participation may be prorated for Participants
who become disabled, die, normal retire or are assigned to non-eligible position
during the Plan Year.
-2-
<PAGE> 3
Section 4. Fund Generation
4.1 Incentive Amounts. Annually, the Company shall establish EICP
Objectives (Target/Budget). In addition, the Company shall determine for a
target incentive amount equal to the sum of individual incentive targets. The
Company may adjust the target incentive amount during the Plan Year to
accommodate the admission or elimination of Participants to the Plan and to
incorporate adjustments to individual incentive targets of Participants whose
Salary Grade changes during the Plan Year. Incentive funds will be determined
based on the budgeted financial objectives (e.g., net income, cash flow, and
earnings per share) with each weighted to reflect appropriate emphasis.
The size of the incentive fund will be determined as follows:
FINANCIAL OBJECTIVES
A preliminary fund will be established based on performance against financial
objectives from the Annual Operating Plan ("AOP") which will be approved
annually by the Company's Board of Directors. The preliminary fund can range
from 0% to 200% of the sum of the individual target awards based on the
Company's performance against its AOP.
- - Performance on AOP will generate a fund equal to the sum of individual
target awards.
- - Performance below AOP will result in a lower incentive fund as
recommended by Company Management and approved by the Board of
Directors taking into consideration the reasons that AOP was not
attained.
- - Performance above AOP may result in a higher than target level fund as
recommended by Company Management and approved by the Board of
Directors taking into consideration the reasons that AOP was exceeded.
The preliminary fund can be adjusted, upward or downward, based on the
recommendation of Company Management and approved by the Board of Directors
taking into account unusual events.
NON-FINANCIAL OBJECTIVES
Quantitative Adjustments
Once the preliminary fund is established, the following quantitative
adjustment factors will be applied to determine a final incentive fund:
Factor Maximum
------ -------
- Return on Capital Employed 10%
- Working Capital Measures 5%
- Environmental Measures 5%
- Safety & Health Measures 5%
Each of these quantitative adjustment factors will be applied for a
total increase (decrease) to the fund of as much as 25%.
-3-
<PAGE> 4
Qualitative Adjustments
The following qualitative adjustment factors for overall leadership
will also be applied.
- Innovation
- Customer Satisfaction / Quality
- Leadership of Change
- Workforce Diversity
- Operational Considerations (Quality of Earnings)
These qualitative factors will be applied to a maximum of 2%, for a
total increase/decrease to the fund as much as 10%.
4.2 Committee Authority. The Committee shall have the right at any time
in its sole discretion to modify, eliminate or withdraw for such period or
periods as it may determine, the incentive amounts, in part or in whole, to be
made available under this Section 4 for payment of awards to any or all
participating Corporate or Division entities or any Participant or Participants
hereunder.
Section 5. Determination of Individual Awards
5.1 Determination of Individual Incentive Target Awards. Annually, the
Committee shall determine the Salary Grade applicable to the Chief Executive
Officer of the Company, and the Company shall determine the Salary Grade
applicable to all other Participants. Each Participant's Individual Incentive
Target Award will be determined by the Company.
5.2 Determination of Individual Incentive Awards. Actual individual
awards to be paid to Participants will vary above or below the assigned
Individual Incentive Target Awards dependent upon each individual's performance
in accordance with guidelines prescribed by the Company. The actual award to a
Participant must be approved by both the Company and the Committee (or only the
Committee for awards applicable to the Chief Executive Officer of the Company)
and shall not exceed 100% of the Participant's annual base salary without
approval of the Committee.
Section 6. Form of Timing of Awards
Payment of Individual Awards. The actual awards to be paid to
Participants in accordance with Section 5.2 shall be paid in cash as soon as
practical once final operating performance is available.
-4-
<PAGE> 5
Section 7. Administration
This Plan shall administered by the Company in accordance with
rules that may be established from time to time by the Committee. The
determination of the Company as to any disputed question arising under this
Plan, including any question of construction or interpretation, shall be final,
binding, and conclusive upon all persons.
Section 8. Amendment and Termination
The Committee, in its absolute discretion and without notice,
may at any time and from time to time modify or amend, in whole or in part, any
or all of the provisions of this Plan, or suspend or terminate it entirely.
Section 9. Applicable Laws
This Plan shall be construed, administered and governed in all
respects under the laws of the State of Illinois.
-5-
<PAGE> 1
Exhibit 10.5
FORM OF
TENNECO PACKAGING INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(The "Plan")
PURPOSE
The Plan is maintained by Tenneco Packaging Inc. (the "Company") as an
unfunded plan for the purpose of providing retirement benefits with respect to
certain employees that are equal to retirement benefits lost under its qualified
defined benefit pension plan for salaried employees (the "Retirement Plan") as a
result of the imposition of the limitations contained in the Internal Revenue
Code of 1986, as amended (the "Code"). The portion of the Plan that provides for
benefits limited by Code Section 415 is maintained as an "excess benefit plan"
as described in Section 3(36) of the Employee Retirement Income Security Act of
1974 as amended ("ERISA"). The other benefits provided for under the Plan are
only available to a "select group of management or highly compensated employees"
as determined by the Compensation / Nominating / Governance Committee of the
Board of Directors of the Company (the "Committee"), and the portion of the Plan
providing such benefits is intended to satisfy the ERISA exemption requirements
for a plan limited to such a group. Capitalized terms not defined herein shall
have the meaning ascribed to such terms in the Retirement Plan.
THE PLAN
1. Effective Date
The Plan as set forth herein is an amendment and restatement of the
Tenneco Inc. Supplemental Executive Retirement Plan (the "Former Plan") as
provided in the Human Resources Agreement (the "HR Agreement") between the
Company and Tenneco Inc. and is effective on the date on which the Company's
stock is distributed to the shareholders of Tenneco Inc. (the "Distribution
Date"). The benefit entitlement, if any, under the Former Plan of any person who
separated from service prior to that date shall be governed by the provisions of
the Former Plan as it was in effect from time to time prior to that date, and
liability for such benefit has been allocated under the HR Agreement.
2. Eligibility
An employee shall be a "Participant" in this Plan if the employee is a
participant in the Retirement Plan or is provided a benefit under Section 11
hereof.
Participation by active and former employees of the Automotive Group
(as that term is defined in the Distribution Agreement between and among Tenneco
Inc. and the Company) shall cease as of the close of business on the
Distribution Date and all liability for benefits accrued under the Plan by such
employees shall be retained and assumed by Tenneco Inc.
<PAGE> 2
3. Amount of Benefit
The benefit payable under this Plan to a Participant, or to the
Participant's Eligible Spouse, Eligible Child(ren), joint annuitant or other
beneficiary(ies), all as determined under the provisions of the Retirement Plan,
shall equal the excess, if any, of (a) over (b) where:
(a) is the benefit that would be paid under the Retirement
Plan if the provisions of the Retirement Plan were administered without
regard to the limitations imposed by the Code and, only with respect to
Participants who, at any time, were participants in the Company's
Executive Incentive Compensation Plan or the Tenneco Inc. Executive
Incentive Compensation Plan (collectively, the "EICP"), if Final
Average Compensation, as computed under the Retirement Plan, were
determined on the basis of compensation paid during the three calendar
years (of the five calendar year period ending no later than the
calendar year immediately preceding his or her termination or
retirement) for which such compensation is the highest, and increased
by the quotient of (i) the total of the cash bonuses, as defined below,
paid to the Participant in the three calendar years (during the same
five calendar year period ending no later than the calendar year
immediately preceding his or her termination or retirement) for which
such total is the highest, divided by (ii) three or such lesser number
of calendar years (included in such period) in which such bonuses were
paid to the Participant; provided, that the calendar year including his
or her termination or retirement shall be included if such event
follows the payment of regular bonuses for that year; and provided,
that bonuses and salary, respectively, deferred at the election of the
Participant shall be counted only in the year that they would have been
paid absent such election, and provided further, that the foregoing
language shall be applied to count bonuses which relate to a calendar
year as paid in that year, for example, 2000 bonuses will be counted in
2000 notwithstanding the fact that they are actually paid in 2001; and
(b) is the benefit that is payable under the Retirement Plan.
Notwithstanding the foregoing, if, except as otherwise provided in
writing, an employee is granted credit for purposes of benefit accrual under the
Retirement Plan for service rendered prior to the time that the employee became
a participant in the Retirement Plan, such employee shall be credited with such
service under this Plan only if and to the extent determined by the Committee.
Unless otherwise provided in writing, no benefit shall be payable under the Plan
unless a benefit also is payable under the Retirement Plan, except that benefits
accrued hereunder as of the effective date are treated as fully vested and
nonforfeitable to the extent provided in the HR Agreement.
Cash bonus means only cash bonuses paid under the EICP and other cash
bonuses as the Committee determines.
4. Form of Benefit
Any benefit under this Plan shall be paid in the same form and manner
as the benefit payments made to, or with respect to, the Participant under the
TRP. Notwithstanding the preceding sentence, no benefit is payable hereunder
prior to 60 days after the Participant has
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<PAGE> 3
separated from service, unless the Committee so determines. Prior to the
commencement of benefits but, in no event later than 24 months after the
Participant has separated from service, and only with respect to a Participant
who at any time was a participant in the EICP (or a beneficiary of such a
Participant), such Participant or beneficiary may elect, but only with the
approval of the Committee, to receive payment of such benefit in the form of a
lump sum or annuity, provided that in cases where a Participant has chosen a
lump sum and the exact amount of a Participant's benefit cannot be determined by
the date elected for payment, a preliminary lump sum shall be paid with respect
to amounts that can be clearly ascertained then, with the remainder to be issued
in a subsequent lump sum when that amount is exactly determined by the Committee
or its delegee. In addition, with respect to all Plan Participants, if the
benefit payable from this Plan (expressed as an age 65 life annuity) would be
less than $50 per month, the benefit payable from this Plan automatically shall
be paid as a lump sum.
The actuarial factors set forth in the Retirement Plan shall be used to
compute benefits hereunder, provided that, for purposes of any lump sum payment
that may be payable under the Plan, the interest rate used shall be the annual
rate of interest on 30-year Treasury securities as specified by the IRS for the
second calendar month preceding the first day of the Plan Year during which the
annuity starting date occurs, and the applicable mortality table described in
Rev. Rul. 95-6, 1995-1 C.B. (page 80), or in such other formal guidance as may
be issued from time to time by the IRS.
5. Unfunded Plan
This Plan shall be maintained as an unfunded non-qualified deferred
compensation plan. All benefits under this Plan shall be payable from the
general assets of the Company. No person shall be entitled to receive any
benefits under this Plan from the funds of the Retirement Plan.
6. No Assignment
No benefit under this Plan shall be assignable or alienable or
subjected, by attachment or otherwise, to the claims of creditors of any person.
7. No Guarantee of Employment
This Plan shall not be construed to give any Participant the right to
be retained in the employment of the Company or any of its affiliates.
8. Operation and Administration
This Plan shall be operated under the direction of and administered by
the Committee and in accordance with its administrative rules.
The Committee's decision in all matters involving the interpretation
and application of this Plan shall be final and binding. The Committee shall
establish a claims procedure which is consistent with the claims procedure
employed under the Retirement Plan.
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<PAGE> 4
9. Governing Law
To the extent not preempted by federal law, this Plan shall be
construed, administered and enforced in accordance with the laws of the State of
Illinois.
10. Amendment and Discontinuance
The Company reserves the right, by action of the Committee, to amend or
discontinue the Plan. However, no such amendment or discontinuance shall impair
or adversely affect any benefits accrued under this Plan as of the date of such
action.
11. Special Appendix
The Company may from time to time determine to provide certain persons
additional supplemental pension benefits, which may be reflected in a Special
Appendix hereto or in such other document as the Company shall determine.
References in a Special Appendix or such other document to the "Plan" are to
this Plan.
12. Employees Transferred to Newco
This Section effects the terms of the Human Resources Agreement between
and among Tenneco Inc., Tenneco Packaging Inc.("TPI") and Packaging Corporation
of America ("Newco"). Active employees of Tenneco Packaging Inc. ("TPI") who
become employees of Newco or one of its subsidiaries and other persons who have
vested benefits in the Retirement Plan and become employees of Newco or one of
its subsidiaries ("Newco Employees") prior to the earliest of: (i) five years
from April 12, 1999; or (ii) the date specified in the notice provided to
Tenneco by Newco that such arrangement will terminate (the "Salaried Plan
Transition Date") will continue to be covered under the Plan until the earliest
of: (i) the Salaried Plan Transition Date; (ii) his or her separation from
service with Newco; or (iii) payment of his or her benefits under the Plan
pursuant to mutual agreement. Newco Employees will cease participation in future
benefit accruals under the Plan as of the date specified in the preceding
sentence. Until that date, any service or compensation, if applicable, will be
used to determine whether Newco Employees attain eligibility for benefits under
the Plan, including eligibility for subsidized early retirement benefits. All
benefits accrued by Newco Employees will be fully vested and nonforfeitable on
April 12, 1999, and all subsequent benefits accrued until the Salaried Plan
Transition Date will be fully vested and nonforfeitable upon accrual. In
addition, service with Newco after the Salaried Plan Transition Date will be
recognized as service under the Plan for purposes of determining additional
retirement benefit accruals beyond those accrued as of the Salaried Plan
Transition Date.
Subject to (iii) above, Newco Employees will not be treated as persons
who separated from service, unless they actually do separate from service with
Newco or an affiliate of Newco, for purposes of entitling them to commence
receiving benefits under the Plan.
Any and all enhancements to which a Newco Employee is entitled under
Section 11 hereof shall be preserved through the Salaried Plan Transition Date.
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<PAGE> 5
R. WAMBOLD BENEFITS
UNDER THE
COMPANY'S SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
The benefits of Richard L. Wambold ("Wambold") under the Plan
will be adjusted as follows:
The annual pension benefits to which Wambold shall be entitled
under all the Company's defined benefit plans (qualified and
non-qualified) commencing at age 55 or his separation from service, if
later, will, at a minimum, be equal to the product of (x) and (y),
where (x) is the average of his total base compensation plus bonus for
the three calendar years immediately preceding his separation from
service and (y) is the total of 25% plus 2.5% for each full year of
service with Tenneco Inc. and the Company earned in the period
commencing January 1, 1997, for a maximum total of 50%. Notwithstanding
the foregoing, the provisions set forth herein shall be applicable only
if Wambold completes five years of service with Tenneco Inc. and the
Company during the period commencing January 1, 1997.
<PAGE> 6
J. FAULKNER BENEFITS
UNDER THE
COMPANY'S SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
The benefits of James V. Faulkner, Jr. ("Faulkner") under the Plan will be
adjusted as follows:
The monthly pension benefits to which Faulkner shall be
entitled under the Plan and herein shall be equal to the normal
retirement pension benefits to which Faulkner would be entitled under
the Plan if Faulkner had commenced participation in the Tenneco Inc.
Retirement Plan ("TRP") on his employment commencement date. If
Faulkner reaches age 55 while performing services for Tenneco Inc. or
the Company as an officer, he will be eligible for an early retirement
benefit under the Plan as though he then met the participation and
service requirements of the TRP, with subsidized reduction factors no
less favorable than those in effect under the TRP on January 1, 1997.
If Faulkner dies before commencing to receive the benefits described
hereunder, his beneficiary will receive a death benefit which is the
present value of the benefits he has accrued hereunder as of the date
of his death.
If Faulkner remains employed by the Company through December
31, 2002 his benefit hereunder will be determined by counting an
additional three years of service and participation and an additional
three years of age beyond actual service, participation and age at the
time of separation from service. If he resigns or is discharged for
cause prior to December 31, 2002, he will be ineligible for the
supplemental pension plan enhancement described in this paragraph. In
all other circumstances, including without limitation his death,
disability or discharge without cause, Faulkner or his beneficiary in
the case of death will be eligible for this supplemental pension plan
enhancement.
<PAGE> 7
MEAD SPECIAL APPENDIX
TO THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Dana G. Mead ("Mead").
1. Mead shall be entitled to monthly pension benefits in the
amount determined under Section 2 hereof commencing on the first day of
the calendar month immediately following the termination of his
employment with the Tenneco Management Company (the "Company").
2. The monthly pension benefits to which Mead shall be entitled
shall be equal to the greater of (a) or (b) where
(a) equals the benefits to which Mead would be entitled under
the Tenneco Inc. Retirement Plan (the "TRP") and this
Plan, computed using the Final Average Earnings, as
defined in Section 3 hereof, and Years of Credited
Service, as defined in Section 4 hereof, and substituting
the rules of Sections 1, 5 and 6 hereof for the generally
applicable rules of such plans; and
(b) equals 2.48% of Mead's Final Average Earnings, as defined
in Section 3 hereof, times his Years of Credited Service,
as defined in Section 4 hereof, and substituting the
rules of Sections 1, 5 and 6 hereof for the generally
applicable rules of such plans.
3. "Final Average Earnings" means the quotient of (i) Mead's
Earnings, as defined below, divided by (ii) 36. "Earnings" means the
greater of (a) Mead's regular base salary for the 3 calendar years in
which such regular base salary was the highest in the 5 consecutive
calendar year period ending prior to his termination of employment plus
the total cash bonus earned by Mead for the 3 calendar years in which
such total was the highest in the 5 consecutive calendar year period
ending prior to his termination of employment; or (b) Mead's regular
base salary (annualized for the year of termination of employment) for
the 3 calendar years in which such regular base salary was highest in
the 5 consecutive calendar year period ending in the year of his
termination of employment plus the total cash bonus earned by Mead for
the 3 calendar years in which such total was the highest in the 5
consecutive calendar year period ending in the year of his termination
of employment.
4. "Years of Credited Service" means the total of (i) 14 2/3 plus
(ii) Mead's Actual Tenneco Service, as defined below. "Actual Tenneco
Service" means the period, in whole years and fractions thereof with
each month or portion thereof counting as one-twelfth of one year, from
March 16, 1992 through the date that Mead attains age 65.
<PAGE> 8
5. The benefits provided hereunder shall be paid in the joint and
50% survivor form of annuity if Mead is married at the time benefits
are to commence -- i.e., to Mead for life and, after his death, 50% of
the monthly amount payable during Mead's life continuing to the spouse,
if any, to whom he was legally married at the date of the commencement
of payment of benefits hereunder and to whom he was so married on the
date of his death. There shall be no reduction in the amount of the
benefits payable during Mead's life on account of payment in the joint
and 50% survivor form. The benefits provided hereunder shall be paid in
the life only form of annuity if Mead is not married at the time that
benefit payments are to commence. Subject to the rules stated in the
immediately following paragraph, Mead may elect to receive such
benefits in another form which is the actuarial equivalent of the
normal form of benefit specified above for his marital status at the
time in question. At Mead's election, the Company will purchase and
distribute to him an annuity contract issued by an insurance company
acceptable to Mead to provide such benefits.
If his termination of employment is effective after he attains
age 62 or earlier with the consent of the Company, Mead may elect to
receive such benefits in the form of a lump sum distribution. If a lump
sum distribution is elected, it shall be computed under the assumptions
then in use with respect to the TRP, or its successor; provided, that
in no event shall the interest assumption be greater than the Pension
Benefit Guaranty Corporation immediate annuity interest rate in effect
as of January 1 of the year in which the payment is to be made, and
provided further that the mortality table shall be no less favorable to
Mead or his Beneficiary than the 1983 group annuity table, 50% male,
50% female mix.
Mead may elect that the lump sum benefit be paid at some date
certain which is later than the date specified for benefit commencement
in Section 1 hereof. Any such election shall be irrevocable and must be
filed prior to the date benefits would otherwise commence hereunder. If
he makes such an election, the lump sum amount computed above shall be
credited with interest at the prime rate prevailing from time to time
from the date specified in Section 1 above until the date of actual
payment.
6. If Mead dies before commencing to receive the benefits
described hereunder, his Beneficiary will receive a death benefit in a
lump sum distribution which is the present value of the benefits which
he has accrued hereunder as of the date of his death computed in
accordance with the rules set forth herein, including the interest
assumption specified in Section 5 hereof. Without limiting the
generality of the foregoing, it is specifically provided that the
special alternative death benefit called for by the TRP as in effect on
December 31, 1994, shall apply if that produces a higher benefit.
7. The benefits provided hereunder are in lieu of any benefits to
which Mead might otherwise be entitled under the TRP, Tenneco Inc.
Benefit Equalization Plan or this Plan, but shall not adversely affect
his entitlement to benefits under any other plan, fund or program
maintained by the Company, nor shall benefits provided under any other
such
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<PAGE> 9
plan fund or program be offset against or otherwise reduce the benefits
provided for hereunder.
8. For the purpose of calculating Mead's Earnings, the Company
shall determine an amount that shall be used as a cash bonus number
(the "Hypothetical Bonus") for any year in which Mead has received
something in lieu of a cash bonus. Notwithstanding the foregoing, a
Hypothetical Bonus shall be counted only in circumstances in which it
would yield larger monthly pension benefits.
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<PAGE> 1
EXHIBIT 10.6
FORM OF
TENNECO PACKAGING INC. CHANGE IN CONTROL
SEVERANCE BENEFIT PLAN FOR KEY EXECUTIVES
(the "Plan")
This Plan is established by Tenneco Packaging Inc. (the "Company")
effective on the date on which the stock of the Company is distributed to the
shareholders of Tenneco Inc. (the "Effective Date"). The purpose of the Plan is
to induce key employees to enter into, or continue their services or employment
with, and to steadfastly serve the Company if and when a Change in Control (as
defined below) is threatened, despite attendant career uncertainties, by
committing the Company to provide severance benefits in the event their
employment terminates as a result of a Change in Control.
1. Definitions
A. "Change in Control" shall mean the first to occur of the
following events (but no event other than the following
events), except as otherwise provided below:
(1) any person and any of their affiliates or associates
becomes the beneficial owner, directly or indirectly,
of securities of the Company representing (a) fifteen
percent (15%) or more of the combined voting power of
the Company's then outstanding securities having
general voting rights, and a majority of the
Incumbent Board does not approve the acquisition
before the acquisition occurs, or (b) forty percent
(40%) or more of the combined voting power of the
Company's then outstanding securities having general
voting rights. Notwithstanding the foregoing, a
Change in Control shall not be deemed to occur
pursuant to this paragraph (1) solely because the
requisite percentage of the combined voting power of
the Company's then outstanding securities having
general voting rights is acquired by one or more
employee benefit plans maintained by one or more
Packaging Companies; or
(2) members of the Incumbent Board cease to constitute a
majority of the Company Board; or
(3) the consummation of any plan of merger,
consolidation, share exchange or combination between
the Company and any person including becoming a
subsidiary of any other person without members of the
Incumbent Board, as constituted immediately prior to
the merger, consolidation, share exchange or
combination constituting a majority of the board of
directors of (a) the surviving or successor
corporation, or, (b) if the surviving or successor
corporation is a majority-owned subsidiary of another
corporation or corporations, the ultimate parent
company of the surviving or successor corporation; or
(4) the consummation of any sale, exchange or other
disposition of all or substantially all of the
Company's assets without members of the
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<PAGE> 2
Incumbent Board immediately prior to any sale,
exchange or disposition of all or substantially all
of the Company's assets constituting a majority of
the board of directors of (a) the corporation which
holds such assets after such disposition, or, (b) if
such corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate
parent company of the successor corporation provided,
that the Company Board may determine conclusively
that any transaction does not constitute a sale,
exchange or other disposition of substantially all of
the Company's assets; or
(5) if any person and any of their affiliates and
associates, shall elect or have elected, during any
period not exceeding 24 months, at least 25% of the
members of the Company Board, without the approval of
the Incumbent Board and such members are comprised of
persons not serving as members of the Company Board
immediately prior to the formation of such group or
the first solicitation of proxies by such
shareholder.
B. "Company Board" means the Board of Directors of the Company.
C. "Constructive Termination" will be deemed to have occurred if,
following the Change in Control, a Key Executive separates
from service with all Packaging Companies after the Packaging
Companies, by action or inaction, and without the Key
Executive's express prior written consent:
(1) diminish in any manner the Key Executive's status,
position, duties or responsibilities with Packaging
Companies from those in effect immediately prior to
the Change in Control; without limiting the
foregoing, for purposes of this clause (1) a
diminution will be deemed to have occurred if the Key
Executive does not maintain the same or greater
status, position, duties and responsibilities with
the ultimate parent corporation of a controlled group
of corporations of which the Company is a member upon
consummation of the transaction or transactions
constituting the Change in Control;
(2) reduce the Key Executive's current annual cash
compensation from Packaging Companies below the sum
of (a) the Key Executive's annual base salary or
annual base compensation from the Packaging Companies
in effect immediately prior to the Change in Control
and (b) the Key Executive's average annual award
under the Company's Executive Incentive Compensation
Plan (or any successor plan) for the three calendar
year periods (or for such shorter period as the Key
Executive has been employed by the Company) completed
immediately prior to the Change in Control;
(3) cause a material reduction in (a) the level of
aggregate Packaging Companies-paid medical benefit,
life insurance and disability plan
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<PAGE> 3
coverages; or (b) the aggregate rate of Packaging
Companies-paid thrift/savings plan contributions and
of Packaging Companies-paid defined benefit
retirement plan benefit accrual, from those coverages
and rates in effect immediately prior to the Change
in Control; or
(4) effectively require the Key Executive to relocate
because of transfer of the Key Executive's place of
employment with Packaging Companies; for purposes of
the foregoing, a transfer of place of employment
shall be deemed to require a Key Executive to
relocate if such transfer (i) is greater than 25
miles and (ii) increases the normal commuting time of
such Key Executive by more than 50%.
A Constructive Termination will be deemed to have occurred for
all Key Executives if any successor to the Company in a
merger, consolidation, purchase or other combination
constituting a Change in Control fails to assume, in writing,
all of the Company's obligations under the Plan promptly upon
consummation of such Change in Control.
In addition, a determination that a Key Executive has been
Constructively Terminated for purposes of eligibility for
benefits under this Plan shall be based solely on the criteria
set forth in this paragraph C and the Key Executive's
eligibility or application for, or receipt of, any retirement
benefits from any Packaging Company following separation from
service shall have no bearing on such determination.
D. "Discharge for Cause" shall be deemed to have occurred only
if, following the Change in Control, a Key Executive is
discharged by Packaging Companies from employment because:
(1) the Key Executive has engaged in dishonesty or other
serious misconduct in his or her capacity as an
employee of Packaging Companies having the effect of
materially injuring the reputation or business of
Packaging Companies, monetarily or otherwise; or
(2) the Key Executive has wilfully and continually failed
(unless due to incapacity resulting from physical or
mental illness) to perform the duties of his or her
employment by Packaging Companies after written
demand for substantial performance is delivered to
the Key Executive by Packaging Companies specifically
identifying the manner in which the Key Executive has
not substantially performed such duties.
Notwithstanding the foregoing, a Key Executive who,
immediately prior to the Change in Control, is a member of
Executive Group I shall not be deemed to have been Discharged
for Cause under paragraph 1 or 2 above unless a written notice
has been delivered to the Key Executive stating that the
Packaging Companies
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<PAGE> 4
have terminated the Key Executive's employment, which notice
shall include a resolution, adopted by at least a
three-quarter's vote of the Incumbent Board (after the Key
Executive has been provided with reasonable notice and an
opportunity, together with counsel, for a hearing before the
entire Incumbent Board), finding that the Key Executive has
engaged in the conduct set forth in paragraphs (1) or (2) of
the preceding sentence.
E. "Executive Group I" shall consist of each individual who,
immediately prior to a Change in Control,
(1) is an executive officer of the Company listed in the
Company's proxy statement most recently filed with
the Securities and Exchange Commission and any other
officer of the Company of the rank of Vice
President or above designated by the Chief Executive
Officer of the Company; or
(2) is the President (or other principal officer) of any
other Packaging Company, if designated by the Chief
Executive Officer of the Company, in writing on or
before the Change in Control, as a member of
Executive Group I.
F. "Executive Group II" shall consist of each individual
(1) who is not a member of Executive Group I; and
(2) (a) who, immediately prior to the Change in Control,
is an active participant in the Company's Executive
Incentive Compensation Plan, or (b) who, immediately
prior to the Change in Control, is an employee of a
Packaging Company who has been designated by the
Chief Executive Officer of the Company, in writing on
or before the Change in Control, as a member of
Executive Group II.
G. "Incumbent Board" means
(1) the members of the Company Board on the Effective
Date, to the extent that they continue to serve as
members of the Company Board; and
(2) any individual who becomes a member of the Company
Board after the Effective Date, if his or her
election or nomination for election as a director is
approved by a vote of at least three-quarters of then
Incumbent Board.
H. "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
I. "Key Executive" means an individual who, immediately prior to
the Change in Control, is a member of Executive Group I or
Executive Group II.
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<PAGE> 5
J. "Packaging Company" or "Packaging Companies" mean the Company
and any stock corporation of which a majority of the voting
common or capital stock is owned directly or indirectly by the
Company.
K. "Threatened Change in Control" shall mean (i) any publicly
disclosed proposal, offer, actual or proposed purchase of
stock or other action which, if consummated, would, in the
opinion of the Incumbent Board constitute a Change in Control,
including the Company entering into an agreement, the
consummation of which would result in a Change in Control or
(ii) the adoption of a resolution by the Incumbent Board that
a Threatened Change in Control has occurred.
L. "Threatened Change in Control Period" shall mean the period
beginning on the date a Threatened Change in Control occurs
and ending on the earlier of (1) the date the proposal, offer,
actual or proposed purchase of stock or other action is
formally withdrawn or the Incumbent Board has determined that
the circumstances which constituted the Threatened Change in
Control no longer exist; or (2) the date a Change in Control
occurs.
For purposes of the foregoing definitions, the terms
"associate", "affiliate", "person", and "beneficial owner"
shall have the respective meanings set forth in Sections 3(a)
and 13(d) of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder.
2. Eligibility for Benefits. Any Key Executive who meets the criteria set
forth in paragraphs (A) or (B) below shall be entitled to receive the
benefits described therein.
A. (i) If within two years after a Change in Control, a Key
Executive is separated from service as an employee with
Packaging Companies because (a) the Key Executive is
discharged by the Packaging Companies, provided, such
discharge is not Discharge for Cause, or (b) because of
Constructive Termination, and (ii) throughout the period
beginning with the Change in Control and ending with such
separation from service with Packaging Companies, the Key
Executive remains an employee of Packaging Companies, he or
she shall be entitled to receive the benefits described in
Sections 3 and 6 below; or
B. If, during the first thirty days following the first
anniversary of a Change in Control, a member of Executive
Group I on the date of the Change in Control, voluntarily
elects to separate from service, he or she shall be entitled
to receive the benefits described in Section 3 (A) below.
3. Severance Benefits.
A. If the Key Executive is a member of Executive Group I
immediately prior to the Change in Control -- an amount equal
to three times the sum of (a) the Key Executive's annual base
salary or other annual base compensation in effect immediately
prior to the Change in Control, plus (b) the greater of (i)
the average
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<PAGE> 6
of the Key Executive's annual awards under the Company's
Executive Incentive Compensation Plan, together with any
special awards from Packaging Companies, for the last three
years of the Key Executive's employment with Packaging
Companies or (ii) the Key Executive's targeted annual award
under such Plans in effect immediately prior to the Change in
Control.
B. If the Key Executive is a member of Executive Group II
immediately prior to the Change in Control -- an amount equal
to two times the sum of (a) the Key Executive's annual base
salary in effect immediately prior to the Change in Control,
plus (b) the greater of (i) the average of the Key Executive's
annual awards under the Company's Executive Incentive
Compensation Plan, together with any special awards from
Packaging Companies, for the last three years of the Key
Executive's employment with Packaging Companies or (ii) the
Key Executive's targeted annual award under such Plans in
effect immediately prior to the Change in Control.
C. All deferred compensation (and earnings accrued thereon)
credited to the account of a Key Executive under any deferred
compensation plan, program or arrangement of Packaging
Companies shall be paid to such Key Executive immediately
following termination of employment, notwithstanding any
provisions of such plan, program or arrangement to the
contrary.
D. An amount, paid in a single lump sum, equal to the sum of (i)
any incentive compensation which has been allocated or awarded
to such Key Executive for a completed calendar year or other
measuring period preceding the Change in Control but has not
yet been paid and (ii) a pro rata portion to the date of the
Change in Control of the aggregate value of all contingent
incentive compensation awards to such Key Executive for the
current calendar year or other measuring period under any
compensation or incentive plans of the Company, calculated as
if 100% of any performance target or goal was achieved and
on a basis which would provide such Key Executive with
a pro rata portion (based on elapsed time) of the amounts he
or she would have been entitled to receive if he or she had
continued to be employed by the Company throughout the period
contemplated with respect to such calendar year award and if
all other conditions for receiving such awards had been met,
notwithstanding any provision of any such plan to the
contrary.
E. The Key Executive shall be entitled to be paid in cash the
total of the fair market value, determined as of the date of
his or her separation from service, of any Restricted Stock,
Stock Appreciation Rights, Performance Units, Stock Equivalent
Units and Dividend Equivalents which he or she held
immediately prior to such separation from service to the
extent that he or she would not otherwise receive the value
thereof. The terms "Restricted Stock", "Stock Appreciation
Rights", "Performance Units", "Stock Equivalent Units" and
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<PAGE> 7
"Dividend Equivalents" shall have the meaning ascribed to
those terms in the Company's Stock Ownership Plan.
F. The Key Executive and his or her eligible dependents, if any,
shall continue to be covered by the health, life and
disability plans applicable to comparably situated active
employees as in effect from time to time and subject to the
rules thereof for the period described below. For persons
entitled to Executive Group I benefits, and their eligible
dependents, the period is three (3) years from his or her
separation from service. For persons entitled to Executive
Group II benefits, and their eligible dependents, the period
is two (2) years from his or her separation from service. This
period of coverage will not count against the minimum period
of health coverage required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), and persons covered by
this provision will be afforded their applicable COBRA rights
at the end of the health coverage provided herein.
G. The Company shall provide each Key Executive with reasonable
out placement services consistent with past practices of the
Company with respect to officers at such level prior to the
Change in Control.
H. If a Key Executive receives other cash severance benefits from
Packaging Companies, the amount of severance benefit to which
the Key Executive is entitled under Section 3(A) or (B) above
shall be considered to be satisfied to the extent of such
other cash severance payment.
4. Other Benefits. Upon a Change in Control, and without regard to the Key
Executive's employment status following such Change in Control, all
Stock Options granted under the Company's Stock Ownership Plan or any
other similar plan maintained by the Company shall become immediately
vested and exercisable for the lesser of 36 months or the remaining
life of the option. The term "Stock Options" shall have the meaning
ascribed thereto in the Company's Stock Ownership Plan.
5. Method of Payment. The Company shall pay, or cause to be paid, the
severance benefits under the Plan to the Key Executive in a single cash
sum within 30 days following the later of the Key Executive's
separation from service as an employee with Packaging Companies and
submission of a claim as required by Section 12 of the Plan. Except for
withholdings required by law to satisfy local, state, and federal tax
withholding requirements, no offset nor any other reduction shall be
taken in paying such benefit.
6. Gross-Up Payment. If any portion of the payments described herein,
and/or any other payments no matter the source of such payments,
shall be subject to the tax imposed by Section 4999 of the Internal
Revenue Code (the portion of such payments which are subject to the
Excise Tax being referred to herein as the "Payments") the Company
shall pay to the affected Key Executive, not later than the 30th day
following the date the Key Executive becomes subject to the Excise
Tax an additional amount (the "Gross-Up Payment"), such that the net
amount retained by the Key Executive after deduction of the Excise
Tax on such Payments, and all
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federal, state and local income and employment tax (assuming the Key
Executive is in the highest marginal tax bracket), interest and
penalties and Excise Tax on the Gross-Up Payment, shall be equal to the
amount which would have been retained by the Key Executive had the
payments not been subject to the Excise Tax.
7. Assignment. No Key Executive may assign, transfer, convey, mortgage,
hypothecate, or in any way encumber any severance benefit payable under
the Plan, nor shall the Key Executive have any right to receive any
severance benefit under the Plan except at the time, in the amount and
in the manner provided in the Plan, provided that the rights of a Key
Executive under the Plan may be enforced by the Key Executive's heirs
and legal representatives.
This Plan may and shall be assigned or transferred to, and shall be
binding upon and shall inure to the benefit of, any successor of the
Company, and any such successor shall be deemed substituted for all
purposes of "the Company" under the provisions of the Plan. As used in
the preceding sentence, the term "successor" shall mean any person,
firm, corporation, or business entity which at any time, whether by
merger, purchase or otherwise, acquires all, or essentially all, of the
assets or business of the Company. Notwithstanding such assignments,
the Company shall remain, with such successor, jointly and severally
liable for all obligations under the Plan, which, except as herein
provided, may not be assigned by the Company.
8. Plan Amendment and Termination. The Plan may be terminated or amended
at any time by the Board of Directors provided that during a Threatened
Change in Control Period, the Plan may not be terminated or amended in
any manner that reduces the benefits to a Key Executive or adversely
affects the rights of a Key Executive under the Plan. In the event of a
Change in Control, no amendment, or termination, made on or after the
date of the Change in Control shall apply to any Key Executive until
the expiration of two years and thirty-one days from the date of the
Change in Control.
9. Funding. The Company shall pay, or cause to be paid, any severance
benefit under the Plan out of general assets of Packaging Companies.
Nothing contained herein shall preclude the Company from establishing a
grantor trust through which assets to satisfy obligations under the
Plan may be set aside to provide for benefit payments to Participants.
Any assets or property held by the Trust shall be subject to the claims
of general creditors of the Company, but only upon the insolvency or
bankruptcy of the Company and only to the extent that the assets or
property held by the Trust are attributable to contributions made by
the Company. No person other than the Company shall, by virtue of the
provisions of the Plan, have any interest in such funds.
10. Controlling Law. The Plan shall be interpreted under the laws of the
State of Illinois, except to the extent that federal law preempts.
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11. Plan Administrator. The Company is the Plan Administrator, and it shall
have the authority to control and manage the operation of this Plan
with the authority to interpret the Plan.
12. Making a Claim
A. Submission of a Claim. In order to claim a severance benefit
under this Plan, a Key Executive need only advise the Plan
Administrator in writing that the Key Executive's employment
with Packaging Companies has terminated, that the Key
Executive claims a severance benefit under the Plan and of the
mailing address to which the severance benefit or related
correspondence is to be sent.
B. Denial of a Claim. If a Key Executive has made a claim for
benefits under this Plan and any portion of the claim is
denied, the Plan Administrator will furnish the Key Executive
with a written notice stating the specific reasons for the
denial, specific reference to pertinent Plan provisions upon
which the denial was based, a description of any additional
information or material necessary to perfect the claim and an
explanation of why such information or material is necessary,
and appropriate information concerning steps to take if the
Key Executive wishes to submit the claim for review.
The claim will be deemed accepted if the Plan Administrator
does not approve the claim and fails to notify the Key
Executive within 90 days after receipt of the claim, plus any
extension of time for processing the claim, not to exceed 90
additional days, as special circumstances require. To obtain
an extension, the Plan Administrator must advise the Key
Executive in writing during the initial 90 days if an
extension is necessary, stating the special circumstances
requiring the extension and the date by which the Key
Executive can expect the Plan Administrator's decision
regarding the claim.
C. Review Procedure. Within 60 days after the date of written
notice denying any benefits, the Key Executive or the Key
Executive's authorized representative may write to the Plan
Administrator requesting a review of that decision by the
Company Board or the Compensation / Nominating / Governance
Committee
thereof (the "Committee").
The request for review may contain such issues and comments as
the Key Executive wishes to have considered in the review. The
Key Executive may also review pertinent documents in the Plan
Administrator's possession. The Company Board or the Committee
will make a final determination with respect to the claim as
soon as practicable. The Plan Administrator will advise the
Key Executive of the determination in writing and will set
forth the specific reasons for the determination and the
specific references to any pertinent Plan provisions upon
which the determination is based.
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The claim will be deemed accepted on review if the Plan
Administrator fails to give the Key Executive written notice
of final determination within 60 days after receipt of the
request for review, plus any extension of time for completing
the review, not to exceed 60 additional days, as special
circumstances require. To obtain an extension, the Plan
Administrator must advise the Key Executive in writing during
the initial 60 days if any extension is necessary, stating the
special circumstances requiring the extension and the date by
which the Key Executive can expect the Company's decision
regarding the review of the claim.
13. Legal Fees and Costs. In the event a Key Executive initiates legal
action to enforce his or her right to any benefit under this Plan, the
Company shall pay all reasonable legal fees and costs incurred by the
Key Executive in connection with such legal action, provided that the
Key Executive prevails on any material issue that is a subject of the
legal action.
14. Severability. If for any reason any provision or provisions of the Plan
are determined invalid or unenforceable, the validity and effect of the
other provisions of the Plan shall not be affected thereby.
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EXHIBIT 10.7
FORM OF
TENNECO PACKAGING INC.
DEFERRED COMPENSATION PLAN
(the "Plan")
1. PURPOSE
The purpose of the Plan is to provide to directors and a select group of
management or highly compensated employees of Tenneco Packaging Inc. and its
subsidiaries and affiliates (hereinafter collectively referred to as the
"Company") an opportunity to defer compensation received by them from the
Company in accordance with the terms and conditions set forth herein. This
document amends and restates the Tenneco Inc. Deferred Compensation Plan made as
of January 1, 1997 and amends, restates and incorporates the Deferred
Compensation Plan for Directors of Tenneco Inc., both as to persons whose
deferred compensation accounts are allocated to the Company under the Human
Resources Agreement between the Company and Tenneco Inc. (the "Agreement").
2. ADOPTION AND ADMINISTRATION
The Plan shall be administered by the Compensation / Nominating / Governance
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall have sole and complete authority and discretion to interpret the
terms and provisions of the Plan and to adopt, alter and repeal such
administrative rules, regulations and practices governing the operation of the
Plan, and to determine facts under the Plan as it shall from time to time deem
advisable.
3. ELIGIBILITY
Directors and U.S. paid participants in the Company's Executive Incentive
Compensation Plan shall be eligible to participate in the Plan.
Any person who had an account balance in the Tenneco Inc. Deferred Compensation
Plan (or the Deferred Compensation Plan for Directors of Tenneco Inc.) as of the
date on which the stock of the Company was distributed to the shareholders of
Tenneco Inc. and whose account balance was allocated to the Company under the
Agreement shall continue to participate in this Plan. Participation by Active
and Former Employees of the Automotive Group shall cease as of the close of
business on the Distribution Date and all interests in the Plan of (and Plan
liabilities with respect to) such employees shall be transferred to the Tenneco
Automotive Inc. Deferred Compensation Plan.
Persons eligible to participate in the Plan shall be referred to as
"Participant" or "Participants" as the case may be.
4. ELECTION TO DEFER
(a) A Participant may elect in writing to defer receipt of all or
a specified portion of his or her bonuses or incentive
compensation to be received during a calendar year
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("Deferral Election"); provided, however, that any election by
a Participant who is subject to the reporting and short swing
profits liability provisions of Section 16 of the Securities
and Exchange Act of 1934, as amended, including an election
relating to the form of distribution or to defer income into a
"Packaging stock index account" pursuant to Section 6 of the
Plan, shall not be effective until such election and the
transactions contemplated thereby shall have been specifically
approved by the Committee to the extent such approval is
required to avoid liability under Section 16 of the Securities
and Exchange Act of 1934 and the regulations thereunder.
Amounts deferred under the Plan shall be referred to as the
"Deferred Amounts." Once received by the Committee, a Deferral
Election cannot be revoked.
(b) Except as provided in this Section 4(b), a Deferral Election
must be made prior to September 30 of the calendar year in
which the bonus or incentive compensation will be awarded. A
Participant must make a separate Deferral Election with
respect to each calendar year of participation in the Plan. A
new Participant in the Plan shall have 30 days following his
or her notification by the Committee of his or her eligibility
to participate in the Plan to make a Deferral Election with
respect to bonus or incentive compensation to be awarded
within that calendar year.
(c) As specified by the Participant in a Deferral Election, the
period of deferral shall be until the Participant dies,
terminates employment with Packaging, or until a specific date
selected by the Participant in the Deferral Election.
5. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT
At the time of a Participant's initial Deferral Election, the Company shall
establish a memorandum account (a "Deferred Compensation Account") for such
Participant on its books. The Deferred Amount shall be credited to the
Participant's Deferred Compensation Account as of the day on which the
Participant would otherwise be entitled to receive the bonus or incentive
compensation. Any required withholding for taxes (e.g. Social Security taxes) on
the Deferred Amount shall be made from other compensation of the Participant.
Adjustments as provided below, shall be made to the Participant's Deferred
Compensation Account.
6. ADJUSTMENTS TO DEFERRED AMOUNTS
The Committee shall credit the balance of the Participant's Deferred
Compensation Account with an earnings factor. The earnings factor will equal the
amount the Participant's Deferred Compensation Account would have earned if it
had been invested in the investment options listed below. The Participant is
permitted to select the investment option used to determine the earnings factor
and may change the selection at any time. The Participant may choose more than
one investment option in increments of at least one (1) percent. The Company
reserves the right to change or amend any of the investment options at any time.
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<PAGE> 3
The investment options used to determine the earnings factor are:
(a) The prime rate of interest as reported by The Chase Manhattan
Bank at the first day of each calendar month.
(b) Packaging stock index account -- amount of deferral will be
invested in Packaging stock equivalent unit account. Any
investment in this account will be measured solely by the
performance of the Company's common stock (including dividends
that will be reinvested).
(c) The return for selected Mutual Funds currently offered in the
Company's qualified thrift plan for salaried employees:
(1) Fidelity Growth Company Fund
(2) Barclays U.S. Debt Index Fund (Bond)
(3) Barclays Daily Equity Index Fund
The Company is under no obligation to acquire or provide any of the investments
designated by a Participant, and any investments actually made by the Company
will be made solely in its name and will remain its property.
The crediting of an earnings factor shall occur so long as there is a balance in
the Participant's Deferred Compensation Account regardless of whether the
Participant has terminated employment.
7. PAYMENT OF DEFERRED AMOUNTS
(a) Except as otherwise provided in subsection (b) or (c) below, a
Participant's Deferred Amount shall be paid, or commence to be
paid, to the Participant, or the Participant's beneficiary, as
soon as practicable after:
(i) the Participant's death,
(ii) the termination of the Participant's employment or
service as a director, or
(iii) the date specified in the applicable Deferral
Election made by the Participant.
In the event of the Participant's death, payment of the
balance in the Participant's Deferred Compensation Account
shall be made, either (i) in a lump sum or (ii) in a number of
annual installments, not to exceed five, as soon as
administratively feasible to the Participant's designated
beneficiary, or if none, to the Participant's estate.
(b) The Participant may elect to receive payment of the balance of
his or her Deferred Compensation Account either (i) in a lump
sum upon termination or (ii) in a single payment at a
specified date prior to termination or (iii) in a number of
post
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termination annual installments, not to exceed five, as the
Participant shall elect. The distribution election must be
made at least one year before the Deferred Amount is payable
and must be approved by the Committee. If no election is made,
a lump sum payment will be made upon the Participant's
termination.
(c) Anything contained in this Section 7 to the contrary
notwithstanding, in the event a Participant incurs a
severe financial hardship, the Committee, in its sole
discretion and upon written application of such Participant,
may direct immediate payment of all or a portion of the then
current value of such Participant's Deferred Compensation
Account; provided that such payment shall in no event exceed
the amount necessary to alleviate such financial hardship;
and provided further that in the case of such payment, the
Participant's Deferred Compensation Account shall be reduced
by 110% of the amount of such payment.
8. PARTICIPANT REPORTS
The Committee shall provide a statement to the Participant quarterly concerning
the status of his or her Deferred Compensation Account.
9. TRANSFERABILITY OF INTERESTS
During the period of deferral, all Deferred Amounts shall be considered as
general assets of the Company for use as it deems necessary and shall be subject
to the claims of its creditors.
The rights and interests of a Participant during the period of deferral shall be
those of a general unsecured creditor except that such Participant's rights and
interests may not be reached by the creditors of the Participant or the
Participant's beneficiary, or anticipated, assigned, pledged, transferred or
otherwise encumbered except in the event of the death of the Participant, and
then only by will or the laws of descent and distribution.
10. AMENDMENT, SUSPENSION AND TERMINATION
The Company at any time may amend, suspend or terminate the Plan or any portion
thereof in such manner and to such extent as it may deem advisable and in its
best interests. No amendment, suspension and termination shall reduce the amount
then credited to a Participant's Deferred Compensation Account.
11. UNFUNDED OBLIGATION
The Plan shall not be funded; no trust, escrow or other provisions shall be
established to secure payments due under the Plan; and the Plan shall be
regarded as unfunded for purposes of the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code. A Participant shall be
treated as a general, unsecured creditor at all times under the Plan, and shall
have no rights to any specific assets of the Company. All amounts credited to
the
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memorandum accounts of the Participants will remain general assets of the
Company and shall be payable solely from the general assets of the Company.
12. NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS
Nothing contained herein shall be construed as conferring upon any Participant
the right to continue in the employ of the Company. Any compensation deferred
and any payments made under this Plan shall not be included in creditable
compensation in computing benefits under any employee benefit plan of the
Company except to the extent expressly provided therein.
13. DISPUTE RESOLUTION
By participating in the Plan, the Participant agrees that any dispute arising
under the Plan shall be resolved by binding arbitration in Lake Forest, Illinois
under the rules of the American Arbitration Association and that there will be
no remedy besides the disputed deferred compensation amount in issue.
14. EFFECTIVE DATE
The effective date of this Plan is the date on which the stock of the Company is
distributed to the shareholders of Tenneco Inc.
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<PAGE> 1
EXHIBIT 10.8
FORM OF
TENNECO PACKAGING INC.
STOCK OWNERSHIP PLAN
(the "Plan")
1. Purpose
The purpose of the Plan is to promote the long-term success of Tenneco
Packaging Inc. (the "Company") for the benefit of shareholders by encouraging
its directors, officers and key employees to have meaningful investments in the
Company so that, as stockholders themselves, those individuals will be more
likely to represent the views and interest of other stockholders and by
providing incentives to such directors, officers and key employees for continued
service. The Company believes that the possibility of participation under the
Plan will provide this group of directors, officers and employees an incentive
to perform more effectively and will assist the Company in attracting and
retaining people of outstanding training, experience and ability.
2. Definitions
"Award" means an award or grant made to a Participant under Section 8.
"Award Agreement" means the agreement provided in connection with an
Award under Section 12.
"Award Date" means the date that an Award is made, as specified in an
Award Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Committee" means the Compensation / Nominating / Governance Committee
of the Board of Directors of the Company, or any successor committee thereto.
"Common Stock" means the Company's common stock.
"Covered Employees" shall have the meaning specified in
Section 162(m)(3) of the Code.
"Dividend Equivalent" means an amount equal to the amount of the cash
dividends that are declared and become payable after the Award Date for the
Award to which it relates and on or before the Settlement Date for such Award.
"Fair Market Value" on any date means the average of the highest and
the lowest sales prices of a share of Common Stock on the Composite Tape for
such date, as reported by the National Quotation Bureau Incorporated, provided
that if (i) no sales of Common Stock are included on the Composite Tape for such
date, or (ii) in the opinion of the Committee, the sales of Common Stock on such
date are insufficient to constitute a representative market, then the Fair
Market Value of a share of Common Stock on such date shall be deemed to be the
average of the highest and lowest prices of a share of Common Stock as reported
on said Composite Tape
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<PAGE> 2
for the next preceding day on which (x) sales of Common Stock are included and
(y) the circumstances described in this clause (ii) do not exist.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an ISO.
"Option Price" means the purchase price of one share of Common Stock
under a Stock Option.
"Packaging Company" means the Company and any stock corporation of
which a majority of the voting common or capital stock is owned directly or
indirectly by the Company and any other company designated as such by the
Committee, but only during the period of such ownership or designation.
"Participant" means a director, employee or officer of a Packaging
Company who has been selected by the Committee to receive an Award under the
Plan.
"Performance Unit" means an Award denominated in cash, the amount of
which may be based on the performance of the Participant, of a Packaging Company
or of any subsidiary or division thereof.
"Reload Stock Option" means a Stock Option (i) that is awarded, either
automatically in accordance with the terms of an Award Agreement in which one or
more other Awards are made or by separate Award, upon the exercise of a Stock
Option granted under this Plan or otherwise where the Option Price is paid by
the option holder by delivery of shares of Common Stock on the Settlement Date
for such exercise and (ii) that entitles such holder to purchase the number of
shares so delivered for an Option Price equal to the Fair Market Value of a
share of Common Stock on such Settlement Date.
"Restricted Stock" means shares of Common Stock subject to restrictions
and conditions pursuant to Section 8(c).
"Settlement Date" means, (i) with respect to any Stock Option that has
been exercised in whole or in part, the date or dates upon which shares of
Common Stock are to be delivered to the Participant and the Option Price
therefor paid, (ii) with respect to any SARs that have been exercised, the date
or dates upon which a cash payment is to be made to the Participant, or in the
case of SARs that are to be settled in shares of Common Stock, the date or dates
upon which such shares are to be delivered to the Participant, (iii) with
respect to Performance Units, the date or dates upon which cash or shares of
Common Stock are to be delivered to the Participant, (iv) with respect to
Dividend Equivalents, the date upon which payment thereof is to be made, and (v)
with respect to Stock Equivalent Units, the date upon which payment thereof is
to be made, in each case, determined in accordance with the terms of the Award
Agreement under which any Award was made.
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"Stock Appreciation Right" or "SAR" means an Award that entitles the
Participant to receive on the Settlement Date an amount equal to the excess of
(i) the Fair Market Value of one share of Common Stock on the date
of exercise of the SAR over
(ii) the Fair Market Value of one share of Common Stock on the
Award Date or any other higher amount specified in the Award Agreement.
"Stock Equivalent Unit" means an Award that entitles the Participant to
receive on the Settlement Date an amount equal to the Fair Market Value of one
share of Common Stock on such date.
"Stock Option" or "Option" means any right to purchase shares of Common
Stock (including a Reload Stock Option) awarded pursuant to Section 8(a).
3. Term
The Plan shall be effective as of the date on which the stock of the
Company is distributed to the shareholders of Tenneco Inc., and shall remain in
effect through the fifth anniversary of that date. After termination of the
Plan, no further Awards may be granted other than Reload Stock Options granted
in accordance with Award Agreements existing as of the termination of the Plan,
but outstanding Awards shall remain effective in accordance with their terms and
the terms of the Plan.
4. Plan Administration
(a) The Committee shall be responsible for administering the Plan.
(i) Composition of the Committee. The Committee shall be
comprised of two or more members of the Board of Directors, all of whom
shall be "non-employee directors" as defined in Rule 16b-3 and "outside
directors" as that term is used in Section 162 of the Code and the
regulations promulgated thereunder.
(ii) Powers. The Committee shall have full and exclusive
discretionary power to interpret the Plan and to determine eligibility
for benefits and to adopt such rules, regulations and guidelines for
administering the Plan as the Committee may deem necessary or proper.
Such power shall include, but not be limited to, selecting Award
recipients, establishing all Award terms and conditions and, subject to
Section 13, adopting modifications and amendments to the Plan or any
Award Agreement, including without limitation, any that are necessary
to comply with the laws of the countries in which the Company or its
affiliates operate.
(iii) Delegation. The Committee may delegate to one or more of
its members or to one or more agents or advisors such non-discretionary
administrative duties as it may deem advisable, and the Committee or
any person to whom it has delegated duties as
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<PAGE> 4
aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such persons may have under the
Plan.
(b) The Committee may employee attorneys, consultants, accountants
and other persons, and the Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon the Participants,
the Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination, or interpretation made in
good faith with respect to the Plan or Awards, and all members of the Committee
shall be fully protected by the Company, to the fullest extent permitted by
applicable law, in respect to any such action, determination and interpretation.
5. Eligibility
Awards will be limited to persons who are directors, officers, or key
employees of the Packaging Companies. In determining the persons to whom Awards
shall be made, the Committee shall, in its discretion, take into account the
nature of the person's duties, past and potential contributions to the success
of the Packaging Companies and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan. A person who
has received an Award or Awards may receive an additional Award or Awards. For
purposes of this Section 5, the terms "director," "key employee" and "officer"
shall also include any former director, former key employee or former officer of
a Packaging Company or Tenneco Inc. eligible to receive a replacement Award as
contemplated in the third sentence of Section 8.
6. Authorized Awards; Limitations
(a) Except for adjustments pursuant to Section 7, the maximum
number of shares of Common Stock that shall be available for issuance under the
Plan (the "Authorized Plan Shares") shall be 24,000,000.
(b) If an Award expires unexercised or is forfeited, surrendered,
canceled, terminated or settled in cash in lieu of Common Stock, the shares of
Common Stock that were theretofore subject (or potentially subject) to such
Award may again be made subject to an Award Agreement.
(c) Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have been reacquired by
the Company and that are being held as treasury shares. No fractional shares of
Common Stock shall be issued under the Plan; provided, however, that cash, in an
amount equal to the Fair Market Value of a fractional share of Common Stock as
of the Settlement Date of the Award, shall be paid in lieu of any fractional
shares in the settlement of Awards payable in shares of Common Stock.
(d) In no event shall the number of shares of Common Stock subject
to Stock Options plus the number of shares underlying SARs awarded to any one
Participant during the term set forth in Section 3 hereof, exceed 10% of the
Authorized Plan Shares. In all events,
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determinations under the preceding sentence shall be made in a manner that is
consistent with Code Section 162 and the regulations promulgated thereunder.
7. Adjustments and Reorganizations
The Committee may make such adjustments to Awards granted under the
Plan (including the terms, exercise price and otherwise) as it deems appropriate
in the event of changes that impact the Company, the Company's share price, or
share status, provided, that, notwithstanding any other provision hereof,
insofar as any Award is subject to performance goals established to qualify
payments thereunder as "performance-based compensation" as described in Section
162(m) of the Code, the Committee shall have no power to adjust such Awards
other than (i) negative discretion and (ii) the power to adjust Awards for
corporate transactions, in either case to the extent permissible under
regulations interpreting Code Section 162(m).
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-off, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock, the
number and kind of shares that may be delivered under the Plan shall be subject
to such adjustment as the Committee, in its sole discretion, may deem
appropriate, and the number and kind and price of shares subject to outstanding
Awards and any other terms of outstanding Awards shall be subject to such
adjustment as the Committee, in its sole discretion, may deem appropriate.
8. Awards
The Committee shall determine the type and amount of any Award to be
made to any Participant; provided however, that, except as provided in paragraph
(g), no Awards granted pursuant to this Plan shall vest in less than six months
after the date the Award is granted. Awards may be granted singly, in
combination, or in tandem. Awards may also be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for, grants
or rights under any other employee benefit or compensation plan of the Packaging
Companies or Tenneco Inc., including any such employee benefit or compensation
plan of any acquired entity.
(a) Stock Options
(i) Awards. Stock Options (including Reload Stock Options)
granted under this Plan may be either of the following:
(1) an ISO or
(2) a Non-Qualified Stock Option.
The Committee may grant any Participant one or more ISOs, Non-Qualified
Stock Options, or both types of Stock Options, in each case with or
without SARs or Reload Stock Options or any other form of Award. Stock
Options granted pursuant to this Plan shall be subject to such
additional terms, conditions, or restrictions as may be provided in the
Award Agreement relating to such Stock Option.
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(ii) Option Price. The Option Price of a Stock Option shall
not be less than 100% of the Fair Market Value of a share of Common
Stock on the Award Date.
(iii) ISOs. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority
awarded under the Plan be exercised, so as to disqualify this Plan
under Section 422 of the Code, or, without the consent of the
Participants affected, to disqualify any ISO under Section 422 of the
Code.
An ISO shall not be granted to an individual who, on the date of grant,
owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the employing Company or of its parent or
any subsidiary corporation.
The aggregate Fair Market Value, determined on the Award Date, of the
shares of Common Stock with respect to which one or more ISOs that are
exercisable for the first time by the Participant during any calendar
year shall not exceed the $100,000 limitation imposed by Section 422(d)
of the Code.
(iv) Manner of Payment of Option Price. The Option Price
shall be paid in full at the time of the exercise of the Stock Option
and may be paid in any of the following methods or combinations
thereof;
(A) In United States dollars in cash, check, bank
draft or money order payable to the order of the Company;
(B) By the delivery of shares of Common Stock having
an aggregate Fair Market Value on the date of such exercise to
the Option Price;
(C) Participants may simultaneously exercise the
Stock Option and sell their shares of Common Stock acquired
thereby and apply the proceeds to the payment of the Option
Price pursuant to the procedures established by the Committee;
and
(D) In any other manner that the Committee shall
approve.
Any shares of Common Stock required or permitted to be sold by an
executive officer of the Company in connection with the payment of the
Option Price shall be transferred to the Company.
(v) Reload Stock Options. The Committee may award Reload
Stock Options to any Participant either in combination with other
Awards or in separate Award Agreements that grant Reload Stock Options
upon exercise of outstanding stock options granted under this Plan or
otherwise.
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(b) Stock Appreciation Rights.
(i) Awards. The Committee may award any Participant SARs,
which shall be subject to such additional terms, conditions, or
restrictions as may be provided in the Award Agreement relating to such
SAR Award, including any limits on aggregate appreciation. SARs may be
settled in Common Stock or cash or both.
(ii) Award Price. The award price per share of Common Stock
of an SAR shall be fixed in the Award Agreement and shall be not less
than 100% of the Fair Market Value of a share of Common Stock on the
date of the Award.
(iii) Distribution of SARs. SARs shall be exercisable in
accordance with the conditions and procedures set out in the Award
Agreement relating to such SAR Award.
(c) Restricted Stock. The Committee may award Restricted Stock to
any Participant. Awards of Restricted Stock shall be subject to such conditions
and restrictions as are established by the Committee and set forth in the Award
Agreement, which may include, but are not limited to, continued service with the
Company, achievement of specific business objectives, and other measurements of
individual or business unit or Company performance.
(d) Stock Equivalent Units. The Committee may award Stock
Equivalent Units to any Participant. All or part of any Stock Equivalent Units
Award may be subject to conditions and restrictions established by the
Committee, and set forth in the Award Agreement, which may include some or all
of the following: continued service with the Company, achievement of specific
business objectives, and other measurements of individual or business unit or
Company performance that may include but shall not be limited to, earnings per
share, net profits, total shareholder return, cash flow, return on shareholders'
equity, EVA, and cumulative return on net assets employed. Without limiting the
generality of the foregoing, it is intended that the Committee shall establish
performance goals applicable to Stock Equivalent Units granted to Participants
who, in the judgment of the Committee, may be Covered Employees, in such manner
as shall permit payments with respect thereto to qualify as "performance-based
compensation" as described in Section 162(m)(4)(C) of the Code. The maximum
number of Stock Equivalent Units that may be awarded to any Participant in any
one calendar year shall not exceed 100,000.
(e) Dividend Equivalents. The Committee may provide in any Award
Agreement in which Stock Equivalent Units are awarded that such Stock Equivalent
Units may accrue Dividend Equivalents. In lieu of awarding Dividend Equivalents,
the Committee may provide for automatic Awards of additional Stock Equivalent
Units on each date that cash dividends are paid on the Common Stock in an amount
equal to (i) the product of the dividend per share on the Common Stock times the
total number of Stock Equivalent Units then held by the Participant, divided by
(ii) the Fair Market Value of the Common Stock on the dividend payment date.
(f) Performance Units. Performance Units shall be based on the
attainment, over a specified period, of individual performance targets or, on
other parameters that may include but shall not be limited to, earnings per
share, net profits, total shareholder return, cash flow, return on shareholders'
equity, EVA, and cumulative return on net assets employed. Performance Units
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<PAGE> 8
may be settled in Common Stock or cash or both. Without limiting the generality
of the foregoing, it is intended that the Committee shall establish performance
goals applicable to Performance Units granted to Participants who, in the
judgment of the Committee, may be Covered Employees, in such a manner as shall
permit payments with respect thereto to qualify as "performance-based
compensation" as described in Section 162(m)(4)(C) of the Code. The maximum
amount of compensation that may be paid to any one Participant by means of
Performance Units with respect to any one year shall be $2,000,000.
(g) The Committee may also, in its sole discretion, shorten or
terminate the restricted period or waive any other conditions for the lapse of
restrictions with respect to all or any portion of any Award. Notwithstanding
the foregoing, all restricted periods shall terminate and the Awards shall be
fully vested with respect to any Participant upon the Participant's Retirement,
death or Total Disability, coincident with termination of employment with
Packaging Companies. For purposes of this Section 8:
"Retirement" means the Participant's termination of employment
with all Packaging Companies at a time when, under the Company's qualified
defined benefit pension plan for salaried employees the Participant is eligible
to receive an immediately payable normal retirement benefit, or, if approved by
the Committee, the Participant is eligible to receive an immediately payable
early retirement benefit under such plan; and
"Total Disability" means the permanent inability of the
Participant, which is a result of accident or sickness, to perform such
Participant's occupation or employment for which the Participant is suited by
reason of the Participant's previous training, education and experience and
which results in the termination of the Participant's employment with all
Packaging Companies.
9. Dividends
The Committee may provide in the appropriate Award Agreement that
dividends on Restricted Stock may be paid currently in cash or credited to a
Participant's account for subsequent distribution as determined by the
Committee. The Award Agreement may provide for the reinvestment of dividends
paid on Restricted Stock in shares of Common Stock.
10. Deferrals and Settlements
Settlement of Awards may be in the form of cash, Common Stock, other
Awards, or in combinations thereof as the Committee shall determine, and which
such other restrictions as it may impose. The Committee may also require or
permit Participants to defer the issuance or vesting of shares or the settlement
of Awards under such rules and procedures as it may establish under the Plan.
The Committee may also provide that deferred settlements include the payment or
crediting of interest on, the deferral amounts or the payment or crediting of
Dividend Equivalents on deferred settlements denominated in shares.
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<PAGE> 9
11. Transferability and Beneficiaries
No Awards under the Plan shall be assignable, alienable, saleable or
otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined by
the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee under the
following paragraph.
The Committee may determine that options granted to a Participant who
is a director or an employee with a grade level of 5 or above may be transferred
to his or her descendants or trusts for the benefit of such descendants.
12. Award Agreements
Awards under the Plan shall be evidenced by Award Agreements that set
forth the details, conditions and limitations for each Award, which may include
the term of an Award (except that (i) except as provided in Section 8(g), no
Award shall vest in less than six months after the date the Award is granted and
(ii) in no event shall the term of any ISO exceed a period of ten years from the
date of its grant), the provisions applicable in the event the Participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any Award.
13. Amendments; Compliance with Applicable Laws
The Committee may suspend, terminate, or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan, except
that, if shareholder approval is necessary in order for any such amendment to
comply with any applicable tax or regulatory requirements, including for these
purposes, any approval requirement which is a prerequisite for exemptive relief
under Section 16b of the Securities Exchange Act of 1934 (the "Exchange Act"),
no such amendment shall be made without the approval of the Company's
shareholders.
14. Tax Withholding
The Company shall have the right to (i) make deductions from any
settlement of an Award made under the Plan, including the delivery of vesting of
shares, or require shares or cash or both be withheld from any Award, in each
case in an amount sufficient to satisfy withholding of any federal, state or
local taxes required by law, or (ii) take such other action as may be necessary
or appropriate to satisfy any such withholding obligations. The Committee may
determine the manner in which such tax withholding may be satisfied, and may
permit shares of Common Stock (rounded up to the next whole number) to be used
to satisfy required tax withholding based on the Fair Market Value of any such
shares of Common Stock, as of the Settlement Date of the applicable Award.
15. Other Company Benefit and Compensation Programs
Unless otherwise specifically determined by the Committee, settlements
of Awards received by a Participant under the Plan shall not be deemed a part of
the Participant's regular,
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recurring compensation for purposes of calculating payments or benefits from any
Company benefit plan, severance program or severance pay law of any country.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
16. Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be
unfunded and shall not create (or be construed to create) a trust or separate
fund or funds. The Plan shall not establish any fiduciary relationship between
the Company and any Participant or other person. To the extent any person holds
any rights by virtue of an Award granted under the Plan, such right (unless
otherwise determined by the Committee) shall be no greater than the right of an
unsecured general creditor of the Company.
17. Future Rights
No person shall have any claim or right to be granted an Award under
the Plan, and no Participant shall have any right under the Plan to be retained
in the employment of the Company or its affiliates.
18. Governing Law
The validity, construction and effect of the Plan, and any actions
taken or relating to the Plan, shall be determined in accordance with the laws
of the State of Illinois and applicable federal law.
19. Successors and Assigns
The Plan shall be binding on all successors and assigns of a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
20. Rights as a Shareholder
Except as otherwise provided in any Award Agreement, a Participant
shall have no rights as a shareholder of the Company until he or she becomes the
holder of record of Common Stock.
21. Section 16b
No Award or other transaction shall be permitted under this Plan which
would have the effect of imposing liability on a Participant under Section 16 of
the Exchange Act. Irrespective of any other provision of this Plan or an Award
Agreement, any such Award or other transaction purportedly made under or
pursuant to this Plan shall be void, ab initio.
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EXHIBIT 10.10
FORM OF
TENNECO PACKAGING INC. RABBI TRUST
The Tenneco Packaging Inc. Rabbi Trust (the "Trust") is hereby
adopted by Tenneco Packaging Inc., (the "Company") and shall be maintained by
and between the Company and certain individuals as trustee (collectively the
"Trustee").
Effective on the date on which the stock of the Company is
distributed to the shareholders of Tenneco Inc. (the "Effective Date"), the
following rules shall govern:
WHEREAS, the Company has adopted the nonqualified compensation
plan(s) and supplemental pension arrangements as listed in Appendix A
(collectively the "Plans" and each a "Plan.") covering the benefit obligations
allocated to it under the Human Resources Agreement between and among Tenneco
Inc. and the Company (the "HR Agreement"), and
WHEREAS, the Company wishes to maintain the Trust and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's creditors in the event of the Company's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan(s); and
WHEREAS, it is the intention of the parties that this Trust
shall not affect the status of the Plan(s) as an unfunded plan maintained for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees for purposes of Title I of the Employee
Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under the Plan(s).
NOW, THEREFORE, the parties do hereby adopt the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
1. Establishment of Trust.
(a) Subject to the rules explicitly set forth herein, the Trust hereby
established is irrevocable.
(b) The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(c) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan(s) and this Trust Agreement shall be mere
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<PAGE> 2
unsecured contractual rights of Plan participants and their beneficiaries
against the Company. Any assets held by the Trust will be subject to the claims
of the general creditors of the Company and any of the Company's domestic
subsidiaries.
(d) The Company, in its sole discretion, may at any time, or from time
to time, make deposits of common stock of the Company or other property in trust
with the Trustee to augment the principal to be held, administered and disposed
of by the Trustee as provided in this Trust Agreement. Except as provided
herein, neither the Trustee nor any Plan participant or beneficiary shall have
any right to compel additional deposits.
2. Payments to Plan Participants and their Beneficiaries.
(a) At least annually, the Company shall deliver to the Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable in respect
of each Plan participant (and his or her beneficiaries), that provides a formula
or other instructions acceptable to the Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for or
available under the Plan(s)), and the time of commencement for payment of such
amounts. To the extent that any amounts are due to an employee (or beneficiary
of an employee) of a subsidiary of the Company, and the subsidiary fails to make
such payment, the Company shall do so. Except as otherwise provided herein, if
the Company has failed to make payments to the Plan participants and their
beneficiaries in accordance with such Payment Schedule the Trustee shall do so.
The Company shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan(s) and shall pay
amounts withheld to the appropriate taxing authorities.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan(s) shall be determined by the Company or such party
as it shall designate under the Plan(s), and any claim for such benefits shall
be considered and reviewed under the procedures set out in the Plan(s).
Notwithstanding the foregoing, the Trustee may, without direction from the
Company, make payments to participants and beneficiaries in such manner and in
such amounts as the Trustee shall determine they are entitled to be paid under
the Plans (to the extent funded through the Trust) based on the most recent
information furnished to the Trustee by the Company and any supplemental
information furnished to the Trustee by a participant or beneficiary upon which
the Trustee may reasonably rely in making such determination. Notwithstanding
any other provision hereof, persons (other than persons covered by the Tenneco
Inc. Pilots' Supplemental Retirement Plan) who were employees of Tenneco
Management Company immediately prior to the Effective Date or who are treated as
such under the HR Agreement, though they may be participants in the plans listed
in Appendix A, shall not be entitled to payments under the Trust, and payments
shall be available for their benefit obligations through a separate rabbi trust.
(c) The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan(s). The Company shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable
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<PAGE> 3
to participants or their beneficiaries. In addition, if the principal of the
Trust, and any earnings thereon, are not sufficient to make payment of benefits
in accordance with the terms of the Plan(s), the Company shall make the balance
of each such payment as it falls due. The Trustee shall notify the Company where
principal and earnings are not sufficient.
(d) The Company shall cause its actuary to determine the projected
benefit obligation ("PBO") under all of the Plans as of each January 1,
commencing with January 1, 2000. To the extent that the value of the assets of
the Trust as of the January 1 in question is less than the total PBO under all
of the Plans as so determined, the Company shall contribute additional assets to
the Trust with a value equal to the difference. To the extent that the assets of
the Trust exceed 110% of the PBO, the Company may withdraw assets with a value
equal to the excess of the value of the Trust's assets over 110% of such PBO.
(e) Notwithstanding any other provision hereof, the Trustee may sell
Company common stock or other assets in order to provide cash to pay benefits
hereunder.
3. Trustee Responsibility Regarding Payments to Trust Beneficiary when the
Company is Insolvent.
(a) The Trustee shall cease payment of benefits to Plan participants
and their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject to
a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) In the event of Insolvency of the Company the following rules shall
apply.
(1) The Company shall inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to Plan
participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the Company
is Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the benefit of
the Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to
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<PAGE> 4
pursue their rights as general creditors of the Company with respect to benefits
due under the Plan(s) or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made to
Plan participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
4. Payments to the Company.
Except as provided in Section 1(d), 2 or 3 hereof, the Company shall
have no right or power to direct the Trustee to return to the Company or to
divert to others any of the Trust assets before all payment of benefits have
been made to Plan participants and their beneficiaries pursuant to the terms of
the Plan(s).
5. The Trustee's Powers of Investment and Management.
The Trustee shall have the following powers with respect to any and all
assets at any time held by it and constituting part of the Trust Fund:
(a) The Trust shall hold the assets of the Trust exclusively in shares
of the common stock of the Company, and any assets distributed with respect
thereto.
(b) All rights associated with any stock held in the Trust, including
voting rights, shall be exercised by the Trustee or the person designated by the
Trustee, and shall in no event be exercisable by or rest with Plan participants.
Voting rights are exercisable by the Trustee in a nonfiduciary capacity without
the approval or consent of any person in a fiduciary capacity.
6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested in Company common stock.
7. Accounting by the Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 60 days following
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<PAGE> 5
the close of each calendar year and within 60 days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash and securities held in the Trust at the end of such year or as
of the date of such removal or resignation as the case may be.
8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of this Trust and is given in writing by the
Company. In the event of a dispute between the Company and a party, the Trustee
may apply to a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
the Trustees by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) Any action required to be taken by the Company, or direction given
by the Company, shall be by resolution of the Compensation / Nominating /
Governance Committee of its board of directors or by written direction of one or
more of its president, any vice president or
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<PAGE> 6
treasurer. The Trustee may rely upon a resolution or direction filed with the
Trustee and shall have no responsibility for any action taken by the Trustee in
accordance with any such resolution or direction.
9. Compensation and Expenses of the Trustee.
The Company shall pay all reasonable administrative and the Trustee's
fees and expenses. If not so paid, the fees and expenses shall be paid from the
Trust. Notwithstanding the foregoing, individuals shall serve without fee but
shall be entitled to reimbursement of expenses.
10. Trustee Resignation or Removal.
(a) The Trustee or any individual who is one of a group of individuals
serving as Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee (or individual as the case may be) agree otherwise.
(b) The Trustee or any individual who is one of a group of individuals
serving as Trustee may be removed by the Company on 30 days notice or upon
shorter notice acceptable by the Trustee (or individual as the case may be).
(c) Upon a Change in Control, as defined herein, the Trustee may not be
removed by the Company for two years.
(d) If the Trustee or any individual who is one of a group of
individuals serving as Trustee resigns within two years of a Change in Control,
as defined herein, the Trustee shall select a successor Trustee in accordance
with the provisions of Section 11 hereof prior to the effective date of the
Trustee's resignation; provided that if an individual who is one of a group of
individuals serving as Trustee resigns in such circumstances, the remaining
individuals serving as Trustee may but are not required to name a successor to
replace him.
(e) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee.
(f) For purposes hereof, death or incapacity shall be deemed an
immediately effective resignation.
11. Appointment of Successor.
(a) If the Trustee (or individual) resigns or is removed in accordance
with Section 10 hereof, the Trustee may appoint any third party as a successor
to replace the Trustee (or individual) upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee (or individual) shall
execute
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<PAGE> 7
any instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to the
rules hereof. The successor Trustee shall not be responsible for and the Company
shall indemnify and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or from any other
past event or any condition existing at the time it becomes successor Trustee.
12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or shall make the Trust
revocable.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s). Upon termination of the Trust any assets remaining
in the Trust shall be returned to the Company.
(c) Upon written approval of Participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan(s), the Company may
terminate this Trust prior to the time all benefit payments under the Plan(s)
have been made. All assets in the Trust at termination shall be returned to the
Company.
(d) This Trust Agreement may not be amended by the Company for two
years following a Change in Control, as defined herein.
13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
(d) "Change in Control" shall mean the first to occur of the following
events (but no event other than the following events), except as otherwise
provided below:
(i) any person and any of their affiliates or associates
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing twenty-five percent
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(25%) or more of the combined voting power of the Company's then outstanding
securities having general voting rights, and a majority of the Incumbent Board
(as hereinafter defined) does not approve the acquisition before the acquisition
occurs. Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur under this section (i) solely because twenty-five percent (25%) or more
of the combined voting power of the Company's then outstanding securities having
general voting rights is acquired by one or more employee benefit plans
maintained by the Company; or
(ii) members of the Incumbent Board cease to constitute a
majority of the board of Tenneco Packaging Inc. (as hereinafter defined); or
(iii) the consummation of any plan of merger, consolidation or
combination between the Company and any person including becoming a subsidiary
of any other person without members of the incumbent Board, as constituted
immediately prior to the merger, consolidation or combination constituting a
majority of the board of directors of (A) the successor corporation, or (B) if
the surviving or successor corporation is a majority-owned subsidiary of another
corporation or corporations, the ultimate parent company of the surviving or
successor corporation; or
(iv) the consummation of any sale, exchange or other
disposition of all or substantially all of the Company's assets without members
of the Incumbent Board immediately prior to any sale, exchange or disposition of
all or substantially all of the Company's assets constituting a majority of the
board of directors of (A) the corporation which holds such assets after such
disposition, or, (B) if such corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent company of the
successor corporation provided, that the Company Board may determine
conclusively that any transaction does not constitute a sale, exchange or other
disposition of substantially all of the Company's assets; or
(v) if any person and any of their affiliates and
associates, shall elect or have elected, during any period not exceeding 24
months, at least 25% of the members of the Tenneco Packaging Inc. board of
directors, without the approval of the Incumbent Board and such members are
comprised of persons not serving as members of the Tenneco Inc. board of
directors immediately prior to the formation of such group or the first
solicitation of proxies by such shareholder.
For purposes of this definition, the terms "person" and "beneficial
owner" shall have the meaning set forth in Sections 3(a) and 13(d) of the
Securities Exchange Act of 1934, as amended, in the regulations promulgated
thereunder. If the Trustee requests in writing that the Company determine or
furnish evidence to enable the Trustee to determine whether a Change in Control
has occurred, the Company shall do so in writing as soon as practicable
following receipt of such request.
(e) "Incumbent Board" shall mean (i) the members of the Company's board
of directors on Effective Date, to the extent that they continue to serve, and
(ii) any individual who becomes a member of the Company's board of directors
after Effective Date, if his election or
-8-
<PAGE> 9
nomination for election as a director is approved by a vote of at least
three-quarters of the then Incumbent Board.
14. Corporate Restructuring.
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, rights offering, share combination, or other change in the
corporate structure of the Company affecting its common stock, the Trustee may,
in its sole discretion, cause the transfer of all or a portion of the Trust's
assets to a comparable trust maintained by one or more of the resulting
corporate entities or otherwise cause such changes in the Trust or its assets as
it shall deem appropriate.
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Agreement to be executed on their behalf by their respective officers thereunto
duly authorized, on the day and year set forth below.
TENNECO PACKAGING INC.
-9-
<PAGE> 10
APPENDIX A
Tenneco Packaging Inc. Deferred Compensation Plan
Tenneco Inc. Pilots' Supplemental Retirement Plan
Tenneco Packaging Inc. Supplemental Executive Retirement Plan
-10-
<PAGE> 1
EXHIBIT 10.11
FORM OF
TENNECO RABBI TRUST AGREEMENT
This Tenneco Rabbi Trust Agreement (the "Trust Agreement") is made and
entered into as of this day of , 1999.
WHEREAS, the Tenneco Rabbi Trust (the "Trust") is being adopted as set
forth below by Tenneco Inc. ("Tenneco") and Tenneco Packaging Inc. ("Packaging")
and shall be maintained by and between Packaging and one or more individuals as
trustees (each a "Trustee" and collectively, the "Trustees") (and in the case of
Fund B described below, by and among Tenneco, Packaging and the Trustees) to
effect certain terms of the Human Resources Agreement between Tenneco and
Packaging (the "HR Agreement") and to provide for the payment of certain
transaction expenses as described below. Terms not defined herein shall have the
meaning set forth in or incorporated by reference into the HR Agreement;
WHEREAS, effective on the date (the "Effective Date") on which the common
stock of Packaging is distributed to the stockholders of Tenneco (the
"Spin-off"), Tenneco Management Company ("TMC") shall be obligated to make the
payments described on Appendix A related to certain benefit plans (collectively
the "Plans" and each a "Plan") to satisfy certain obligations allocated to the
Packaging Group under the HR Agreement;
WHEREAS, Packaging and Tenneco wish to maintain the Trust assets, until
paid as specified herein;
WHEREAS, it is the intention of the parties that this Trust shall not
affect the status of the Plan(s) as either a structure not subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or as an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of ERISA; and
WHEREAS, among the purposes for which the Trust is maintained is to assure
the payment of certain professional fees and expenses incurred in connection
with the Spin-off and attendant and resulting matters.
NOW, THEREFORE, the parties do hereby agree as follows:
1. ESTABLISHMENT OF TRUST.
(a) The Trust is hereby adopted and shall be comprised, held and disposed
of as set forth in this Trust Agreement. Tenneco has contributed certain assets
to the Trust. Subject to the terms and conditions explicitly set forth herein,
the Trust hereby established is irrevocable.
(b) The Trust is intended to be a grantor trust, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, (the "Code") and shall be construed accordingly.
(c) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Tenneco and Packaging. The assets of the
Trust shall be divided between two funds, Fund A and Fund B, and the earnings of
each Fund shall be allocated only to that Fund. Except as required by law, Fund
A shall be used exclusively for the uses and purposes of Plan participants.
Except as required by law, Fund B shall be used exclusively for making payments
to entities to whom amounts are owed as contemplated by Section 14 hereof (the
"Professionals"). (Plan participants and their beneficiaries and the
Professionals are referred to collectively herein as the "Beneficiaries.") The
Beneficiaries shall have no beneficial ownership interest in any assets of the
Trust. Any rights of the Beneficiaries created under the Plan(s) or this Trust
Agreement shall be unsecured contractual rights of the Beneficiaries against the
Trust, Packaging or Tenneco as the case may be. Notwithstanding any term or
provision of this Trust Agreement, this Trust Agreement shall not, and shall not
be deemed to, in any way amend, supercede or otherwise modify any term or
provision of any agreement between any Beneficiary and the Trust. Any
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<PAGE> 2
rights or remedies of any Beneficiary with respect to Packaging or Tenneco shall
be cumulative and in addition to any rights or remedies under this Trust
Agreement.
(d) Any assets held by the Trust will be subject to the claims of the
general creditors of Packaging and any of Packaging's domestic subsidiaries. To
the extent Tenneco has any interest in the assets of Fund B pursuant to Section
12(b) below, such assets shall be held by the Trust subject to the claims of the
general creditors of Tenneco and any of Tenneco's domestic subsidiaries.
(e) Packaging and/or Tenneco, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash in trust with the Trustees
to augment the principal to be held, administered and disposed of by the
Trustees as provided in this Trust Agreement. Deposits shall be credited to the
Fund designated by the party making the deposit.
2. PAYMENTS TO BENEFICIARIES.
(a) Each month, Tenneco Business Services Inc. or another subsidiary of
Packaging after the Spin-off ("TBS") shall deliver to the Trustees and Packaging
(and Tenneco in the case of Fund B) a schedule (the "Payment Schedule") that
indicates the amounts payable in respect of each Beneficiary, that provides a
formula or other instructions acceptable to the Trustees for determining the
amounts so payable, the form in which such amount is to be paid, and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
the Trustees shall cause the Trust to make payments to the Beneficiaries in
accordance with such Payment Schedule, as approved or revised by the Trustees.
TBS shall make provision for the reporting and withholding of any federal, state
or local taxes that may be required to be withheld with respect to payments made
hereunder and shall advise the Trustees of the amounts to be withheld and paid
to the appropriate taxing authorities.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan(s) shall be determined by TBS or such party as it shall
designate under the Plan(s). Any claim for such benefits shall be considered and
reviewed under the procedures set forth in the Plan(s). Notwithstanding the
foregoing, the Trustees may, without direction, make payments to Beneficiaries
in such manner and in such amounts as the Trustees shall determine they are
entitled to be paid (to the extent funded through Fund A) based on the most
recent information furnished to the Trustees upon which the Trustees may
reasonably rely in making such determination. Notwithstanding any other
provision hereof (i) payments shall be available from Fund A hereunder only to
persons with respect to whom liabilities are allocated to the Packaging Group
under the HR Agreement but who are excluded from coverage by the last sentence
of Section 2.b. of the Tenneco Packaging Inc. Rabbi Trust, and (ii) payments
shall be available from Fund B hereunder only to the Professionals.
(c) Packaging may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan(s) and to the
Professionals. Packaging or Tenneco may make payments directly to the
Professionals. Packaging and/or Tenneco shall notify the Trustees of any
decision to make a payment directly to a Beneficiary prior to the time the
amount is due. In addition, if the principal of Fund A of the Trust, and any
earnings thereon, are not sufficient to make payment of benefits in accordance
with the terms of the Plan(s), Packaging shall make the balance of each such
payment as it falls due. If the principal of Fund B of the Trust, and any
earnings thereon, are not sufficient to pay the Professionals, Packaging and
Tenneco shall make the balance of each such payment as it falls due in
accordance with the Distribution Agreement. The Trustees shall notify Packaging
and Tenneco at any time the principal and earnings in either Fund are not
sufficient. Neither the existence of the Trust nor its termination shall relieve
Packaging or Tenneco of any obligation, including any obligation allocated to
Packaging Group under the HR Agreement, except to the extent that the obligation
has been discharged.
2
<PAGE> 3
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN PACKAGING
IS INSOLVENT.
(a) Packaging shall be "insolvent" for purposes of this Trust Agreement if
(i) it is unable to pay its debts as they become due, or (ii) it is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) If Packaging determines that it has become insolvent, it shall
immediately notify the Trustees in writing of the insolvency. If a person
claiming to be a creditor of Packaging alleges in writing to any Trustee that
Packaging has become insolvent, the Trustees shall determine whether Packaging
is insolvent and, pending such determination, the Trustees shall discontinue
payments to Beneficiaries from the Trust.
(c) Unless any Trustee has actual knowledge of Packaging's insolvency, or
has received notice from Packaging or a person claiming to be a creditor
alleging that it is insolvent, no Trustee shall have a duty to inquire whether
Packaging is insolvent. The Trustees may in all events rely on such evidence
concerning the company's solvency as may be furnished to the Trustees and that
provides the Trustees with a reasonable basis for making a determination
concerning the company's solvency.
(d) If at any time the Trustees have determined that Packaging is
insolvent, the Trustees shall discontinue payments to Beneficiaries from the
Trust and shall hold the assets of the Trust for the benefit of Packaging's
general creditors. Nothing in this Trust Agreement shall in any way diminish any
rights of Beneficiaries to pursue their rights as general creditors.
(e) The Trustees shall resume the payments to Beneficiaries in accordance
with Section 2 of this Trust Agreement only after the Trustees have determined
that Packaging is not insolvent (or is no longer insolvent).
(f) Provided that there are sufficient assets, if the Trustees discontinue
payments pursuant to Section 3(d) hereof and subsequently resume such payments,
the first payment following such discontinuance shall include the aggregate
amount of all payments due to Beneficiaries for the period of such
discontinuance, less the aggregate amount of any payments made to Beneficiaries
by Packaging in lieu of the payments provided for hereunder during any such
period of discontinuance.
4. PAYMENTS TO PACKAGING AND TENNECO.
Except as specifically provided herein, neither Packaging nor Tenneco shall
have the right or power to direct the Trustees to return to such company or to
divert to any other company any of the Trust assets of Fund A or Fund B before
all payments of benefits have been made to the Beneficiaries with respect to
such Fund.
5. THE TRUSTEES' POWERS OF INVESTMENT AND MANAGEMENT.
The Trustees shall have the power to hold any and all assets constituting
part of the Trust exclusively in cash and cash equivalents.
6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and held in cash and cash equivalents.
7. ACCOUNTING BY THE TRUSTEES.
The Trustees shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made. Within
15 days following the end of each month and within 60 days after the resignation
of a majority of the Trustees, the Trustees shall deliver to Packaging and to
Tenneco a written account of the administration of the Trust during such month
or during the period from the close of the last month to the date of such
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or
3
<PAGE> 4
receivable being shown separately), and showing all cash and securities held in
the Trust at the end of such month or as of the date of such resignation as the
case may be. Such accounting shall reflect all such matters separately for Fund
A and Fund B. The Trustees may cause TBS or Packaging to perform the duties
described in this Section 7 on behalf of the Trustees and at no charge to the
Trustees.
8. RESPONSIBILITY OF THE TRUSTEES.
(a) Except as provided herein, the Trustees shall act by action of the
majority of individuals then serving as Trustees. No Trustee shall be liable for
any action or inaction with respect to the Trust except for gross negligence or
willful misconduct.
(b) If the Trustees undertake or defend any litigation arising in
connection with this Trust, Packaging shall pay the cost thereof.
(c) The Trustees may consult with legal counsel (who may also be counsel
for Packaging or Tenneco generally) with respect to any of their duties or
obligations hereunder.
(d) The Trustees may hire agents, accountants, actuaries, investment
advisors, financial consultants, custodians or other professionals to assist it
in performing any of its duties or obligations hereunder. Such expense shall be
borne by Packaging.
(e) The Trustees shall have, without exclusion, all powers conferred on the
Trustees by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustees pursuant to this
Trust Agreement or to applicable law, the Trustees shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
(g) Any action required to be taken by Packaging or Tenneco, or direction
given by Packaging or Tenneco, shall be by resolution of its board of directors
or by written direction of one or more of its president, any vice president or
treasurer. The Trustees may rely upon a resolution or direction filed with the
Trustees and shall have no responsibility for any action taken by the Trustees
in accordance with any such resolution or direction.
9. COMPENSATION AND EXPENSES OF THE TRUSTEES.
Packaging shall be responsible for all reasonable administrative expenses
including without limitation the costs incurred by Trustees with respect to any
matter included in Section 8 hereof and the Trustees' fees and expenses. If not
so paid, the fees and expenses shall be paid from the Trust. The Trustees shall
be entitled to reimbursement of expenses and fees of .
10. TRUSTEE RESIGNATION.
(a) Any individual who is serving as a Trustee may resign at any time by
written notice to Packaging, which shall be effective 30 days after receipt of
such notice unless Packaging, Tenneco and the individual agree otherwise.
(b) Any individual who is serving as a Trustee may not be removed by
Packaging or Tenneco.
(c) For purposes hereof, the death or incapacity of a Trustee shall be
deemed an immediately effective resignation.
11. APPOINTMENT OF SUCCESSOR.
(a) If an individual resigns in accordance with Section 10 hereof, that
individual may appoint any other individual as successor to replace him or her
provided, that in default of such appointment the remaining individuals acting
as Trustees may appoint any other individual as successor to replace him or her.
The appointment shall be effective when accepted in writing by the successor,
who shall have all of
4
<PAGE> 5
the rights and powers of the predecessor. The predecessor shall execute any
instrument necessary or reasonably requested by Packaging or the successor to
evidence the transfer.
(b) The successor need not examine records and acts of any predecessor and
may retain or dispose of existing Trust assets, subject to the rules hereof. The
successor shall not be responsible for and Packaging shall indemnify and defend
the successor from any claim or liability resulting from any action or inaction
of any predecessor from any other past event or any condition existing at the
time he or she becomes a successor.
12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed by
each individual then serving as a Trustee, and Packaging. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the Plan(s) or
shall make the Trust revocable.
(b) The Trust shall terminate on the date on which Beneficiaries are no
longer entitled to payments hereunder or on the date determined by a unanimous
vote of the Trustees then serving; provided, however, that in no event shall the
Trust terminate prior to December 31, 2001. Upon termination of the Trust any
assets remaining in Fund A shall be paid to Packaging and any assets remaining
in Fund B shall be paid in equal amounts to Packaging and Tenneco. From and
after the date of such termination, the Trustees shall forever be released from
any liability under or arising with respect to such Funds.
13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the internal laws of the State of Illinois, without reference to its choice
of law rules.
(d) The preamble and preliminary recitals set forth above are hereby
incorporated in and made part of this Trust Agreement.
14. TRANSACTIONAL FEES AND COSTS.
Notwithstanding any other provision hereof, the Trustees shall pay and
discharge any and all fees and expenses of attorneys and investment bankers for
services performed after the Spin-off for Tenneco, Packaging or any of their
subsidiaries, in connection with, attendant upon or resulting from the Spin-off
or any and all related transactions, including, without limitation, matters
related to the initial public offering of stock of Packaging Corporation of
America (excluding underwriting discounts and commissions), the exchange offer
of Tenneco's public debt following the Spin-off and other matters relating to
the debt realignment, corporate restructuring transactions and Spin-off provided
that such services are provided by entities that provided services in connection
with or attendant to the Spin-off that were retained by or whose retention was
approved by Tenneco Inc. headquarters personnel in Greenwich, Connecticut.
15. INDEMNIFICATION.
Packaging and Tenneco shall, to the fullest extent permitted by law,
indemnify, defend and save harmless the Trustees from and against any and all
liability (including any judgments, losses, damages, civil penalties, excise
taxes, interest and any other form of liability or expense of any kind) or claim
of liability (as defined above and including any investigatory action) to which
they may be subjected by reason of any act alleged to have been done or omitted
to be done in connection with their service as Trustees of the Trust, including
all expenses reasonably incurred in their defense if Packaging and Tenneco
5
<PAGE> 6
fail to provide such defense after having been requested to do so in writing.
Regardless of whether Packaging or Tenneco assumes such defense, counsel for
such defense shall be selected by the indemnified Trustee. Defense costs shall
be indemnified as incurred in the course of the defense or investigation. The
remedies provided by this Section 15 shall be cumulative and without prejudice
to the assertion of any other rights. To the extent that a Trustee receives
payment under any liability insurance or other indemnification arrangement with
respect to a matter covered by this Section 15, that Trustee shall reimburse the
party which has made payments to him or her hereunder, but no reimbursement
shall be required except to the extent that the total which he or she has
received from all sources is greater than the aggregate amount of his or her
liability and expense with respect to that matter. The liability of Tenneco and
Packaging with respect to the indemnification provided in this Section 15 shall
be joint and several as to the Trustees. As between Tenneco and Packaging, such
liability shall be shared equally, and Tenneco and Packaging shall each
reimburse the other party for any amounts paid by the other party in excess of
50 percent of such liability.
IN WITNESS WHEREOF, Tenneco and Packaging have caused this Trust Agreement
to be executed on their behalf by their respective officers thereunto duly
authorized and each of the Trustees has duly executed this Trust Agreement, on
the day and year first above written.
<TABLE>
<S> <C>
TENNECO INC. TRUSTEES:
By: ---------------------------------------------
- --------------------------------------------- Dana G. Mead
Title: ---------------------------------------------
- --------------------------------------------- Theodore R. Tetzlaff
TENNECO PACKAGING INC. ---------------------------------------------
Robert T. Blakely
By:
- --------------------------------------------- ---------------------------------------------
Karl A. Stewart
Title:
- --------------------------------------------- ---------------------------------------------
Stephen J. Smith
</TABLE>
6
<PAGE> 7
APPENDIX A
Tenneco Packaging Inc. Deferred Compensation Plan
Tenneco Packaging Inc. Supplemental Executive Retirement Plan
Obligations under severance packages.
7
<PAGE> 1
EXHIBIT 10.15
FORM OF
RELEASE AGREEMENT
[TENNECO LETTERHEAD]
Dana G. Mead
c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Re: Release Agreement
Dear Dana:
This Release Agreement ("Agreement") entered into as of the date at the end
hereof is by and between Dana G. Mead ("Employee") and the employer, Tenneco
Management Company ("Employer" or "Company"), (collectively, "the Parties").
The Parties named above agree as follows:
1. Your employment with Employer will terminate contemporaneously with the
distribution of Tenneco Packaging Inc. stock to the shareholders of
Tenneco Inc. (the "Termination Date").
Effective as of the Termination Date, you will resign all positions
which you hold with Tenneco Inc. and its subsidiaries and affiliates
except your position as a member of the Pension Investment Committee
from which you will resign in March of 2000. Notwithstanding the
foregoing, you will continue as the non-employee Chairman of the Board
of Directors of each of Tenneco Inc. and Tenneco Packaging Inc. and as
a trustee of the Tenneco Rabbi Trust. You will be entitled to receive
director's fees from both companies.
On your resignation and for five years thereafter, you will be provided
with an office in Greenwich, Connecticut or such other location in the
continental U.S. as you shall choose, together with secretarial and
administrative services and support.
2. You will be entitled to the following consideration upon the later of
the Termination Date or the end of the seven-day revocation period
defined in Paragraph 28, assuming you execute this Agreement, fail to
revoke it during the seven-day period
<PAGE> 2
Dana G. Mead
Page 2
referred to in Paragraph 28 and remain in compliance with all of the
terms and conditions of this Agreement, and further assuming that your
spouse executes a separate spousal waiver agreement to be tendered to
your spouse ("Effective Date"):
- PAYMENT - You will receive a lump sum payment equal to three times
the total of your annual salary and target bonus, less applicable
tax withholdings and any amounts due the Employer, as soon as
administratively feasible after the Effective Date but no later
than April 1, 2000. This payment shall be in lieu of any other
payments, wages and benefits including without limitation any
severance-type payment, except as expressly provided in this
Agreement. If you fail to execute this Agreement by December 3,
1999, or revoke or cancel this Agreement during the seven-day
period referred to in Paragraph 28, Employer shall not be
obligated to make lump sum payment to you. If you revoke or cancel
the Agreement after Employer has made the lump sum payment, you
shall be obligated to return to Employer all benefits and payments
provided to you under this Agreement, including but not limited to
the lump sum payment.
- RELOCATION LOAN MODIFICATION - The Employer and you and your
spouse are parties to a note (the "Note"), which Note has a
current outstanding principal balance. The Employer hereby
forgives the full principal balance of the Note, and all accrued
interest under the Note. Accordingly, the Note is hereby canceled.
The Employer shall deliver to you a release of the mortgage, given
by you to the Employer securing the Note.
- EXECUTIVE INCENTIVE COMPENSATION PLAN - Should the Company achieve
the performance goals for Executive Incentive Compensation Plan
("EICP") payouts for the calendar year 1999, you will receive an
adjusted target EICP Award prorated through the Termination Date.
No future payments will be made under this Plan.
- DEFERRED COMPENSATION - The balance of your Deferred Compensation
Account will be distributed, as soon as administratively feasible
after the Effective Date, in accordance with your election under
the terms of the Plan.
- SERP - You are eligible for retirement and survivor benefits under
your Special Appendix to the Tenneco Inc. Supplemental Executive
Retirement
<PAGE> 3
Dana G. Mead
Page 3
Plan provided, that you will be treated as though you had remained
an employee and been a participant in the Tenneco Retirement Plan
until you had attained age 65. Your special SERP will be revised
to count compensation earned in 1999 if that would increase your
benefit and it will be further revised to compute compensation as
provided in the general SERP document if that would increase your
benefit.
- TENNECO INC. STOCK OPTION PLAN - You can exercise all currently
exercisable options during the remainder of your employment in
accordance with provisions of the Plan. Remaining options will
become exercisable as of the Effective Date. Since you are
eligible for retirement, your options will remain active for a
period of ten (10) years following the termination of your
employment (or the remaining term of the option, if less.) You
will not be awarded any reload stock options upon the exercise of
any such options. Except as modified herein, your stock options
will continue to be subject to the rules of the 1996 Tenneco Inc.
Stock Ownership Plan as amended from time to time, including
without limitation, the provisions regarding adjustment and
amendment of outstanding options. This will result in the
replacement of one-half of these options with options on the stock
of Tenneco Packaging Inc. Both the Tenneco Packaging Inc. options
and the remaining Tenneco Inc. options shall be adjusted to
reflect the economic status of the options which existed prior to
the spin-off of Tenneco Packaging in accordance with the
procedures applied generally.
- NEW OPTIONS - In addition to the options described above, you will
be granted 50,000 options on the common stock of Tenneco Packaging
Inc. and 50,000 options on the common stock of Tenneco Inc. Such
options shall be granted at the fair market value of the stock of
the company to which they relate and shall have a term of not
less than 10 years.
- TENNECO INC. PERFORMANCE SHARES - Subject to any generally
applicable earlier earn-out, at the Effective Date, all
outstanding performance shares awarded under the Stock Ownership
Plan shall be deemed to have been earned at target and shall be
paid out in Tenneco Inc. common stock.
- TENNECO INC. RESTRICTED STOCK - Subject to any generally
applicable earlier vesting, your restricted shares awarded under
the Stock Ownership Plan will vest on the Effective Date and all
applicable restrictions will lapse. A stock
<PAGE> 4
Dana G. Mead
Page 4
certificate for the appropriate number of shares will be delivered
to you as soon as administratively feasible.
- THRIFT PLAN - You are a participant in the Tenneco Inc. Thrift
Plan and contributions to the Tenneco Thrift Plan cease upon the
termination of your employment. You may then elect to receive a
final settlement of your account balance, usually within four to
six weeks following the receipt of your properly completed
election forms. You are 100% vested in the account. You should
contact the Benefits Center for information about your Thrift Plan
account, including any outstanding Thrift Plan loans, and the tax
consequences of the distribution.
- MEDICAL AND DENTAL COVERAGE - You and your surviving spouse are
entitled to retiree medical and dental coverage. For information
regarding your Medical Benefits, call the Benefits Center at
1-800-444-5578. You will also be eligible for the Medical Select
Provider Program, as long as that program continues to exist.
- LIFE INSURANCE - You are entitled to retiree life insurance
coverage in accordance with generally applicable rules.
- DISABILITY AND ACCIDENT INSURANCE - Your participation in the
Tenneco Inc. Long Term Disability and Travel Accident Insurance
Plans ceases upon your termination of employment.
- BENEFIT PLANS - Except as set out in this Agreement, the
provisions of the policies or plan documents will control.
3. You acknowledge that the aggregate of all benefits set forth in
Paragraph 2 of this Agreement is greater than the aggregate to which
you are already entitled. IN ADDITION TO THE OTHER RESTRICTIONS AND
CONDITIONS SET FORTH IN THIS AGREEMENT AND IN NO WAY IN LIMIT OF THOSE
OTHER RESTRICTIONS AND CONDITIONS, YOU SHALL NOT BE ENTITLED TO ANY
RETENTION, SEVERANCE, OR OTHER NON-VESTED BENEFITS SET FORTH IN THIS
AGREEMENT IN THE EVENT YOU RESIGN YOUR EMPLOYMENT PRIOR TO THE
TERMINATION DATE. FURTHERMORE, IN THE EVENT THAT YOU TRANSFER TO
ANOTHER TENNECO COMPANY OR ONE OF ITS AFFILIATES OR SUCCESSORS AS
<PAGE> 5
Dana G. Mead
Page 5
DEFINED IN PARAGRAPH 4, YOU SHALL FORFEIT ALL RIGHTS TO ANY RETENTION,
SEVERANCE OR OTHER NON-VESTED BENEFITS SET FORTH IN THIS AGREEMENT.
4. Except as specifically provided herein, you acknowledge that your
employment shall terminate with Employer, its direct or indirect
subsidiaries, affiliates, parents, and related companies or entities,
regardless of its or their form of business organization, including
without limitation the plans described in Paragraph 7 (all collectively
the "Employer Entities"), on the Termination Date.
5. In exchange for the compensation and benefits described in Paragraph 2,
you release and discharge any and all Employer Entities as defined in
Paragraph 4 and any and all of their past and present subsidiaries,
affiliates, parents, related companies, persons and entities,
directors, employees, officers, agents, partners, insurers, attorneys,
trustees, administrators and fiduciaries (all collectively the
"Released Parties") from any and all claims, demands, and causes of
action, whether arising in contract, tort or any other theory of
action, whether arising in law or equity, whether known or unknown,
accrued or unaccrued, asserted or unasserted, from the beginning of
time up to the effective date of this Agreement, except for those
obligations created by or arising out of this Agreement. You expressly
waive the benefit of any statute or rule of law which, if applied to
this Agreement, would otherwise exclude from its binding effect any
claim against any Released Party not now known by you to exist. Except
as necessary for you to enforce this Agreement, this Agreement is
intended to be a general release that extinguishes all claims by you
against any Employer Entity. Without limiting the generality of this
Paragraph, if you commence or continue any claim in violation of this
Agreement, the Released Party shall be entitled to assert this
Agreement as a bar to such action or proceeding.
6. Without in any way limiting the generality of the foregoing, this
Agreement constitutes a full release and disclaimer of any and all
claims arising or accruing up to the effective date of this Agreement,
including but not limited to any claims arising out of or in any way
connected with or relating to the termination of your employment and
any claims arising out of or in any way connected with or related to
your employment with Employer or any other Employer Entity up to the
effective date of this Agreement. The scope of this waiver includes but
is not limited to claims arising under 29 U.S.C.ss.1981, the Age
Discrimination in Employment Act of 1967 as amended (29 U.S.C.ss.621),
Title VII of the Civil Rights Act of 1964 as amended, (42
U.S.C.ss.2000e), the Americans With
<PAGE> 6
Dana G. Mead
Page 6
Disabilities Act (42 U.S.C. ss. 12101), the Worker Adjustment
Retraining and Notification Act (29 U.S.C. ss. 2101), the Family and
Medical Leave Act of 1993 (29 U.S.C. ss. 2601), the Connecticut Human
Rights and Opportunities Act, the Connecticut Family and Medical Leave
laws (Conn. Gen. Stat. 31-51cc to 31-51gg and Ct. Legis. 96-140,
effective January 1, 1997), the Texas Human Rights Act, (Tex. Rev. Civ.
Stat. Art. 5221k), the Illinois Human Rights Act, the Wisconsin Fair
Employment Act, the New York Human Rights Law, the New York Equal Pay
Law, the New York Rights of Persons with a Disability Law, the New York
Equal Rights Law, the National Labor Relations Act, any claims for
breach of contract, wrongful or retaliatory discharge, tortious action,
inaction or interference of any sort, and any claim under any other
state, local or federal statute, regulation or ordinance, or common
law cause of action.
7. It is expressly agreed that the payments described in Paragraph 2 of
this Agreement are in full and complete satisfaction of any and all
liabilities or obligations which any Employer Entity, including any
plan, fund or program sponsored, maintained or contributed to by any
Employer Entity, has or may have to you under or with respect to any
employee benefit plan described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any
payment or other item excluded from the definition of "employee welfare
benefit plan", "employee pension benefit plan" or "employee benefit
plan" under the rules of 29 C.F.R. Section 2510.3-1, 2510.3-2 or
2510.3-3, as the case may be, and any employee benefit plan described
in Section 4 of ERISA. It is further agreed that the payments
described in this Agreement exceed in value anything to which you may
be already entitled.
8. You represent that you have not assigned or transferred, or purported
to assign or transfer, to any person or entity, any claim or any
portion thereof or interest therein against a Released Party.
9. You represent that as of the Termination Date, you will have turned
over to Employer all originals and copies of expense reports, notes,
memoranda, records, documents, Employer manuals, credit cards, pass
keys, computers, computer diskettes, office equipment, sales records
and data, and all other information or property, no matter how
produced, reproduced or maintained, which you have in your possession
and pertain to the business of any Employer Entity, including but not
limited to lists of customers, prices, marketing plans, strategies,
documents relating to the legal rights and obligations of any Employer
Entity, the work product
<PAGE> 7
Dana G. Mead
Page 7
of any attorney employed or retained by any Employer Entity, and other
confidential materials or information obtained by you in the course of
your employment; except for those such memoranda and other documents
referred to herein, as are necessary and appropriate for your conduct
of your duties as non-executive Chairman of Tenneco Inc. and Tenneco
Packaging Inc.
10. You acknowledge that the business and services of all Employer Entities
are highly specialized and that the following information is not
generally known, is highly confidential and constitutes trade secrets:
proprietary technical and business information relating to any Employer
Entity's plans, analysis or strategies concerning international or
domestic acquisitions, possible acquisitions or new ventures;
development plans or introduction plans for products or services;
unannounced products or services; operation costs; pricing of products
or services; research and development; personnel information;
manufacturing processes; installation, service and distribution
procedures and processes; customer lists; any know-how relating to the
design, manufacture, and marketing of any Employer Entity's services
and products, including components and parts thereof; non-public
information acquired by you concerning the requirements and
specifications of any Employer Entity's agents, vendors, contractors,
customers and potential customers; non-public financial information,
business and marketing plans, pricing and price lists; non-public
matters relating to employee benefit plans; quotations or proposals
given to agents or customers or received from suppliers; documents
relating to any Employer Entity's legal rights and obligations; the
work product of any attorney employed by or retained by any Employer
Entity; and any other information which is sufficiently secret to
derive economic value from not being generally known.
11. You shall maintain in the strictest confidence and will not, directly
or indirectly, use, intentionally or inadvertently, publish or
otherwise disclose to any person or entity whatever, any trade secrets,
or any confidential, proprietary or other non-public information of or
belonging to any Employer Entity or any agent, joint venturer,
contractor, customer, vendor or supplier of any Employer Entity
(collectively, the "Confidential Information"), regardless of its form
without the prior written explicit consent of Employer. You shall take
reasonable precautions to protect the inadvertent disclosure of
Confidential Information. Your obligations under this Agreement with
respect to Confidential Information shall extend for the period that
such information is not generally known outside of the relevant
Employer Entity for reasons other than disclosure or disclosures made
by you or on your behalf. All duties and obligations set forth in this
Agreement shall be in
<PAGE> 8
Dana G. Mead
Page 8
addition to those which exist under statute and at common law and shall
not negate but shall be in addition to or coextensive with those
obligations arising under any agreements or documents executed by you
during your employment with Employer. Should you be served with legal
process seeking to compel disclosure of any such information, you shall
notify the General Counsel of Employer immediately.
12. Paragraphs 10 - 11 hereof shall be deemed to consist of a series of
separate covenants. Should a determination be made by a court of
competent jurisdiction that the character, duration, or geographical
scope of those provisions are unreasonable in light of the
circumstances as they then exist, then it is the intention and the
agreement of the Parties that these shall be construed by the court in
such a manner as to impose only those restrictions on your conduct
which are reasonable in light of the circumstances as they then exist
and as are necessary to assure the relevant Employer Entity of their
intended benefit. If, in any judicial proceeding, a court shall refuse
to enforce all of the separate covenants because, taken together, they
are more extensive than necessary to assure the relevant Employer
Entity of the intended benefit, then it is expressly understood and
agreed that those of such covenants which, if modified or eliminated,
would permit the remaining separate covenants to be enforced in such
proceeding, shall, for the purpose of such proceeding, be deemed
modified or eliminated in order to enforce the remaining provisions.
13. In expansion and not in limitation of Paragraphs 9, 10, and 11, hereof,
it is specifically provided that among the communications, publications
and disclosures forbidden or restricted by such Paragraphs, are any
such communications, publications or disclosures by means of
electronic, computer, print or other media, including without
limitation, any use of the Internet, chat rooms, bulletin boards, web
sites, etc.
You hereby agree that Employer would suffer significant damages, which
would be difficult to completely quantify in the event you or any
Affiliate breached the provisions of Paragraphs 9, 10, or 11 of this
Agreement. You acknowledge that any violation of any such Paragraphs by
you or by any Affiliate shall be treated as a material breach and that
you shall pay to Employer either $50,000 in total liquidated damages,
or, alternatively, the actual damages suffered by Employer as a result
of the breach if Employer is able to adequately establish that its
actual total damages exceeded $50,000. You hereby acknowledge and agree
that as of the date
<PAGE> 9
Dana G. Mead
Page 9
of this Agreement $50,000 represents a reasonable estimate of the
minimum damages that Employer can be expected to incur as a result of
any such breach.
14. Nothing in this Agreement shall be construed as an admission of any
wrongdoing by any person or entity.
15. The Parties agree to cooperate fully and to execute any and all
supplementary documents and to take all additional actions that may be
necessary or appropriate to give full force to the terms and intent of
this Agreement that are not inconsistent with its terms.
16. You shall provide thorough and accurate information and testimony
voluntarily to or on behalf of any Employer Entity, regarding any
investigation or court case initiated by or against any Employer Entity
or by any government agency, but you agree not to disclose or to
discuss with anyone who is not directing or assisting in any Employer
Entity investigation or case, other than your attorney, the fact of or
the subject matter of any investigation, except as required by law. You
will cooperate with the Employer Entity and promptly provide such
information. If the Employer Entity requests information, it will
attempt to work with you to arrange times that reasonably accommodate
you, and will reimburse you for commuting, parking or other similar
expenses and, to the extent permitted by law, will reasonably
compensate you for any significant imposition on your time by the
request.
17. You acknowledge that any employment or contractual relationship between
you and any and all Employer Entities, including but not limited to the
Employer, will terminate by virtue of this Agreement on the Termination
Date. In consideration of this Agreement, you waive any and all
employment rights that you now have with any Employer Entity, except as
otherwise expressly provided in this Agreement. You agree not to seek
reinstatement, reemployment, or future employment as a new employee,
and no Employer Entity has an obligation, contractual or otherwise, to
employ or reemploy, hire or rehire, or recall or reinstate you in the
future.
18. You agree to keep confidential the terms, conditions, and amounts set
forth in this Agreement and not to disclose any information relating to
this Agreement to any employee or former employee of any Employer
Entity except as required by law or a court of competent jurisdiction.
<PAGE> 10
Dana G. Mead
Page 10
19. It is further agreed that if any provision of this Agreement
contravenes the law of any state or jurisdiction where this Agreement
is to be performed or enforced, such provision shall be deemed not to
be a part of this Agreement, and the other provisions of this
Agreement, shall remain in full force and effect.
20. The failure of the Employer to exercise any rights under this Agreement
upon any breach or threatened breach by you shall not constitute a
waiver of any rights arising by reason of other or similar breaches.
21. You shall have no right of assignment or transfer of any rights herein
or any sums that may accrue to you hereunder, nor shall any creditor or
other claimant have any right to assert any interest in or right to
receive such sums either by voluntary or involuntary act on their part,
by any writ or garnishment or attachment or otherwise.
22. The rights and obligations of the Parties shall be construed and
enforced in accordance with, and governed by, the laws of the State of
Connecticut without regard to that or any other state's rules regarding
conflict of laws. The language of all parts of this Agreement shall in
all cases be construed as a whole, according to its fair meaning and
not strictly for or against any of the Parties.
23. This Agreement shall be binding upon and inure to the benefit of the
respective successors, heirs, assigns, administrators, executors and
legal representatives of the Parties and other entities described in
this Agreement.
24. You warrant that no promise or inducement to enter into this Agreement
has been offered or made except as set forth in this Agreement, that
you are entering into this Agreement without any threat or coercion and
without reliance on any statement or representation made on behalf of
any Employer Entity or by any person employed by or representing any
Employer Entity, except for the written provisions and promises
contained in this Agreement.
25. This Agreement constitutes the entire agreement and understanding
between the Parties with regard to all matters, including but not
limited to your employment, the cessation of your employment from
Employer, payments owed to you, and the other subject matters addressed
in this Agreement. This Agreement supersedes and replaces all prior
commitments, negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matters contained in
this
<PAGE> 11
Dana G. Mead
Page 11
Agreement. This Agreement is an integrated document and the
consideration stated herein is the sole consideration for this
Agreement.
26. This Agreement is being delivered to you on ________________. You shall
have forty-seven days, or until ________________ to decide whether to
sign the Agreement and be bound by its terms.
27. Employer informs you of the following:
a) In order to be eligible for the benefits contained in this
Release Agreement, you must: (i) have worked in the
Administrative Department on January 1, 1999 and, (ii)
terminate your employment on your Termination Date, and (iii)
agree on or before December 3, 1999 to terminate your
employment under the terms of a valid separation agreement,
by executing this Agreement.
b) The decision that you would no longer be the CEO of Tenneco
Inc. was a mutual decision made by and between you and the
Board of Directors. No other employees were considered.
Accordingly, this was not made as part of any group
termination decision.
c) Nevertheless, the Company has decided to provide you with
information that you may consider relevant in assessing the
waiver of age discrimination claims. Certain other employees
are separating from service in connection with Tenneco's
corporate restructuring and as a result, are eligible for
Tenneco's severance program.
28. In addition, the Parties agree that even after signing the Agreement,
you shall have the right to revoke or cancel it only within seven days
after signing it. This cancellation or revocation can be accomplished
by delivery of a written notification if you wish to revoke the
Agreement to the Vice President of Human Resources. In the event that
this Agreement is canceled or revoked by you, Employer shall have no
obligation to meet any of the commitments described in this Agreement.
29. You acknowledge that you have been advised and encouraged by Employer
to consult your own attorney prior to signing this Agreement, and that
you execute this Agreement voluntarily.
<PAGE> 12
Dana G. Mead
Page 12
30. You acknowledge that you have read this Agreement and that you
understand that the Agreement will have the effect of waiving any
action or recovery you might pursue, including breach of contract,
personal injury, discrimination on the basis of race, age, sex,
national origin, citizenship, religion, veteran status, handicap, or
disability and any other claims arising prior to the date of the
Agreement.
Please return the executed original of this letter to Stephen J. Smith, Vice
President Human Resources, 1275 King Street, Greenwich, Connecticut 06831.
Sincerely,
Larry D. Brady
Director and Chairman of the Compensation and Benefits Committee
Tenneco Inc. Board of Directors
AGREED AND ACCEPTED:
Dated as of:
- ------------------------------------- ------------------------
Dana G. Mead
<PAGE> 13
MODIFICATION OF RELEASE AGREEMENT
The parties hereto have entered into the Release Agreement, dated_______, 1999.
This Modification supersedes certain portions of the Release Agreement.
Notwithstanding any provision of the Release Agreement,____________("Officer")
shall not be deemed to have waived any indemnification to which he would
otherwise be entitled, including without limitation, any indemnification under
and pursuant to the Delaware General Corporation Law, the By-Laws of
Tenneco Inc., any contract and the Tenneco Rabbi Trust.
Officer shall also retain the benefit of the liability insurance coverage
maintained by Tenneco Inc., Tenneco Packaging Inc., Tenneco Automotive Inc. or
otherwise, including the Tenneco Inc. Director and Officer and Fiduciary
"run-off" insurance policies to be purchased in connection with the Tenneco
Packaging Inc. spin-off. Tenneco Inc. and Tenneco Management Company each
promises to purchase and keep in force such coverage for its full term and to
deliver proof of such coverage to Officer.
Dated:
------------------
- ------------------------
[Name of Officer]
TENNECO INC.
By
---------------------------
Its
--------------------------
TENNECO MANAGEMENT COMPANY
By
---------------------------
Its
--------------------------
<PAGE> 1
EXHIBIT 10.16
[TENNECO LETTERHEAD]
March 11, 1997
PERSONAL AND CONFIDENTIAL
Mr. Richard L. Wambold
533 Pine Lane
Lake Forest, IL 60045
Dear Richard:
On behalf of Tenneco Inc. (the "Company" or "Tenneco"), I am pleased to
set forth the terms and conditions of your employment:
1. You are employed as Executive Vice President, Specialty and Consumer
Products, Tenneco Packaging and shall in the future hold such positions as
the Company may determine from time to time. While employed, you will abide
by all policies of the Company.
2. You will be paid a base salary of $330,100 a year, which shall be subject to
such adjustments as may from time to time be approved by the Compensation
and Benefits Committee of the Board of Directors of Tenneco, payable
according to the regular pay schedule for salaried employees.
3. You will be a participant in the Tenneco Executive Incentive Compensation
Plan ("EICP"), and you will be eligible for EICP distributions based on your
performance at the discretion of the Compensation and Benefits Committee of
the Board of Directors.
4. You will receive a one-time grant of 10,000 shares of restricted stock,
which will vest only upon normal retirement, or other mutually satisfactory
separation from service which would include a noncompete provision. In the
future you will be eligible to receive annual stock option and performance
share awards under the Tenneco Stock Ownership Plan at the discretion of the
Compensation and Benefits Committee of the Board of Directors.
5. You will receive annual perquisite compensation of $30,000.
<PAGE> 2
Mr. Richard L. Wambold
March 11, 1997
Page 2
6. You will receive non-cash compensation and personal benefits comparable to
those currently provided to Tenneco executives under Tenneco's policy in
effect at the time hereof, including Health Care, Thrift Plan, Long-Term
Disability, and Life Insurance (the plan provides for coverage for one and
one-half times your salary paid for by the Company, with the option to
purchase at your expense up to five times your salary.)
7. Subject to the provisions of this Section 7, your annual pension benefits
from all defined benefit pension plans (qualified and non-qualified)
commencing at age 55 or your separation from service if later, will, at a
minimum, be equal to the product of (x) and (y), where (x) is the average of
your total base compensation plus bonus for the three calendar years
immediately preceding your separation from service and (y) is the total of
25% plus 2.5% for each full year of service with Tenneco earned in the
period commencing January 1, 1997, for a maximum total of 50%. This minimum
pension benefit will be more fully described in the Tenneco Supplemental
Executive Retirement Plan, and the terms of that plan shall control. You
will qualify for the additional benefits provided under this Section only if
you render five years of service with the Company in the period commencing
January 1, 1997.
Sincerely,
/s/ P.T. Stecko
- ----------------------
ACKNOWLEDGED AND ACCEPTED:
/s/ Richard L. Wambold
- ----------------------
On this 15th day of April, 1997.
<PAGE> 1
EXHIBIT 10.17
CONTRACTUAL RESTRICTED STOCK
Employee Paul J. Griswold
Date June 1, 1999
In consideration of Paul J. Griswold's ("Employee") continued rendition of
services to Tenneco Packaging (the "Company"), the Company hereby covenants
that:
1. Effective as of the consummation of the transaction by which the stock of
Tenneco Packaging Inc. will be distributed to the shareholders of Tenneco
Inc. (the "Transaction"), Employee will be granted that number of restricted
shares of Tenneco Packaging Inc. common stock determined under the following
formula:
TV x 15,000
-----------
AV
where TV equals the closing price of Tenneco Inc. common stock on the day
immediately preceding the Transaction and AV is the closing price of Tenneco
Packaging Inc. common stock on the day immediately following the Transaction.
The terms of such restricted stock shall be equivalent to the terms of Tenneco
restricted stock granted generally except that the vesting period shall be three
years rather than four years.
2. Notwithstanding the fact that no restricted stock has yet been granted,
Employee shall receive cash payments equal to the quarterly dividend
equivalents which he would have been paid on 15,000 shares of restricted
Tenneco Inc. common stock if such restricted stock had been granted,
commencing with the second quarter, 1999, Tenneco Inc. common stock regular
quarterly dividend and ending with the last Tenneco Inc. common stock
regular quarterly dividend declared prior to the Transaction.
ACCEPTED: TENNECO INC.
/s/ Paul J. Griswold /s/ Stephen J. Smith
- ------------------------------------- -------------------------------------
Paul J. Griswold (Date) Stephen J. Smith, Vice President,
Human Resources
/s/ Karl A. Stewart
- ------------------------------------- -------------------------------------
Social Security Number or National ID Karl Stewart, Vice President &
Corporate Secretary
- -------------------------------------
Street Address
- -------------------------------------
City/State/Zip/Country
<PAGE> 1
EXHIBIT 10.18
CONTRACTUAL RESTRICTED STOCK
Employee Richard L. Wambold
Date June 1, 1999
In consideration of Richard L. Wambold's ("Employee") continued rendition of
services to Tenneco Packaging (the "Company"), the Company hereby covenants
that:
1. Effective as of the consummation of the transaction by which the stock of
Tenneco Packaging Inc. will be distributed to the shareholders of Tenneco
Inc. (the "Transaction"), Employee will be granted that number of restricted
shares of Tenneco Packaging Inc. common stock determined under the following
formula:
TV x 25,000
-----------
AV
where TV equals the closing price of Tenneco Inc. common stock on the day
immediately preceding the Transaction and AV is the closing price of Tenneco
Packaging Inc. common stock on the day immediately following the Transaction.
The terms of such restricted stock shall be equivalent to the terms of Tenneco
restricted stock granted generally except that the vesting period shall be three
years rather than four years.
2. Notwithstanding the fact that no restricted stock has yet been granted,
Employee shall receive cash payments equal to the quarterly dividend
equivalents which he would have been paid on 25,000 shares of restricted
Tenneco Inc. common stock if such restricted stock had been granted,
commencing with the second quarter, 1999, Tenneco Inc. common stock regular
quarterly dividend and ending with the last Tenneco Inc. common stock
regular quarterly dividend declared prior to the Transaction.
ACCEPTED: TENNECO INC.
/s/ Richard L. Wambold /s/ Stephen J. Smith
- ------------------------------------- -------------------------------------
Richard L. Wambold (Date) Stephen J. Smith, Vice President,
Human Resources
/s/ Karl A. Stewart
- ------------------------------------- -------------------------------------
Social Security Number or National ID Karl Stewart, Vice President &
Corporate Secretary
- -------------------------------------
Street Address
- -------------------------------------
City/State/Zip/Country
<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-
<PAGE> 4
TENNECO PACKAGING INC.
LIST OF SUBSIDIARIES AND AFFILIATES
UPON COMPLETION OF THE SPIN-OFF
TENNECO PACKAGING INC. (DELAWARE)
A&E Plastics, Inc. (Delaware)............................. 100%
Aircal S.A. (France)...................................... 100
(Tenneco Packaging Inc. owns all shares except seven
which are held by its four directors and Tenneco
Protective Packaging Inc. and Tenneco Packaging
International Holdings Inc.)
Airpack Japan K.K. (Japan)................................ 100
Airpack Polska Sp.Z.O.O. (Poland)......................... 100
Airpack SPA (Italy)....................................... 98
(Tenneco Packaging Inc. owns 98%; Tenneco Packaging
International Holdings Inc. owns 2%)
Altapack SPA (Italy)................................... 100
Alupak, A.G. (Switzerland)................................ 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.)
4
<PAGE> 5
SUBSIDIARIES OF TENNECO PACKAGING INC.
SUBSIDIARIES OF HEXACOMB CORPORATION
Hexajapan Company, Ltd. (Japan)........................ 60%
(Hexacomb Corporation owns 60%; and non-affiliates
own 40%)
Kobusch Packaging Egypt Ltd. (Egypt)...................... 99.75
(Tenneco Packaging Inc. owns 99.75%; and Tenneco
Kobusch-Folien GmbH owns .25%)
Omni-Pac S.A.R.L. (France)................................ 97
(Tenneco Packaging Inc. owns 97%; and Tenneco Omni-Pac
GmbH & Co. KG Verpackungsmittel owns 3%)
Packaging Corporation of America (Delaware)............... 43.5
(Tenneco Packaging Inc. owns 43.5%; PCA Holdings LLC,
an unaffiliated limited liability company, owns 53.2%;
and PCA's management owns 3.3%)
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
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
Scriptoria N.V. (Belgium)................................. 99.6
(Tenneco Packaging Inc. owns approximately 99.6%;
Tenneco Packaging International Holdings Inc. owns 18
shares; and the remainder of the shares are held by
unknown third parties)
Sentinel GmbH Verpackungen (Germany)................... less than 1
(Scriptoria N.V. owns less than 1%; and Tenneco
Packaging Inc. owns greater than 99%)
Sentinel GmbH Verpackungen (Germany)...................... 99
(Tenneco Packaging Inc. owns greater than 99%; and
Scriptoria N.V. owns less than 1%)
- ---------------
(1) In dissolution.
5
<PAGE> 6
SUBSIDIARIES OF TENNECO PACKAGING INC
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 Business Services Holdings Inc. (Delaware)........ 100
Tenneco Business Services 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
Tenneco Omni-Pac Ekco Verpackungsmittel GmbH & Co.
KG owns 1%)
Tenneco International Business Development Limited
(Delaware)............................................. 100
Ambassador Packaging (Ireland) Limited (Ireland)....... 100
Tenneco International Finance B.V. (Netherlands).......... 100
Tenneco Management Company (Delaware)..................... 100
Tenneco Management (Europe) Limited (United Kingdom)...... 100
Tenneco NHC Inc. (Nevada)................................. 100
Tenneco Packaging -- Chile Holdings Inc. (Delaware)....... 100
Tenneco Packaging -- Chile S.A. (Chile)................ 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
Kobusch Folien Verwaltungsgesellschaft mbH (Germany)... 100
Tenneco Kobusch-Folien GmbH & Co. KG (Germany).... 100
(Tenneco Packaging Deutschland
Holdinggesellschaft mbH is the Limited Partner;
and Kobusch-Folien Verwaltungsgesellschaft mbH
is the General Partner)
Kobusch Packaging Egypt Ltd. (Egypt)............ 0.25
(Tenneco Kobusch-Folien GmbH & Co. KG owns
0.25%; and Tenneco Packaging Inc. owns 99.75%)
Nord-West Verpackung Verwaltungsgesellschaft mbH
(Germany)............................................. 100
Tenneco Nord-West Verpackung GmbH & Co. KG
(Germany)......................................... 100
(Tenneco Packaging Deutschland
Holdinggesellschaft mbH is the Limited Partner;
and Nord-West Verpackung
Verwaltungs-gesellschaft mbH is the General
Partner)
Nord-West Wohnungsbau GmbH (Germany)............ 100
Omni-Pac Ekco Verpackungsmittel Verwaltungsgesellschaft
mbH (Germany)......................................... 100
- ---------------
(1) In dissolution.
6
<PAGE> 7
SUBSIDIARIES OF TENNECO PACKAGING INC.
SUBSIDIARIES OF TENNECO PACKAGING DEUTSCHLAND
HOLDINGGESELLSCHAFT MBH
SUBSIDIARIES OF OMNI-PAC EKCO VERPACKUNGSMITTEL
VERWALTUNGSGESELLSCHAFT MBH
Tenneco Omni-Pac Ekco Verpackungsmittel GmbH & Co. KG
(Germany)........................................... 100%
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Omni-Pac Ekco
Verpackungsmittel Verwaltungsgesellschaft mbH is
the General Partner)
Omni-Pac Poland Sp. z.o.o. (Poland)............... 100
PCA Embalajes Espana S.L. (Spain)................. 1
(Tenneco Omni-Pac Ekco Verpackungsmittel GmbH &
Co. KG owns 1%; and Tenneco Forest Products GmbH
owns 99%)
Omni-Pac Verpackungsmittel Verwaltungsgesellschaft
mbH................................................. 100
Tenneco Omni-Pac GmbH & Co. KG Verpackungsmittel
(Germany)........................................... 100
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Omni-Pac
Verpackungsmittel Verwaltungsgesellschaft mbH is
the General Partner)
Omni-Pac ApS (Denmark)............................ 100
Omni-Pac A.B. (Sweden)............................ 100
Omni-Pac S.A.R.L. (France)........................ 3
(Tenneco Omni-Pac GmbH & Co. KG
Verpackungsmittel owns 3%; and Tenneco Packaging
Inc. owns 97%)
Sengewald Verpackungen Verwaltungsgesellschaft mbH
(Germany)........................................... 100
Tenneco Sengewald Verpackungen GmbH & Co. KG
(Germany)........................................... 100
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Sengewald
Verpackung Verwaltungs-gesellschaft mbH is the
General Partner)
Sengewald Klinikprodukte Verpackungsmittel GmbH...... 100
Tenneco Sengewald Klinikprodukte GmbH & Co. KG
(Germany)........................................... 100
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Sengewald
Klinikprodukte Verwaltungs-gesellschaft mbH is the
General Partner)
Sengewald France S.A.R.L. (France)(1)............. 100
Tenneco Omni-Pac GmbH & Co. KG Verpackungsmittel
(Germany)........................................... 100
(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)........................................... 100
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Omni-Pac Ekco
Verpackungsmittel Verwaltungs-gesellschaft mbH is
the General Partner)
- ---------------
(1) In dissolution.
7
<PAGE> 8
SUBSIDIARIES OF TENNECO PACKAGING INC.
SUBSIDIARIES OF TENNECO PACKAGING DEUTSCHLAND
HOLDINGGESELLSCHAFT MBH
Tenneco Sengewald Verpackungen GmbH & Co. KG
(Germany)............................................. 100%
(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)......... 100
(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)... 100
(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)............................................. 100
(Tenneco Packaging Deutschland Holdinggesellschaft
mbH is the Limited Partner; and Sengewald
Klinikprodukte Verwaltungs-gesellschaft mbH is the
General Partner)
Tenneco Packaging Europe B.V. (Netherlands)............... 100
Nederlandse Pillo-Pak Maatschappij B.V.
(Netherlands)......................................... 100
Tenneco Packaging Hexacomb S.A. (Spain)................... 100
Tenneco Packaging Hungary Holdings Inc. (Delaware)........ 100
Tenneco Packaging Hungary Packaging Material Limited
(Hungary)(1)........................................... 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 International Holdings Inc.
(Delaware)............................................. 100
Airpack SPA (Italy).................................... 2
(Tenneco Packaging International Holdings Inc.
owns 2%; and Tenneco Packaging Inc. owns 98%)
Scriptoria N.V. (Belgium).............................. less than 1
(Tenneco Packaging International Holdings Inc.
owns less than 1% or 18 shares; Tenneco Packaging
Inc. owns approximately 99.6%; and the remainder of
the shares are held by unknown third parties)
Tenneco Packaging de Mexico, S.A. de C.V............... 99.99
(Tenneco Packaging International Holdings Inc.
owns 499,999 shares; and Tenneco Packaging Inc. owns
1 share)
- ---------------
(1) This company is commonly referred to as "Tenneco
Packaging Hungary Kft."
8
<PAGE> 9
SUBSIDIARIES OF TENNECO PACKAGING INC.
SUBSIDIARIES OF TENNECO PACKAGING INTERNATIONAL HOLDINGS
INC
SUBSIDIARIES OF TENNECO PACKAGING DE MEXICO, S.A. DE
C.V.
Empaques Protectores Tenneco S.A. de C.V. (Mexico)... 40%
(Tenneco Packaging de Mexico, S.A. de C.V. owns
40%; non-affiliates own 60%)
Wellenfoam N.V. (Belgium).............................. less than 1
(Tenneco Packaging International Holdings Inc. owns
less than 1% or 1 share; and Tenneco Packaging Inc.
owns 99+%)
Tenneco Packaging Leasing Company (Delaware).............. 100
Tenneco Packaging RSA Company (Delaware).................. 100
Tenneco PPI Company (Delaware)............................ 100
Tenneco Protective Packaging Inc. (Delaware).............. 100
AVI Technologies, Inc. (Delaware)...................... 100
Tenneco Retail Receivables Company (Delaware)............. 100
Tenneco Rochester Acquisition Inc. (Delaware)(1).......... 100
Tenneco Romania Holdings Inc. (Delaware).................. 100
Tenneco Forest Products S.A. (Romania)................. 100
(Shawn Kelly, Richard Bierlich, Robert Haught and
Brent Nyberg, all of whom are affiliated, each hold
share(s) of this company)
Tenneco Windsor Box & Display, Inc. (Delaware)(2)......... 100
The Baldwin Group, Ltd. (U.K.)............................ 100
Ambassador Packaging Ltd. (U.K.)....................... 100
Coastal Packaging Ltd. (U.K.)........................ 100
Prempack Limited (U.K.).............................. 100
R & H Robinson (Sheffield) Ltd. (U.K.)............... 100
Baldwin Packaging Limited (U.K.)....................... less than 1
(The Baldwin Group owns ,1% or 1 share; J&W Baldwin
(Holdings) Ltd. owns 99.9%)
J&W Baldwin (Holdings) Ltd. (U.K.)..................... 100
Baldwin Packaging Limited (U.K.)..................... 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The
Baldwin Group owns ,1% or 1 share)
Jiffy Rugated Products Limited (U.K.)............. 99.9
(Baldwin Packaging Limited owns 99.9%; and The
Baldwin Group owns ,1% or 1 share)
J&W Baldwin (Manchester) Limited (U.K.)........... 99.9
(Baldwin Packaging Limited owns 99.9%; and The
Baldwin Group owns ,1% or 1 share)
- ---------------
(1) In dissolution.
(2) In dissolution.
9
<PAGE> 10
SUBSIDIARIES OF TENNECO PACKAGING INC.
SUBSIDIARIES OF THE BALDWIN GROUP, LTD.
SUBSIDIARIES OF J&W BALDWIN (HOLDINGS) LTD.
Jifcour (UK) Limited (U.K.).......................... 99.9%
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The
Baldwin Group, Ltd. owns less than 1% or 1 share)
Jiffy Packaging Company Ltd. (U.K.).................. 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The
Baldwin Group, Ltd. owns less than 1% or 1 share)
Pentland Packaging Limited (Scotland)................ 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The
Baldwin Group, Ltd. owns less than 1% or 1 share)
J&W Baldwin (Manchester) Limited (U.K.)................ less than 1
(The Baldwin Group, Ltd. owns less than 1% or 1 share
and Baldwin Packaging Limited owns 99.9%)
Jifcour (UK) Limited (U.K.)............................ less than 1
(The Baldwin Group, Ltd. owns less than 1% or 1 share
and J&W Baldwin (Holdings) Ltd. owns 99.9%)
Jiffy Packaging Company Ltd. (U.K.).................... less than 1
(The Baldwin Group, Ltd. owns less than 1% or 1 share;
and J&W Baldwin (Holdings) Ltd. owns 99.9%)
Jiffy Rugated Products Limited (U.K.).................. less than 1
(The Baldwin Group, Ltd. owns less than 1% or 1 share;
and Baldwin Packaging Limited owns 99.9%)
Omni-Pac U.K. Limited (United Kingdom)................. 100
Pentland Packaging Limited (Scotland).................. less than 1
(The Baldwin Group, Ltd. owns less than 1% or 1 share;
and J&W Baldwin (Holdings) Ltd. owns 99.9%)
Tenneco Packaging Limited (Scotland)................... 100
Alpha Products (Bristol) Limited (United Kingdom).... 100
Brucefield Plastics Limited (Scotland)............... 100
Polbeth Packaging (Corby) Limited (Scotland)......... 100
Tenneco Packaging (Caerphilly) Limited (United
Kingdom)............................................ 100
Tenneco Packaging (Films) Limited (United Kingdom)... 100
Tenneco Packaging (Livingston) Limited (Scotland).... 100
Tenneco Packaging (Stanley) Limited (United
Kingdom)............................................ 100
Tenneco Packaging (UK) Limited (United Kingdom)........ 100
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
10
<PAGE> 11
SUBSIDIARIES OF TENNECO PACKAGING INC.
Wellenfoam N.V. (Belgium)................................. 99.9%
(Tenneco Packaging Inc. owns 99.9%; and Tenneco
Packaging International Holdings Inc. owns less than 1%
or 1 share)
Wood Products Leasing Company (Delaware).................. 100
Zhejing Zhongbao Packaging (Peoples Republic of China).... 62.5
(Tenneco Packaging Inc. owns 62.5%; and non-affiliates
own 37.5%)
11
