<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1999
REGISTRATION NO. 333-82923
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TENNECO PACKAGING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3086 36-2552989
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION) NUMBER)
</TABLE>
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
847-482-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KARL A. STEWART
VICE PRESIDENT AND SECRETARY
TENNECO INC.
1275 KING STREET
GREENWICH, CONNECTICUT 06831
(203) 863-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
TIMOTHY R. DONOVAN, ESQ. GERARD M. MEISTRELL, ESQ.
JENNER & BLOCK CAHILL GORDON & REINDEL
ONE IBM PLAZA 80 PINE STREET
CHICAGO, ILLINOIS 60611 NEW YORK, NEW YORK 10005
(312) 222-9350 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement and all other conditions to the exchange offers described in the
enclosed prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number or the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS AND CONSENT SOLICITATION (Subject to Completion; Dated September ,
1999)
$[ ]
TENNECO PACKAGING INC.
Exchange Offers and Consent Solicitation
Outstanding Debt Securities of Tenneco Inc. (to be renamed Tenneco Automotive
Inc.)
exchanged for
New Debt Securities of Tenneco Packaging Inc. (to be renamed )
<TABLE>
<CAPTION>
For Each: You Will Receive:
-------------------------------- ----------------------------------
Aggregate $1,000 Principal Amount Early
Principal $1,000 Principal Amount of Tenneco Packaging's Exchange
Amount of Tenneco's Original Securities New Securities Premium*
- ----------- -------------------------------- ----------------------- --------
<S> <C> <C> <C>
[To be provided by amendment]
</TABLE>
- ---------------
* Tenneco will pay the early exchange premium only for original securities
validly tendered before the consent solicitation expires, and only if Tenneco
accepts those original securities for exchange.
Each of the exchange offers expires at 5:00 p.m., New York City time, on
, 1999, unless extended. The consent solicitation expires at 5:00
p.m., New York City time, on , 1999, unless extended.
- - Tenneco intends to spin-off Tenneco Packaging after the exchange offers.
- - Your tender is an automatic consent to amend the terms of the original
securities, as described in this document.
- - Tenneco expects that any original securities outstanding after the exchange
offers and spin-off will not maintain investment-grade ratings.
- - Tenneco expects the new securities to have an investment-grade rating.
- - Your right to withdraw tendered securities is limited, as described in this
document.
- - Your exchange should not be taxable for U.S. federal income tax purposes,
except for any accrued interest and early exchange premium.
- - The new securities will not be listed on any securities exchange or market.
See "Risk Factors," beginning on page 23, for a description of factors that you
should consider in evaluating the exchange offers and consent solicitation.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense.
---------------------
The dealer managers for the exchange offers and consent solicitation are:
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
, 1999
THE INFORMATION IN THIS DOCUMENT IS NOT COMPLETE AND MAY BE CHANGED. TENNECO MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS DOCUMENT IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 4
RISK FACTORS................................................ 23
Risk Factors if You Exchange.............................. 23
Risk Factors if You Do Not Exchange....................... 26
Risks Factors Relating to the Spin-off.................... 31
FORWARD-LOOKING STATEMENTS.................................. 32
WHERE YOU CAN FIND MORE INFORMATION......................... 34
INCORPORATION OF INFORMATION BY REFERENCE................... 34
THE EXCHANGE OFFERS AND CONSENT SOLICITATION................ 36
Terms of the Exchange Offers.............................. 36
The Consent Solicitation.................................. 37
Expiration Time; Early Exchange Time; Extensions;
Termination; Amendments................................ 37
Effect of Tender.......................................... 39
Acceptance of Consents and Original Securities; Delivery
of Exchange Consideration.............................. 39
Procedures for Tendering Original Securities and Giving
Consents............................................... 40
Conditions to the Exchange Offers and Consent
Solicitation........................................... 44
Withdrawal Rights......................................... 45
Dealer Managers........................................... 46
Exchange Agent............................................ 46
Information Agent......................................... 46
Trustee................................................... 46
Fees and Expenses......................................... 47
MARKET AND TRADING INFORMATION.............................. 47
ACCOUNTING TREATMENT OF THE EXCHANGE OFFERS................. 47
THE PROPOSED AMENDMENTS..................................... 48
Elimination of Operating Covenants........................ 48
Waiver.................................................... 49
DESCRIPTION OF THE NEW SECURITIES........................... 50
General................................................... 50
New Securities............................................ 50
Some Important Covenants of Packaging..................... 50
Consolidation, Merger and Sale of Assets.................. 52
Events of Default......................................... 53
Modification of the New Indenture......................... 53
Defeasance and Covenant Defeasance........................ 54
The New Trustee........................................... 54
Book-Entry System......................................... 54
Physical Securities....................................... 56
Payment................................................... 56
THE SPIN-OFF................................................ 57
Reasons for the Spin-off.................................. 57
Manner of Spin-off........................................ 57
Corporate Restructuring Transactions...................... 57
</TABLE>
------------------------
This document incorporates by reference business and financial information
about Tenneco Inc. and Tenneco Packaging Inc. that is not presented in or
delivered with this document. This information, excluding exhibits to the
information unless the exhibits are specifically incorporated by reference into
the information, is available without charge to any holder or beneficial owner
of original securities upon written or oral request to Karl A. Stewart, Vice
President and Secretary, Tenneco Inc., 1275 King Street, Greenwich, Connecticut,
06831, telephone number (203) 863-1000. In order to obtain timely delivery,
holders of original securities must request this information no later than
, 1999. Notwithstanding any disclosure to the contrary in documents
incorporated by reference, no safe harbor protection under Section 27A of the
Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934
extends to forward-looking statements that appear in this document directly or
by incorporation.
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Debt Realignment.......................................... 58
Relationship Between Automotive and Packaging After the
Spin-off............................................... 59
Conditions to the Spin-off................................ 63
Amendment or Termination of the Distribution Agreement.... 63
DESCRIPTION OF PACKAGING.................................... 64
General................................................... 64
Capitalization............................................ 64
New Financing............................................. 65
Unaudited Pro Forma Combined Financial Statements of
Packaging.............................................. 66
Supplemental Financial Information of Packaging........... 72
Combined Selected Financial Data of Packaging............. 73
Industry Overview and Key Terms........................... 76
Products and Markets...................................... 77
Growth Strategy........................................... 78
Marketing, Distribution and Customers..................... 81
Analysis of Revenues...................................... 82
Competition............................................... 82
International............................................. 82
Properties................................................ 83
Raw Materials............................................. 83
Environmental Regulation.................................. 83
Other..................................................... 84
Legal Proceedings......................................... 84
Containerboard Packaging Interest......................... 84
Management................................................ 85
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 94
Principal Stockholders.................................... 111
DESCRIPTION OF TENNECO AFTER THE SPIN-OFF/AUTOMOTIVE........ 112
Capitalization............................................ 112
Unaudited Pro Forma Consolidated Financial Statements of
Tenneco................................................ 113
Supplemental Financial Information of Tenneco............. 119
Tenneco and Consolidated Subsidiaries Selected Financial
Data................................................... 120
Overview of Automotive Parts Industry..................... 124
Analysis of Automotive's Revenues......................... 124
Emissions Control Systems................................. 126
Ride Control Systems...................................... 127
Sales and Marketing....................................... 128
Manufacturing and Engineering............................. 128
Industry Trends........................................... 129
Business Strategy......................................... 132
Properties................................................ 134
Legal and Environmental Proceedings....................... 135
Strategic Acquisitions and Alliances...................... 135
Other..................................................... 136
Management After the Spin-off............................. 137
New Financing............................................. 145
U.S. FEDERAL INCOME TAX CONSEQUENCES........................ 148
Tax Considerations if You Exchange........................ 148
Tax Considerations if You Do Not Exchange................. 150
Backup Withholding........................................ 150
LEGAL MATTERS............................................... 150
EXPERTS..................................................... 150
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE OF THE
BUSINESSES OF TENNECO PACKAGING........................... F-1
</TABLE>
3
<PAGE> 5
SUMMARY
Tenneco is offering to exchange Packaging's new securities listed in the
table below for Tenneco's original securities listed in the table below and is
soliciting consents with respect to the original securities on the terms and
conditions described in this document and the accompanying letter of consent/
transmittal. The following is a brief summary of the information included in
this document and may not contain all of the information that is important to
you. You should carefully read and review this entire document and the other
documents to which it refers to fully understand the terms of the new
securities, exchange offers and consent solicitation.
You should rely only on the information contained or incorporated by
reference in this document. Tenneco and Packaging have not authorized anyone to
provide you with information different from that contained in this document or
incorporated by reference into this document. The exchange offers and consent
solicitation are not being made to, and Tenneco will not accept tenders for
exchange from, holders of outstanding original securities in any jurisdiction in
which the exchange offers or consent solicitation, or the acceptance thereof,
would not be in compliance with the securities or blue sky laws of that
jurisdiction. The information in this document is accurate as of the date on the
front cover. Tenneco's and Packaging's business, financial condition, results of
operations and prospects may have changed since that date.
Unless the context otherwise requires, in this document:
- "Tenneco" refers to Tenneco Inc., a Delaware corporation, and its
subsidiaries. Tenneco is currently engaged in the automotive, packaging
and administrative services businesses, but plans to spin-off the
packaging and administrative services businesses to its stockholders.
When the spin-off is completed, Tenneco will be engaged in only its
automotive business.
- "Packaging" refers to Tenneco Packaging Inc., a Delaware corporation and
those companies that will be its subsidiaries when the spin-off is
completed. Packaging will be renamed in connection with the spin-off.
- "Automotive" refers to Tenneco Inc. and its subsidiaries after the
spin-off, which will own and operate its automotive business. When the
spin-off is completed, Tenneco will be renamed Tenneco Automotive Inc.
THE EXCHANGE OFFERS AND CONSENT SOLICITATION
THE EXCHANGE OFFERS: For each $1,000 principal amount of original
securities validly tendered and accepted for
exchange, Tenneco is offering (1) $1,000
principal amount of the corresponding series of
Packaging's new securities, as shown in the
table below, plus (2) the early exchange
premium shown in the table below for holders
who validly tender their original securities
before the consent solicitation expires. See
"The Exchange Offers and Consent
Solicitation -- Terms of the Exchange Offers"
beginning on page 36.
<TABLE>
<CAPTION>
FOR EACH: YOU WILL RECEIVE:
-------------------------------- ----------------------------------------
AGGREGATE EARLY
PRINCIPAL $1,000 PRINCIPAL AMOUNT $1,000 PRINCIPAL AMOUNT EXCHANGE
CUSIP NO. AMOUNT OF TENNECO'S ORIGINAL SECURITIES OF PACKAGING'S NEW SECURITIES PREMIUM*
- --------- ----------- -------------------------------- ----------------------------- --------
<S> <C> <C> <C> <C>
</TABLE>
[To be provided by amendment]
- ---------------
* Tenneco will pay the early exchange premium only for original securities
validly tendered before the consent solicitation expires, and only if Tenneco
accepts those original securities for exchange.
4
<PAGE> 6
IMPORTANT DATES: The following timeline summarizes important
dates for the exchange offers and consent
solicitation. You should read this timeline in
conjunction with the rest of this document,
which describes, among other things, Tenneco's
right to extend, amend and/or terminate any of
the exchange offers and the consent
solicitation.
TIMELINE GRAPH SHOWING:
- - COMMENCEMENT DATE - Tenneco begins the exchange offers and consent
solicitation
- - WITHDRAWAL TIME - You may not withdraw tendered securities after the first to
occur of:
- the consent solicitation expiration, or
- 5:00 p.m., New York City time, on the date Tenneco publicly announces it has
received the required consents.
- - CONSENT SOLICITATION EARLY EXCHANGE TIME - Consent solicitation expires; you
must tender before 5:00 p.m., New York City time, to be eligible to receive
the early exchange premium
- - EXCHANGE OFFER EXPIRATION TIME - Exchange offers expire; you must tender
before 5:00 p.m., New York City time, to be eligible to participate in the
exchange offers
- - ACCEPTANCE DATE - Tenneco accepts for exchange original securities that are
validly tendered and not withdrawn
- - ISSUANCE/EXCHANGE DATE - Packaging's new securities are issued in exchange for
Tenneco's original securities; the exchange agent delivers new securities and
any applicable accrued interest and early exchange premium
CONCURRENT CASH TENDER OFFERS: Tenneco is also making cash tender offers and a
consent solicitation for all series of its
public debt not subject to the exchange offers.
The securities subject to these cash tender
offers total $ in aggregate principal
amount.
THE CONSENT SOLICITATION: Tenneco is soliciting consents from the holders
of original securities to amendments to the
original debtholder contract under which
Tenneco issued those securities, commonly
referred to as an indenture. These proposed
amendments will eliminate the restrictions on
Tenneco's operations currently included in this
original indenture. See "The Proposed
Amendments" beginning on page 48.
If you want to exchange your original
securities, you will be required to consent to
the proposed amendments. YOUR PROPER TENDER OF
ORIGINAL SECURITIES USING ONE OF THE PROCEDURES
DESCRIBED IN THIS DOCUMENT WILL CONSTITUTE YOUR
AUTOMATIC CONSENT TO THE PROPOSED AMENDMENTS
AND TO THE EXECUTION OF A SUPPLEMENT TO THE
ORIGINAL INDENTURE TO EFFECT THE PROPOSED
AMENDMENTS.
5
<PAGE> 7
REQUIRED CONSENTS: The aggregate principal amount of securities
outstanding under the original indenture is
$2,459,848,000, consisting of $ of
original securities that are subject to the
exchange offers and $ of other debt
securities that are subject to Tenneco's
concurrent cash tender offers. To amend the
original indenture, Tenneco must receive
consents from the registered holders of at
least a majority of that amount, voting as a
single class. In addition to the consent
solicitation described in this document,
Tenneco is soliciting consents to the proposed
amendments in connection with its concurrent
cash tender offers. See "The Exchange Offers
and Consent Solicitation -- The Consent
Solicitation" beginning on page 36.
Tenneco may receive the required consents
before the exchange offers expire. The proposed
amendments will not take effect, however,
unless Tenneco accepts for exchange or purchase
debt securities issued under the original
indenture that represent at least the required
consents, whether tendered in the exchange
offers or cash tender offers. See "The Proposed
Amendments" beginning on page 48.
PURPOSE OF THE EXCHANGE OFFERS
AND CONSENT SOLICITATION: Tenneco intends to spin-off Packaging to its
public stockholders. Upon completion of the
spin-off, Packaging will become an independent,
publicly held company engaged in Tenneco's
current packaging businesses. At that time,
Tenneco's sole remaining business will be its
current automotive business. See "The Spin-off"
beginning on page 57.
The exchange offers are one component of a plan
to realign Tenneco's debt before the spin-off.
As part of this debt realignment, Tenneco is
also making the cash tender offers described
above. See "The Spin-off -- Debt Realignment"
beginning on page 58.
The purpose of the exchange offers is to
acquire all of Tenneco's outstanding original
securities. The purpose of the consent
solicitation is to eliminate the restrictions
on Tenneco's operations currently included in
the original indenture. This includes
eliminating a covenant that might, if held to
apply to the spin-off, otherwise require
Packaging to become the obligor of the original
securities. Tenneco and Packaging believe the
application of that covenant is uncertain in
these circumstances. See "The Proposed
Amendments" beginning on page 48.
RISKS IF YOU EXCHANGE: An investment in the new securities involves
risks. See "Risk Factors -- Risks if You
Exchange" beginning on page 23. These risks
include:
- Once the spin-off is completed, Packaging
will have fewer assets and less revenues and
cash flows than Tenneco currently does.
- Tenneco and Packaging cannot assure you that
the new securities will have or maintain an
investment-grade rating.
6
<PAGE> 8
- A liquid trading market may not develop for
the new securities, which could adversely
affect their value.
RISKS IF YOU DO NOT EXCHANGE: You could suffer adverse consequences if you
choose not to tender your original securities.
See "Risk Factors -- Risk Factors if You Do Not
Exchange" beginning on page 26. These adverse
consequences include:
- The operating restrictions presently included
in the original indenture will no longer
apply. This will permit Tenneco, which at
that time will consist solely of its
Automotive business, to make new borrowings
in connection with the spin-off that are
secured by its assets, including the capital
stock of its various subsidiaries. This will
allow the lenders to enforce their rights by
taking control of the assets and/or
subsidiaries. As a result, any original
securities that remain outstanding after the
spin-off will effectively rank behind these
new borrowings with regard to payment.
- Once the spin-off is completed, Automotive
will have a substantial amount of debt. This
may adversely affect its ability to meet its
payment obligations to you under the original
securities if you do not exchange.
- Tenneco expects that the original securities
will not maintain an investment-grade rating
after the exchange offers and spin-off. This
could adversely affect their value.
- Tenneco expects the original securities to
have a limited trading market after the
exchange offers. This could also adversely
affect their value.
EXPIRATION OF THE EXCHANGE
OFFERS: Each exchange offer will expire at 5:00 p.m.,
New York City time, on ,
, 1999, unless extended by Tenneco
in its sole discretion or terminated at an
earlier time.
EXPIRATION OF THE CONSENT
SOLICITATION: The consent solicitation will expire at 5:00
p.m., New York City time, on ,
, 1999, unless extended by Tenneco
in its sole discretion or terminated at an
earlier time.
WITHDRAWAL RIGHTS: You may withdraw your tender of original
securities for exchange any time before the
withdrawal time described below by following
the procedures described in this document. A
valid withdrawal of original securities will
also revoke the related consent. You may not
revoke a consent without withdrawing the
related original securities. See "The Exchange
Offers and Consent Solicitation -- Withdrawal
Rights" beginning on page 45.
In general, you may not withdraw tendered
original securities after the withdrawal time
unless the related exchange offer is terminated
without any original securities being accepted
for exchange. Subject to applicable law, this
is true even if Tenneco waives any condition to
the exchange offers or extends any exchange
offer or the consent solicitation. If, however,
after the withdrawal time Tenneco reduces the
principal amount of original securities subject
to any exchange offer, or Tenneco reduces the
consideration offered in that exchange offer,
then the
7
<PAGE> 9
original securities tendered in that exchange
offer may be validly withdrawn for the
following ten business days.
As used in this document, the term "withdrawal
time" refers to the earlier of --
- the expiration of the consent solicitation,
and
- 5:00 p.m., New York City time, on the date
that Tenneco publicly announces that it has
received the required consents.
CONDITIONS TO THE EXCHANGE
OFFERS
AND CONSENT SOLICITATION: The exchange offers and consent solicitation
are subject to satisfaction or Tenneco's waiver
of several conditions, including:
- the receipt of the required consents;
- any and all conditions to Tenneco's cash
tender offers; and
- any and all conditions to the spin-off.
See "The Exchange Offers and Consent
Solicitation -- Conditions to the Exchange
Offers and Consent Solicitation" beginning on
page 44.
HOW TO TENDER YOUR ORIGINAL
SECURITIES AND GIVE
CONSENTS: For a description of how to tender your
original securities and give consents, see "The
Exchange Offers -- Procedures for Tendering
Original Securities and Giving Consents"
beginning on page 40. THERE ARE NO GUARANTEED
DELIVERY PROCEDURES. YOU MUST COMPLETE THE
PROCEDURES FOR TENDERING ORIGINAL SECURITIES
DESCRIBED IN THIS DOCUMENT BEFORE THE CONSENT
SOLICITATION OR EXCHANGE OFFERS EXPIRE, AS
APPLICABLE. For more information, you should
contact the information agent or dealer
managers at their addresses on the back cover
of this document, or consult your broker,
dealer, commercial bank or trust company for
assistance.
ACCEPTANCE OF ORIGINAL
SECURITIES; DELIVERY
OF EXCHANGE CONSIDERATION: Upon the terms and subject to the conditions of
the exchange offers and applicable law, Tenneco
will (1) accept for exchange original
securities validly tendered before the
applicable expiration time, and not properly
withdrawn, and then (2) pay for accepted
original securities by delivering new
securities in book-entry form, plus cash for
any applicable accrued interest and early
exchange premium, to the exchange agent on the
next New York Stock Exchange trading day. The
date new securities are delivered to the
exchange agent is referred to in this document
as their issuance date.
NEW SECURITIES WILL BE ISSUED ONLY IN
BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST
COMPANY. THIS MEANS THAT YOU WILL NOT RECEIVE
CERTIFICATES FOR ANY OF YOUR NEW SECURITIES. If
you plan to tender original securities which
are not held through DTC, you are urged to
contact a custodian that can hold securities
through DTC to arrange delivery of the new
securities on your behalf. This custodian
should also provide you with the required DTC
8
<PAGE> 10
participant and account information that you
will be required to submit in the accompanying
letter of consent/transmittal.
The exchange agent will deliver new securities
in book-entry form, plus any applicable accrued
interest and early exchange premium, to
exchanging holders on the issuance date for
those new securities or as soon thereafter as
practicable.
ACCRUED INTEREST ON ORIGINAL
SECURITIES; INTEREST ON NEW
SECURITIES: Tenneco will pay accrued but unpaid interest on
original securities exchanged through the date
Tenneco accepts them for exchange. If, however,
Tenneco accepts for exchange any particular
series of original securities after an interest
record date for that series and on or before
the related interest payment date, accrued but
unpaid interest will instead be paid to the
holder of those original securities as of the
record date (if different from the tendering
holder). See "The Exchange Offers and Consent
Solicitation -- Terms of the Exchange Offers"
beginning on page 36.
Interest on the new securities will accrue
from, and including, their issuance date.
WAIVERS; EXTENSIONS;
AMENDMENTS: Tenneco expressly reserves the right to:
- terminate any or all of the exchange offers
or the consent solicitation upon the failure
of any of the conditions to the exchange
offers and consent solicitation;
- waive any condition to any of the exchange
offers or the consent solicitation;
- extend the expiration of any of the exchange
offers or the consent solicitation;
- amend the terms of any of the exchange offers
or the consent solicitation; and
- not accept original securities as a result of
an invalid tender, withdrawal or the
occurrence of other events described in this
document.
If Tenneco makes a material change to the terms
of or information concerning the exchange
offers or consent solicitation, including any
waiver of a material condition, Tenneco and
Packaging will, to the extent required by law:
(1) amend and recirculate this document; and
(2) extend the expiration of the exchange
offers and/or consent solicitation. See "The
Exchange Offers and Consent
Solicitation -- Expiration Time; Early Exchange
Time; Extensions; Termination; Amendments"
beginning on page 37.
TAX CONSEQUENCES: Tenneco intends the exchange offers to be part
of a tax-free reorganization under the Internal
Revenue Code of 1986, as amended. You should
generally not have income tax liability if you
exchange original securities for new
securities, except on any accrued but unpaid
interest or early exchange premium. You should
also not have income tax liability in
connection with the exchange offers if your
original securities are not exchanged. See
9
<PAGE> 11
"U.S. Federal Income Tax Consequences"
beginning on page 148.
NO RECOMMENDATION: Tenneco and Packaging are not, and no other
person acting on behalf of either of them, is
making any recommendation about tendering
original securities in the exchange offers or
providing consents to the proposed amendments.
NO DISSENTERS' RIGHTS: You will not have any right to dissent and
receive an appraisal of your original
securities in connection with the exchange
offers or consent solicitation.
EXCHANGE AGENT: The Chase Manhattan Bank is the exchange agent
that will receive tenders of original
securities on Tenneco's behalf and distribute
any payments made.
INFORMATION AGENT: Georgeson & Company Inc. is the information
agent that you may contact for assistance or
additional copies of this document.
DEALER MANAGERS: Morgan Stanley Dean Witter and Credit Suisse
First Boston are acting as dealer managers for
the exchange offers.
\
10
<PAGE> 12
TERMS OF THE NEW SECURITIES
The terms of the new securities will be substantially identical to the
current terms of the original securities except that (a) Packaging will issue
the new securities, and (b) the interest rate on each series of new securities
will be _____ than the interest rate on the corresponding series of original
securities. See "Description of the New Securities" beginning on page 50.
ISSUER: Tenneco Packaging Inc., which will be renamed
.
If you exchange your original securities for
new securities, you will be entitled to look
only to Packaging's businesses and operations
for the payment of principal and interest,
rather than to the consolidated operations of
Tenneco, which included both Packaging and
Automotive. See "Risk Factors -- Risk Factors
if You Exchange" beginning on page 23.
RANKING: The new securities will be senior unsecured
obligations of Packaging. This means they will
rank equally in right of payment with all
existing and future unsecured and
unsubordinated debt of Packaging and
effectively junior to any secured debt of
Packaging. In connection with the spin-off,
Packaging will be making borrowings under new
credit facilities that will rank equally in
right of payment with the new securities. See
"Description of Packaging -- Unaudited Pro
Forma Combined Financial Statements of
Packaging." Packaging currently has no debt
securities outstanding that are senior or
junior to the new securities.
NEW SECURITIES:
<TABLE>
<CAPTION>
NEW CUSIP NO. SERIES OF NEW SECURITIES INTEREST PAYMENT DATES
------------- ------------------------ ----------------------
<S> <C> <C>
[To be provided by amendment]
</TABLE>
LISTING: The new securities will not be listed on any
domestic or international securities exchange
or market.
BASIC PACKAGING COVENANTS: Packaging will issue the new securities under a
new indenture with The Chase Manhattan Bank, as
trustee. The new indenture will restrict
Packaging's ability to:
- borrow money that is secured by liens on
principal manufacturing or research and
development facilities or on the capital
stock of subsidiaries;
- sell all or substantially all of its assets
or merge with another person; and
- sell and then take an immediate lease back of
principal manufacturing or research and
development facilities.
These restrictions are subject to important
exceptions described under the heading
"Description of the New Securities" beginning
on page 50.
11
<PAGE> 13
THE COMPANIES
TENNECO BEFORE THE SPIN-OFF
Tenneco is a global manufacturing company whose major businesses currently
consist of (a) Automotive -- the manufacture and sale of automotive emissions
control and ride control products and systems, and (b) Packaging -- the
manufacture and sale of specialty packaging and consumer products for the
foodservice, consumer, protective, flexible and institutional/industrial
markets. Tenneco's headquarters are located at 1275 King Street, Greenwich,
Connecticut, 06831, and its telephone number at that location is (203) 863-1000.
For further information about Tenneco, see "Where You Can Find More Information"
on page 34 and "Incorporation of Information by Reference" on page 34.
Tenneco was incorporated in 1996 under the name "New Tenneco Inc." as a
wholly owned subsidiary of the company then known as Tenneco Inc. At that time,
the company's major businesses were shipbuilding, energy, automotive and
packaging. On December 11, 1996, the former Tenneco completed the transfer of
its automotive and packaging businesses to the current Tenneco, and spun off the
current Tenneco to its public stockholders. In connection with that spin-off,
the former Tenneco also spun off its shipbuilding division to its public
stockholders and the remaining energy company was acquired by El Paso Natural
Gas Company. Unless the context otherwise requires, for periods prior to
December 11, 1996, the term "Tenneco" also refers to the company formerly known
as Tenneco.
PACKAGING
Packaging is a global supplier of specialty packaging and consumer
products, with 1998 revenues of approximately $2.8 billion. Packaging operates
89 manufacturing facilities throughout the world and employs over 15,000 people.
Packaging is currently owned by Tenneco and will become an independent, publicly
traded company upon completion of the spin-off.
Packaging manufactures and sells plastic, aluminum and paper-based consumer
products, such as disposable tableware, plastic food storage bags and plastic
trash bags. Packaging sells these products under such recognized brand names as
Hefty(R), Baggies(R), Hefty One-Zip(R) and E-Z Foil(R). Packaging also offers
food/foodservice packaging products such as molded fiber cartons, foam meat
trays and plastic, pressed paperboard and aluminum containers for frozen food,
bakery and deli applications. Its products also include sponge-like foam and
other packaging to protect and cushion a variety of goods during storage and
shipment and flexible plastic bags for medical, pharmaceutical, chemical,
hygiene and industrial applications. When the spin-off is completed, Packaging
will own Tenneco's administrative services operations, but is currently
analyzing its alternatives with respect to these operations. See "Description of
Packaging -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 94.
Packaging also owns a 43% common equity interest in a joint venture that
operates Packaging's former containerboard packaging business. Containerboard is
material derived primarily from wood pulp and recycled paper that is used to
make cartons, boxes and other containers. The joint venture manufactures
containerboard, as well as corrugated containers and lumber and related wood
products. The joint venture had 1998 pro forma revenues of $1.57 billion.
Packaging plans to sell its interest in this containerboard joint venture and
expects the sale to be completed before the spin-off. See "Description of
Packaging -- Unaudited Pro Forma Combined Financial Statements of Packaging"
beginning on page 66.
Packaging's headquarters are located at 1900 West Field Court, Lake Forest,
Illinois 60045, and its telephone number at that location is (847) 482-2000. For
more information about Packaging, see "Description of Packaging" beginning on
page 64.
TENNECO AFTER THE SPIN-OFF/AUTOMOTIVE
When the spin-off is completed, Tenneco's remaining operations will consist
solely of Automotive. Automotive is a worldwide manufacturer and marketer of
automotive emissions control and ride control products and systems for vehicle
manufacturers and the repair and replacement market, or aftermarket. With 1998
revenues of approximately $3.2 billion, approximately 23,500 employees worldwide
and 106
12
<PAGE> 14
facilities in 25 countries, Automotive is a global business that sells its
products in over 100 countries. Automotive manufactures and markets its
emissions control products primarily under the Walker(R) brand name and its ride
control products primarily under the Monroe(R) brand name. Among its products
are Sensa-Trac(R) shock absorbers and weight bearing struts, Rancho(R) ride
control products, Walker Quiet-Flow(TM) mufflers and DynoMax(R) performance
mufflers, Walker(R) and Gillet(TM) exhaust systems and Monroe Clevite(TM)
elastomeric vibration control components.
Automotive's headquarters are located at 500 North Field Drive, Lake
Forest, Illinois 60045, and its telephone number at that location is (847)
482-5000. For more information about Automotive, see "Description of Tenneco
After the Spin-off/Automotive" beginning on page 112.
THE SPIN-OFF
The spin-off of Packaging 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 management to develop a broad range of strategic
alternatives which could result in the separation of its automotive, paperboard
packaging and specialty packaging businesses. Earlier this year, Tenneco
separated the paperboard packaging business from the rest of its operations.
First, Packaging contributed its containerboard packaging business, which
constituted the majority of its paperboard packaging segment, to a new joint
venture for approximately $2 billion plus a 45% common equity interest.
Packaging currently plans to sell its remaining interest in this joint venture,
which is now 43% due to subsequent equity issuances to management. Second,
Packaging sold the balance of its paperboard packaging business, the folding
carton business, for $72.5 million. The cash proceeds of these transactions were
used to repay a portion of Tenneco's short-term debt. The spin-off will complete
the separation of Tenneco's businesses and create two independent, public
companies -- Automotive and Packaging.
Tenneco's Board of Directors has determined that the spin-off is in the
best interests of Tenneco's stockholders because divergent industry trends
increasingly require Tenneco's packaging and automotive businesses to pursue
different strategies. The spin-off is designed to separate Tenneco's packaging
business from its automotive business, which have distinct financial, investment
and operating characteristics, so that each can adopt strategies and pursue
objectives appropriate to its specific needs.
The following describes the principal transactions that Tenneco and
Packaging will undertake to complete the spin-off. The spin-off is subject to a
number of conditions, including completion of the corporate restructuring
transactions and debt realignment. See "The Spin-off" beginning on page 57.
- 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 the ownership
of its existing businesses before the spin-off so that the assets,
liabilities and operations of (a) its packaging business and
administrative services operations will be owned directly and indirectly
by Packaging and (b) its automotive business will be owned directly and
indirectly by Tenneco and its non-packaging subsidiaries. See "The
Spin-off -- Corporate Restructuring Transactions" beginning on page 57.
- Debt Realignment. 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
through some combination of tender offers, exchange offers, prepayments
and other refinancings. The purpose is to allocate this debt between
Automotive and Packaging before the companies are separated. The exchange
offers and Tenneco's cash tender offers are components of this debt
realignment. Tenneco also expects to repay other non-public debt and to
repurchase subsidiary preferred stock. To finance the cash tender offers
and other cash payments, Packaging and Automotive will each make
borrowings under new credit
13
<PAGE> 15
facilities and Automotive expects to issue new subordinated debt. See
"The Spin-off -- Debt Realignment" beginning on page 58.
If the debt realignment and spin-off had occurred on June 30, 1999,
Packaging would have had debt for money borrowed of about $2.2 billion
and Automotive would have had debt for money borrowed of about $1.7
billion on a pro forma basis. This pro forma debt amount for Packaging
does not reflect the application of any proceeds from Packaging's planned
sale of its remaining interest in the containerboard joint venture. See
"Description of Packaging -- Unaudited Pro Forma Combined Financial
Statements of Packaging" beginning on page 66 and "Description of Tenneco
After the Spin-off/Automotive -- Unaudited Pro Forma Consolidated
Financial Statements of Tenneco" beginning on page 113.
- Distribution of Packaging Common Stock. Tenneco will complete the
spin-off by distributing all Packaging common stock to the holders of
Tenneco common stock at a ratio of one share of Packaging common stock
for each share of Tenneco common stock. The spin-off is conditioned on
Tenneco's receipt, and the continued effectiveness, of a determination
that the spin-off will be tax-free to Tenneco and its stockholders.
Tenneco received a letter ruling from the Internal Revenue Service to
that effect on August 20, 1999.
14
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA COMBINED
FINANCIAL DATA OF PACKAGING
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 the opinion of Packaging's
management, 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 of Packaging 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 Packaging's results of operations
would have been had these transactions described above actually been consummated
on the dates assumed and are not necessarily indicative of the results of
operations for any future period.
Packaging's debt balances in the summary unaudited pro forma combined
financial data do not reflect the 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.
There is other information Packaging believes is relevant to understanding
its results of operations following the spin-off. These items relate to
corporate overhead costs incurred by Tenneco and its administrative services
operations that Packaging expects will differ for it following the spin-off. For
further information you should see "Description of Packaging -- Supplemental
Financial Information of Packaging" beginning on page 72.
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 66);
- Combined Selected Financial Data of Packaging (page 73);
- Management's Discussion and Analysis of Financial Condition and Results
of Operations of Packaging (page 94); and
- Combined Financial Statements and Schedule of the Businesses of Tenneco
Packaging (page F-1).
(continued on next page)
15
<PAGE> 17
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
Pro Forma
1998 1998(a) 1997(a) 1996(a)
--------- ------- ------- -------
(Dollars in millions except per share amounts)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA(b):
Net sales and operating
revenues --
Specialty............. $ 2,785 $ 2,785 $ 2,553 $ 1,987
Other................. 6 6 10 --
----------- ----------- ----------- -----------
Total............... $ 2,791 $ 2,791 $ 2,563 $ 1,987
=========== =========== =========== ===========
Income from continuing
operations before
interest expense, income
taxes, and minority
interest --
Specialty............. $ 328 $ 328 $ 308 $ 249
Other(c).............. (40) (45) (2) (15)
----------- ----------- ----------- -----------
Total............... 288 283 306 234
Interest expense(d)....... 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
<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)
16
<PAGE> 18
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
Pro Forma
1998 1998(a) 1997(a) 1996(a)
--------- ------- ------- -------
(Dollars in millions except per share amounts)
<S> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA(b):
Net cash provided (used)
by operating
activities............ NA $ 577 $ 405 $ 263
Net cash provided (used)
by investing
activities............ NA (514) (654) (669)
Net cash provided (used)
by financing
activities............ NA (67) 239 399
Capital expenditures for
continuing
operations............ NA (194) (229) (216)
OTHER DATA:
EBITDA(j)................. $ 463 $ 458 $ 469 $ 365
Ratio of earnings to fixed
charges(k).............. 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" of
Packaging 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 "Description of
Packaging -- Growth Strategy" and "Description of Packaging -- 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 Packaging's historical combined financial statements. Packaging expects
its costs for these functions will differ following the spin-off. See
"Supplemental Financial Information of Packaging" 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 Packaging's
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
Packaging's 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 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 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 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.
(continued on next page)
17
<PAGE> 19
(i) Packaging's pro forma debt balances reflect 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. See "Description of
Packaging -- Unaudited Pro Forma Combined Financial Statements of
Packaging."
(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. 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 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 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.
(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 Packaging by Tenneco as
discussed in (d) above. The pro forma ratios are derived from the Unaudited
Pro Forma Combined Financial Statements of Packaging included elsewhere in
this document. For the year ended December 31, 1995, earnings were
inadequate to cover fixed charges by $59 million.
18
<PAGE> 20
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA OF TENNECO
The following summary consolidated financial data as of and for each of the
fiscal years in the five years ended December 31, 1998 were derived from the
audited financial statements of Tenneco and its consolidated subsidiaries. The
following summary consolidated financial data as of and for each of the six
months ended June 30, 1999 and 1998 were derived from the unaudited condensed
financial statements of Tenneco and its consolidated subsidiaries. In the
opinion of Tenneco's management, the summary consolidated historical financial
data of Tenneco 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 consolidated financial data set
forth below 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;
- the spin-off of Packaging and related transactions; and
- the unaudited pro forma consolidated statement of income data set forth
below also reflects the April 1999 contribution of Packaging's
containerboard assets to a new joint venture and the June 1999 sale of
Packaging's folding carton assets.
The unaudited pro forma consolidated statement of income data have been
prepared as if these transactions occurred January 1, 1998; the unaudited pro
forma consolidated balance sheet data have been prepared as if the debt
realignment, spin-off and related transactions occurred on June 30, 1999. The
summary unaudited pro forma consolidated financial data are not necessarily
indicative of what Tenneco's results of operations would have been had these
transactions described above actually been consummated on the dates assumed and
are not necessarily indicative of the results of operations for any future
period.
There is other information Tenneco believes is relevant to understanding
its results of operations following the spin-off. These items relate to
corporate overhead costs incurred by Tenneco and its administrative services
operations that Tenneco expects will differ following the spin-off. For further
information you should see "Description of Tenneco After the
Spin-off/Automotive -- Supplemental Financial Information of Tenneco" beginning
on page 119.
You should read all of this information in conjunction with the:
- Unaudited Pro Forma Consolidated Financial Statements of Tenneco
beginning on page 113 of this document; and
- Management's Discussion and Analysis of Financial Condition and Results
of Operations of Tenneco and the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for the year ended December 31, 1998, and for
the six months ended June 30, 1999, each of which are contained in the
Tenneco Current Report on Form 8-K, dated August 20, 1999. The Form 8-K
is incorporated by reference into this document. See "Where You Can Find
More Information" and "Incorporation of Information By Reference" on page
34 of this document.
(continued on next page)
19
<PAGE> 21
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
Pro Forma
1998 1998(a) 1997(a)
----------- ------- -------
(Dollars in millions except per share amounts)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA(b):
Net sales and operating revenues from
continuing operations................... $ 3,237 $ 3,237 $ 3,226
=========== =========== ===========
Income from continuing operations before
interest expense, income taxes, and
minority interest --
Automotive.............................. $ 248 $ 248 $ 407
Other................................... (26) (21) (12)
----------- ----------- -----------
Total................................. 222 227 395
Interest expense(c)........................ 161 69 58
Income tax expense (benefit)............... (26) 13 80
Minority interest.......................... -- 29 23
----------- ----------- -----------
Income (loss) from continuing operations... 87 116 234
Income (loss) from discontinued operations,
net of income tax(d)...................... NA 139 127
Extraordinary loss, net of income tax(e)... NA -- --
Cumulative effect of changes in accounting
principles, net of income tax(f).......... NA -- (46)
----------- -----------
Net income (loss).......................... NA 255 315
Preferred stock dividends.................. NA -- --
----------- -----------
Net income (loss) to common stock.......... NA $ 255 $ 315
=========== ===========
Average number of shares of common stock
outstanding--
Basic................................... 168,505,573 168,505,573 170,264,731
Diluted................................. 168,834,531 168,834,531 170,801,636
Earnings (loss) per average share of common
stock--
Basic:
Continuing operations................. $ .52 $ .69 $ 1.37
Discontinued operations(d)............ NA .83 .75
Extraordinary loss(e)................. NA -- --
Cumulative effect of changes in
accounting principles(f)............ NA -- (.27)
----------- -----------
NA $ 1.52 $ 1.85
=========== ===========
Diluted:
Continuing operations................. $ .52 $ .68 $ 1.36
Discontinued operations(d)............ NA .83 .75
Extraordinary loss(e)................. NA -- --
Cumulative effect of changes in
accounting principles(f)............ NA -- (.27)
----------- -----------
NA $ 1.51 $ 1.84
=========== ===========
Cash dividends per common share............ NA $ 1.20 $ 1.20
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(d)........................... NA $ 1,739 $ 1,771
Total assets.............................. NA 4,759 4,682
Short-term debt(c)........................ NA 304 75
Long-term debt(c)......................... NA 671 713
Debt allocated to discontinued
operations(c)........................... NA 2,456 2,123
Minority interest......................... NA 407 408
Shareowners' equity....................... NA 2,504 2,528
STATEMENT OF CASH FLOWS DATA(b)
Net cash provided (used) by operating
activities.............................. NA $ 532 519
Net cash used by investing activities..... NA (754) (887)
Net cash provided (used) by financing
activities.............................. NA 216 354
Capital expenditures for continuing
operations.............................. NA (195) (221)
OTHER DATA:
EBITDA(g)................................. $ 372 $ 377 $ 505
Ratio of earnings to fixed charges(h)..... 1.36 2.16 4.80
<CAPTION>
Years Ended December 31,
---------------------------------------
1996(a) 1995 1994
------- ---- ----
(Dollars in millions except per share amounts)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA(b):
Net sales and operating revenues from
continuing operations................... $ 2,980 $ 2,479 $ 1,989
=========== =========== ===========
Income from continuing operations before
interest expense, income taxes, and
minority interest --
Automotive.............................. $ 249 $ 240 $ 223
Other................................... (7) 8 7
----------- ----------- -----------
Total................................. 242 248 230
Interest expense(c)........................ 60 44 33
Income tax expense (benefit)............... 79 91 52
Minority interest.......................... 21 23 --
----------- ----------- -----------
Income (loss) from continuing operations... 82 90 145
Income (loss) from discontinued operations,
net of income tax(d)...................... 564 645 307
Extraordinary loss, net of income tax(e)... (236) -- (5)
Cumulative effect of changes in accounting
principles, net of income tax(f).......... -- -- (39)
----------- ----------- -----------
Net income (loss).......................... 410 735 408
Preferred stock dividends.................. 12 12 60
----------- ----------- -----------
Net income (loss) to common stock.......... $ 398 $ 723 $ 348
=========== =========== ===========
Average number of shares of common stock
outstanding--
Basic................................... 169,609,373 172,764,198 162,307,189
Diluted................................. 170,526,112 173,511,654 162,912,425
Earnings (loss) per average share of common
stock--
Basic:
Continuing operations................. $ .49 $ .52 $ .90
Discontinued operations(d)............ 3.25 3.67 1.52
Extraordinary loss(e)................. (1.39) -- (.03)
Cumulative effect of changes in
accounting principles(f)............ -- -- (.24)
----------- ----------- -----------
$ 2.35 $ 4.19 $ 2.15
=========== =========== ===========
Diluted:
Continuing operations................. $ .49 $ .52 $ .89
Discontinued operations(d)............ 3.23 3.65 1.52
Extraordinary loss(e)................. (1.38) -- (.03)
Cumulative effect of changes in
accounting principles(f)............ -- -- (.24)
----------- ----------- -----------
$ 2.34 $ 4.17 $ 2.14
=========== =========== ===========
Cash dividends per common share............ $ 1.80 $ 1.60 $ 1.60
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(d)........................... $ 1,883 $ 1,469 $ 700
Total assets.............................. 4,653 3,635 2,315
Short-term debt(c)........................ 74 109 31
Long-term debt(c)......................... 639 469 303
Debt allocated to discontinued
operations(c)........................... 1,590 1,454 813
Minority interest......................... 304 301 301
Shareowners' equity....................... 2,646 3,148 2,900
STATEMENT OF CASH FLOWS DATA(b)
Net cash provided (used) by operating
activities.............................. 253 1,443 450
Net cash used by investing activities..... (685) (1,162) (113)
Net cash provided (used) by financing
activities.............................. 147 (356) (151)
Capital expenditures for continuing
operations.............................. (188) (208) (114)
OTHER DATA:
EBITDA(g)................................. $ 336 $ 331 $ 282
Ratio of earnings to fixed charges(h)..... 2.33 2.62 5.36
<CAPTION>
Six Months
Ended June 30,
---------------------------------------
Pro Forma
1999 1999(a) 1998(a)
----------- ------- -------
(Dollars in millions except per share amounts)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA(b):
Net sales and operating revenues from
continuing operations................... $ 1,657 $ 1,657 $ 1,664
=========== =========== ===========
Income from continuing operations before
interest expense, income taxes, and
minority interest --
Automotive.............................. $ 156 $ 156 $ 219
Other................................... (7) (4) (12)
----------- ----------- -----------
Total................................. 149 152 207
Interest expense(c)........................ 80 42 30
Income tax expense (benefit)............... 28 44 55
Minority interest.......................... -- 13 16
----------- ----------- -----------
Income (loss) from continuing operations... 41 53 106
Income (loss) from discontinued operations,
net of income tax(d)...................... NA (111) 106
Extraordinary loss, net of income tax(e)... NA (7) --
Cumulative effect of changes in accounting
principles, net of income tax(f).......... NA (134) --
----------- -----------
Net income (loss).......................... NA (199) 212
Preferred stock dividends.................. NA -- --
----------- -----------
Net income (loss) to common stock.......... NA $ (199) $ 212
=========== ===========
Average number of shares of common stock
outstanding--
Basic................................... 166,937,362 166,937,362 169,341,555
Diluted................................. 167,319,412 167,319,412 169,936,676
Earnings (loss) per average share of common
stock--
Basic:
Continuing operations................. $ .25 $ .32 $ .62
Discontinued operations(d)............ NA (.67) .63
Extraordinary loss(e)................. NA (.04) --
Cumulative effect of changes in
accounting principles(f)............ NA (.80) --
----------- -----------
$ (1.19) $ 1.25
=========== ===========
Diluted:
Continuing operations................. $ .25 $ .32 $ .62
Discontinued operations(d)............ NA (.67) .63
Extraordinary loss(e)................. NA (.04) --
Cumulative effect of changes in
accounting principles(f)............ NA (.80) --
----------- -----------
$ (1.19) $ 1.25
=========== ===========
Cash dividends per common share............ NA $ .60 $ .60
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(d)........................... -- $ 1,421 $ 1,793
Total assets.............................. 3,192 4,416 4,829
Short-term debt(c)........................ -- 206 168
Long-term debt(c)......................... 1,673 832 747
Debt allocated to discontinued
operations(c)........................... -- 1,861 2,302
Minority interest......................... 17 411 407
Shareowners' equity....................... 659 2,122 2,559
STATEMENT OF CASH FLOWS DATA(b)
Net cash provided (used) by operating
activities.............................. NA $ (181) $ 178
Net cash used by investing activities..... NA (976) (314)
Net cash provided (used) by financing
activities.............................. NA 1,170 125
Capital expenditures for continuing
operations.............................. NA (70) (80)
OTHER DATA:
EBITDA(g)................................. $ 220 $ 223 $ 279
Ratio of earnings to fixed charges(h)..... 1.56 2.28 3.82
</TABLE>
(continued on next page)
20
<PAGE> 22
- -------------------------
Note: The Financial Statements of Tenneco Inc. and Consolidated Subsidiaries
referred to in the following notes are included in and incorporated by
reference from the Tenneco Current Report on Form 8-K dated August 20,
1999. They cover the three years ended December 31, 1998 and the six
months ended June 30, 1999 and 1998.
(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 in Tenneco's Current Report on Form 8-K dated August 20, 1999.
(b) During the periods presented, Tenneco completed numerous acquisitions. The
most significant acquisition was Automotive's acquisition of Clevite for
$328 million in July 1996. See Notes to the Financial Statements of Tenneco
Inc. and Consolidated Subsidiaries for additional information. See also
"Description of Tenneco After the Spin-off/Automotive -- Strategic
Acquisitions and Alliances" included elsewhere in this document.
(c) Debt amounts for 1998, 1997, and 1996, and at June 30, 1999 and 1998, are
net of allocations of corporate debt to the net assets of Tenneco's
discontinued specialty packaging and paperboard packaging segments. Debt
amounts for 1995 and 1994 are net of allocations of corporate debt to the
net assets of Tenneco's discontinued specialty packaging, paperboard
packaging, energy and shipbuilding segments. Interest expense for all
periods is net of interest expense allocated to income from discontinued
operations. These allocations of debt and related interest expense are based
on the ratio of Tenneco's investment in the specialty packaging, paperboard
packaging, energy and shipbuilding segments' respective net assets to
Tenneco's consolidated net assets plus debt. See Notes to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries for additional
information. The pro forma debt balances reflect Tenneco's debt after
allocation of a portion of its debt to Packaging in connection with the
spin-off. See "The Spin-off" and "Description of Tenneco After the
Spin-off/Automotive -- Unaudited Pro Forma Consolidated Financial Statements
of Tenneco" included elsewhere in this document.
(d) Discontinued operations reflected in the above periods consist of Tenneco's
(1) specialty packaging segment, which was discontinued in August 1999, (2)
paperboard packaging segment, which was discontinued in June 1999, (3)
energy and shipbuilding segments, which were discontinued in December 1996,
(4) farm and construction equipment segment, which was discontinued in March
1996, and (5) chemicals and brakes operations, which were discontinued
during 1994. See Notes to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for additional information.
(e) Represents Tenneco's costs related to prepayment of debt, including the 1996
loss recognized in the realignment of Tenneco's consolidated debt preceding
its 1996 corporate reorganization and the 1999 loss recognized in connection
with the contribution of the containerboard assets to a new joint venture.
See the Notes to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries.
(f) In 1999, Tenneco implemented the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." In addition, effective January 1, 1999, Tenneco changed its
method of accounting for customer acquisition costs from a deferral method
to an expense-as-incurred method. In 1997, Tenneco 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." In 1994, Tenneco adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." See
the Notes to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries for additional information regarding changes in accounting
principles.
(g) 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 consolidated historical or pro forma statement of
income data. EBITDA should not be considered as an alternative to net income
or operating income as an indicator of the operating performance of Tenneco
or as an alternative to operating cash flows as a measure of liquidity.
Tenneco 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. Tenneco 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.
(h) 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, preferred
stock dividend requirements of subsidiaries, the portion of rental expense
considered representative of the interest factor, and capitalized interest.
For purposes of computing these ratios, preferred stock dividends are
included in the calculations on a pre-tax basis. The pro forma ratios are
derived from the Unaudited Pro Forma Consolidated Financial Statements of
Tenneco included elsewhere in this document.
21
<PAGE> 23
RECENT DEVELOPMENTS
PACKAGING
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. This evaluation and
analysis is ongoing and subject to final review and approval. Packaging
currently believes that its evaluation could result in an aggregate pre-tax
charge of up to approximately $220 million, of which approximately 10% could be
cash. Completion of this analysis and final approval of the ultimate plan could
result in some or all of the charge being taken as early as the third quarter of
1999.
AUTOMOTIVE
Tenneco currently expects that operating income from the Automotive
business for the third quarter of 1999 will be $20 to $25 million below
operating income from this business for the third quarter of 1998. Also,
Tenneco's third quarter income from continuing operations is expected to include
additional tax costs of $15 to $20 million related to repatriation of overseas
earnings in connection with the spin-off. This repatriation allows Tenneco to
leverage its overseas operations, creating interest deductions in foreign tax
jurisdictions.
Automotive's management expects that revenues from its North American
original equipment business will continue to improve in the third quarter based
on a strong OE vehicle build, especially in the light truck market. In the North
American aftermarket, revenues are expected to be lower than in the third
quarter of 1998 due primarily to declining exhaust replacement rates. The
favorable impacts of Automotive's earlier restructuring efforts in its North
American aftermarket operations are expected to fully offset the negative impact
on operating income caused by the weakness in aftermarket exhaust sales.
Automotive's European operations are expected to be negatively impacted by
higher costs, primarily relating to a first quarter 1999 change in accounting
for platform start-up costs from a capitalization to an expense basis, changes
in the mix of its OE revenues to lower margin business and softness in ride
control aftermarket sales due primarily to an increase in private label and
non-premium product business. The South American operations continue to be
negatively impacted by the troubled economic conditions in Brazil and Argentina
and currency weakness.
Automotive has initiated an action plan which includes management changes,
brand repositioning and new product offerings. For example, Automotive plans to
introduce a new premium shock absorber product for the aftermarket in November
1999, and plans expanded introductions of Mega-Flow(TM) heavy duty mufflers and
its recreational vehicle shock line. Automotive is also evaluating a
supplemental restructuring plan which could involve the closure of additional
manufacturing and distributions facilities in North America and Europe. If the
plan is approved, it could result in a third or fourth quarter pre-tax charge of
$45 to $55 million, of which approximately 50-60% could be cash.
22
<PAGE> 24
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this document, before deciding to tender
original securities for exchange in the exchange offers. When you evaluate the
forward-looking statements in this document, you should carefully consider the
factors discussed below and the cautionary statements referred to in
"Forward-Looking Statements." Neither Tenneco nor Packaging makes any
representation as to the future value of either the new securities or the
original securities.
RISK FACTORS IF YOU EXCHANGE
RISKS RELATING TO THE NEW SECURITIES
HOLDERS OF PACKAGING'S NEW SECURITIES WILL BE SUBJECT TO RISK BECAUSE
PACKAGING WILL INITIALLY HAVE LESS REVENUES, CASH FLOWS AND ASSETS TO HELP
IT SATISFY ITS DEBT OBLIGATIONS THAN TENNECO CURRENTLY DOES.
Once the spin-off is completed, Packaging will have fewer assets and less
revenues and cash flows than Tenneco, the obligor of the original securities,
currently does. Tenneco is engaged in the automotive, packaging and
administrative services businesses. Packaging, however, will be engaged only in
Tenneco's current packaging and administrative services businesses. The cash
flows and assets of Tenneco's automotive business will not be available to
satisfy Packaging's obligations under its new securities. Tenneco will not
guarantee the new securities, and holders who receive new securities in exchange
for original securities will no longer be creditors of Tenneco. See "The
Spin-off."
PACKAGING CANNOT ASSURE YOU THAT ITS NEW SECURITIES WILL HAVE OR MAINTAIN
INVESTMENT-GRADE RATINGS, AND A REDUCTION IN THE NEW SECURITIES' RATINGS
WOULD ADVERSELY AFFECT THEIR VALUE.
Packaging expects that, based on and subject to discussions with debt
rating agencies, its new securities will have an investment-grade rating.
Packaging has been advised by Moody's Investor Service, Inc. and Standard &
Poor's Corporation that the new securities will have ratings of by
Moody's and by S&P. However, Packaging cannot assure you that the new
securities will actually have or be able to maintain these ratings. The failure
of the new securities to have an investment-grade rating, or a reduction in the
rating of the new securities, would have an adverse effect on their value.
A LIQUID TRADING MARKET FOR PACKAGING'S NEW SECURITIES MAY NOT DEVELOP AND
THE MARKET PRICE OF THE NEW SECURITIES COULD BE ADVERSELY AFFECTED.
There is no established trading market for Packaging's new securities. A
liquid trading market may not develop for the new securities, which would
adversely impact their market price. Packaging does not intend to apply for
listing of the new securities on the NYSE or any other securities exchange, or
for quotation through the National Association of Securities Dealers Automated
Quotation System.
The liquidity of any market and the market price for the new securities
will depend on, among other things: (a) the number of holders of the new
securities; (b) Packaging's performance; (c) the market for similar securities;
and (d) the interest of securities dealers in making a market in the new
securities. Even if a market for the new securities does develop, the new
securities may trade at a discount, depending on the factors described above.
UNDER SPECIFIED CIRCUMSTANCES, YOUR EXCHANGE OF TENNECO'S ORIGINAL
SECURITIES FOR PACKAGING'S NEW SECURITIES WILL BE TAXABLE.
Counsel to Tenneco is of the opinion that your exchange of original
securities for Packaging's new securities should be tax-free for U.S. federal
income tax purposes, except for any accrued interest and early exchange premium.
If, however, the spin-off does not qualify as tax-free for specified reasons,
you will recognize gain or loss as a result of your receipt of Packaging's new
securities in the exchange offers. You will also recognize this gain or loss if
either Tenneco's original securities or Packaging's new securities do not
qualify as "securities" for U.S. federal income tax purposes. See "-- Risk
Factors Related to the
23
<PAGE> 25
Spin-off" for a description of circumstances under which the spin-off may not
qualify as a tax-free distribution. See also "U.S. Federal Income Tax
Consequences."
THERE ARE NO TERMS OF THE NEW SECURITIES THAT WILL PROTECT OR COMPENSATE YOU
IN THE EVENT OF A HIGHLY LEVERAGED OR SIMILAR TRANSACTION INVOLVING
PACKAGING.
There will be no covenants or other provisions in the terms of the new
securities providing for a put or increased interest or that would otherwise
provide you with additional compensation or protection in the event of a
recapitalization transaction, a change of control or a highly leveraged
transaction involving Packaging.
The new securities will, however, provide that Packaging may not merge or
consolidate with any other person or entity, or sell, lease or convey all or
substantially all of its assets to any person or entity, unless it complies with
specified limitations.
RISKS RELATING TO PACKAGING'S BUSINESS
THE CYCLICAL DEMAND FOR PACKAGING PRODUCTS COULD ADVERSELY AFFECT ITS
OPERATING RESULTS BECAUSE LESS DEMAND FOR PACKAGING'S PRODUCTS COULD REDUCE
PACKAGING'S PROFITABILITY.
Demand for Packaging's products is cyclical in nature because it follows
the demand for the goods that are packaged with its products or the demand for
services such as construction. Accordingly, Packaging's 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 Packaging's operating results because less demand for
Packaging's products would reduce Packaging's profitability.
VOLATILE RAW MATERIAL PRICES COULD ADVERSELY AFFECT PACKAGING'S 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 Packaging's 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 Packaging fails to obtain price increases for its products in a
timely manner following a raw material cost increase, reduces its product prices
without a corresponding reduction in raw material costs or is unable to
renegotiate favorable raw material supply contracts, Packaging's operating
results could be adversely affected because higher costs to manufacture its
products would likely reduce Packaging's profitability.
PACKAGING CANNOT ASSURE YOU THAT IT WILL SUCCESSFULLY INTEGRATE ACQUIRED
BUSINESSES OR THAT FUTURE ACQUISITIONS WILL NOT ADVERSELY AFFECT ITS
OPERATING RESULTS AND FINANCIAL CONDITION.
Packaging's growth strategy contemplates further acquisitions of specialty
packaging and consumer products businesses, as well as related businesses.
Pursuing an acquisition strategy could adversely affect Packaging's operating
results and financial condition because of:
- unanticipated liabilities;
- the diversion of management attention;
- increased goodwill amortization;
- higher interest costs; and
- dependence on retaining or hiring and training key personnel and
integrating the acquired business.
See "Description of Packaging -- Growth Strategy."
24
<PAGE> 26
IF PACKAGING DOES NOT ADAPT TO TECHNOLOGICAL ADVANCES IN ITS INDUSTRY AS
QUICKLY AS ITS COMPETITORS, ITS OPERATING RESULTS AND FINANCIAL CONDITION
COULD BE ADVERSELY AFFECTED BY HIGHER OVERHEAD AND MANUFACTURING COSTS AND
REDUCED APPEAL OF ITS PRODUCTS.
Packaging competes 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. Packaging cannot
assure you that, as systems and technologies become outdated, Packaging will be
able to replace them, to replace them as quickly as its 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
Packaging's ability to compete favorably as to price. In addition, Packaging's
failure to make technological advances could adversely affect its ability to
provide attractive packaging solutions for customers.
IF NOT FULLY RESOLVED, THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT
PACKAGING'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Many 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 Packaging is 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 Packaging's major suppliers, financial institutions or others
with whom it conducts business are unsuccessful in implementing timely
solutions, Year 2000 issues could have a material adverse effect on Packaging's
financial condition and its results of operations. This adverse effect could
result from interruptions in Packaging's ability to manufacture its products,
process and ship orders and bill and collect accounts receivable. For more
information, see "Description of Packaging -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PACKAGING CANNOT ASSURE YOU THAT IT WILL BE ABLE TO SUCCESSFULLY TRANSITION
TO AN INDEPENDENT PUBLIC COMPANY.
After the spin-off, Packaging's major operations will consist of Tenneco's
packaging business. Packaging has never operated as a stand-alone company and
historically has 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, Packaging's 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 Packaging
had operated independently during the periods presented.
PACKAGING IS SUBJECT TO RISKS RELATED TO ITS INTERNATIONAL OPERATIONS.
Packaging has manufacturing and distribution facilities in many countries,
principally in North America and Europe. For 1998, about 21% of Packaging's
revenues were derived from its international operations. International
operations are subject to various risks which could have a material adverse
effect on those operations or Packaging's 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.
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RISK FACTORS IF YOU DO NOT EXCHANGE
RISKS RELATING TO THE ORIGINAL SECURITIES THAT REMAIN OUTSTANDING
WHEN THE SPIN-OFF IS COMPLETED, ANY OF TENNECO'S ORIGINAL SECURITIES NOT
EXCHANGED WILL BE UNSECURED AND EFFECTIVELY RANK BEHIND NEW AUTOMOTIVE
SECURED BORROWINGS, WHICH COULD LIMIT THEIR COLLECTIBILITY IN THE EVENT OF
BANKRUPTCY.
Tenneco expects that the new borrowings to be made by Automotive in
connection with the spin-off will be secured by all or a substantial amount of
Automotive's assets, including by stock pledges and/or guarantees of various
Automotive subsidiaries. The original securities that remain outstanding after
the exchange offers and spin-off are not and will not be supported by similar
security. Because this security will allow the lenders to enforce their rights
directly against the subsidiaries or by taking control of Automotive's assets,
original securities that remain outstanding after the exchange offers will be
structurally subordinated to the rights of the lenders for Automotive's new
borrowings. In other words, the original securities will rank behind these
borrowings as to payment. This could limit their collectibility in the event of
bankruptcy.
TENNECO EXPECTS THAT THE ORIGINAL SECURITIES WILL NOT MAINTAIN
INVESTMENT-GRADE RATINGS AFTER THE EXCHANGE OFFERS AND SPIN-OFF, AND THAT
THEIR VALUE COULD BE ADVERSELY AFFECTED.
Tenneco expects that the ratings of the original securities that which
remain outstanding after the exchange offers and spin-off will be lower than the
current ratings of the original securities and will not be investment-grade. Any
reduction in the rating of these securities could adversely affect their value.
TENNECO EXPECTS THAT A LIMITED TRADING MARKET FOR THE ORIGINAL SECURITIES
WILL EXIST AFTER THE EXCHANGE OFFERS AND THAT THE VALUE OF THESE SECURITIES
COULD BE ADVERSELY AFFECTED.
Tenneco expects that a limited trading market will exist for the original
securities that remain outstanding after the exchange offers. A limited trading
market could adversely affect the liquidity, market value and price volatility
of these securities. Tenneco expects the market for these securities to become
more limited because there will be fewer holders and a smaller outstanding
principal amount available for trading. In addition, some of the original
securities are listed on the NYSE. Under current NYSE rules, debt securities may
be delisted if the aggregate market value or principal amount of publicly held
debt securities is less than $1 million. Tenneco plans to apply for delisting of
any original securities that remain outstanding after the exchange offers. These
factors could further reduce the trading market for these securities.
WHEN THE SPIN-OFF IS COMPLETED, YOUR CREDIT RISK COULD INCREASE IF YOU DO
NOT TENDER BECAUSE AUTOMOTIVE WILL HAVE A SUBSTANTIAL AMOUNT OF DEBT. THIS
DEBT COULD ADVERSELY AFFECT AUTOMOTIVE'S OPERATING FLEXIBILITY AND PUT IT AT
A COMPETITIVE DISADVANTAGE.
When the spin-off is completed, Tenneco -- in other words,
Automotive -- will have a substantial amount of debt. Tenneco expects that
Automotive would have had indebtedness for money borrowed of $1.7 billion at
June 30, 1999 if the spin-off had occurred on that date. See "Description of
Tenneco After the Spin-off/Automotive -- Unaudited Pro Forma Consolidated
Financial Statements of Tenneco."
Automotive's substantial debt after the spin-off could have adverse
consequences for Automotive and increase your credit risk if you do not tender
in the exchange offers. These consequences may include:
- making it more difficult for Automotive to satisfy its obligations under
the original securities;
- making it more difficult for Automotive to obtain additional financing
for working capital, capital expenditures, acquisitions or general
corporate purposes;
- requiring a substantial portion of Automotive's cash flow to be dedicated
to debt service payments instead of other purposes;
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- increasing Automotive's vulnerability to general adverse economic and
industry conditions;
- limiting Automotive's financial flexibility in planning for and reacting
to changes in the industry in which it competes;
- placing Automotive at a disadvantage as compared to less leveraged
competitors; and
- limiting Automotive's ability to borrow additional funds and increasing
the cost of borrowing.
After the spin-off, Automotive's ability to pay principal and interest on
the original securities and satisfy its other debt service obligations will
depend on its future operating performance. If Automotive is unable to generate
sufficient cash flow or make future borrowings, it may be unable to service its
debt or to fund its other liquidity needs.
AUTOMOTIVE'S OPERATIONS AFTER THE SPIN-OFF MAY BE SUBSTANTIALLY RESTRICTED
BY THE TERMS OF ITS DEBT, WHICH COULD ADVERSELY AFFECT AUTOMOTIVE AND
INCREASE YOUR CREDIT RISK IF YOU DO NOT TENDER IN THE EXCHANGE OFFERS.
Tenneco expects that the agreements governing the new borrowings that
Automotive will be making in connection with the spin-off will include a number
of significant financial and other restrictive covenants. These covenants could
adversely affect Automotive, and adversely affect holders of original securities
remaining after the exchange offers, by limiting Automotive's ability to plan
for or react to market conditions or to meet its capital needs. Tenneco expects
that these covenants will, among other things, restrict Automotive's ability to:
- - dispose of assets;
- - incur liens, guarantees or additional debt;
- - engage in sale-leaseback transactions;
- - pay dividends or make distributions;
- - enter into investments or acquisitions;
- - engage in transactions with affiliates;
- - repurchase or redeem capital stock; and
- - engage in mergers or consolidations.
IF YOU DO NOT TENDER, THE PROPOSED AMENDMENTS COULD INCREASE YOUR CREDIT
RISK BY ELIMINATING OPERATING RESTRICTIONS CONTAINED IN THE ORIGINAL
INDENTURE.
Original securities not purchased in the exchange offers will remain
outstanding after the spin-off as obligations of Tenneco -- in other words,
Automotive. If the required consents are received and the proposed amendments
take effect, the original indenture will be amended to eliminate the
restrictions on Automotive's operations. Any actions that Automotive may take as
a result of these amendments could increase your credit risk or otherwise
adversely affect your interests if you do not tender. This is because the
original indenture, as amended, will continue to govern the terms of all of the
original securities that remain outstanding after the exchange offers.
For example, the proposed amendments will permit the spin-off of Packaging
without compliance with a covenant that might, if held to apply to the spin-off,
require Packaging to become the obligor of Tenneco's original securities.
Tenneco and Packaging believe the application of this covenant is uncertain in
these circumstances. The proposed amendments will also allow Automotive to make
new borrowings in connection with the spin-off that are secured by Automotive's
assets. For a description of the proposed amendments, see "The Proposed
Amendments."
AUTOMOTIVE MAY BE ADVERSELY AFFECTED IF IT IS UNABLE TO COMPLY WITH
FINANCIAL COVENANTS IN ITS NEW FINANCING ARRANGEMENTS BECAUSE IT COULD BE
REQUIRED TO REPAY BORROWINGS EARLY.
Tenneco expects that some of the new borrowings Automotive will be making
in connection with the spin-off will require it to comply with many specified
financial ratios. Automotive's failure to comply with these financial ratios
could result in an event of default which, if not cured or waived, could result
in Automotive being required to repay these borrowings before their due date. If
Automotive were unable to make this repayment or otherwise refinance these
borrowings, the lenders could foreclose on Automotive's
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assets. If Automotive were able to refinance these borrowings on less
favorable terms, Automotive's results of operations and financial condition
could be adversely impacted by increased costs and rates.
DESPITE ITS DEBT LEVELS AFTER THE SPIN-OFF, AUTOMOTIVE MAY STILL BE ABLE TO
INCUR SIGNIFICANTLY MORE DEBT.
Despite the restrictions and limitations described above, Automotive may be
able to incur significant additional indebtedness after the spin-off. The new
credit facility Automotive will enter into in connection with the spin-off is
expected to permit additional borrowings of approximately $ million after
the spin-off, and the indenture governing the subordinated debt Automotive will
issue in connection with the spin-off will also permit Automotive to incur
additional indebtedness in specified circumstances. If new debt is added to
Automotive's debt levels after the spin-off, the related risks that Automotive
faces could increase.
AFTER THE SPIN-OFF, AUTOMOTIVE WILL INITIALLY HAVE LOWER REVENUES, CASH FLOW
AND ASSETS TO HELP IT SATISFY ITS DEBT OBLIGATIONS THAN TENNECO CURRENTLY
DOES.
Upon the spin-off, Automotive will have fewer assets and less revenues than
Tenneco currently does. Tenneco, the obligor under the original securities,
currently has an automotive and packaging business and administrative services
operations. When the spin-off is completed, however, Automotive will be engaged
only in Tenneco's current automotive business. The cash flow and assets of
Tenneco's packaging business and administrative services operations will not be
available to satisfy obligations under the original securities that remain
outstanding. See "The Spin-off."
RISKS RELATING TO AUTOMOTIVE'S BUSINESS
CONSOLIDATION AMONG THE CUSTOMERS AND SUPPLIERS OF AUTOMOTIVE PARTS COULD
MAKE IT MORE DIFFICULT FOR AUTOMOTIVE TO COMPETE FAVORABLY.
Automotive's financial condition and results of operations could be
adversely affected because the customer base for automotive parts is
consolidating in both the original equipment market and aftermarket. As a
result, Automotive is competing for business from fewer customers. Due to the
cost focus of these major customers, Automotive has been, and expects to
continue to be, required to reduce prices. Automotive cannot be certain that it
will be able to generate cost savings and operational improvements in the future
that are sufficient to offset price reductions required by existing customers
and necessary to win additional business.
Furthermore, the trend towards consolidation among automotive parts
suppliers is resulting in fewer, larger suppliers who benefit from purchasing
and distribution economies of scale. If Automotive cannot achieve cost savings
and operational improvements sufficient to allow it to compete favorably in the
future with these larger companies, its financial condition and results of
operations could be adversely affected due to a reduction of, or inability to
increase, sales. See "Description of Tenneco After the Spin-off/
Automotive -- Industry Trends."
AUTOMOTIVE IS DEPENDENT ON ITS LARGE CUSTOMERS FOR FUTURE REVENUES.
Automotive depends on major vehicle manufacturers for a substantial portion
of its sales. For example, during 1998 Ford and DaimlerChrysler accounted for
12.8% and 10.9% of Automotive's total sales, respectively. Although Automotive
believes that it generally enjoys good relations with its vehicle manufacturer
customers, loss of all or a substantial portion of Automotive's sales to any of
its large volume customers could have a material adverse effect on Automotive's
financial condition and results of operations by reducing cash flows and
Automotive's ability to spread costs over a larger revenue base. Automotive may
make fewer sales to these customers for a variety of reasons, including: (a)
loss of awarded business; (b) reduced or delayed customer requirements; or (c)
strikes or other work stoppages affecting production by the customers. See
"Description of Tenneco After the Spin-off/Automotive -- Analysis of
Automotive's Revenues."
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AUTOMOTIVE MAY NOT BE ABLE TO SUCCESSFULLY RESPOND TO THE CHANGING
DISTRIBUTION CHANNELS FOR AFTERMARKET PRODUCTS.
Major automotive aftermarket retailers, such as AutoZone and Advance Auto
Parts, are attempting to increase their commercial sales by selling directly to
automotive parts installers in addition to individual consumers. These
installers have historically purchased from their local warehouse distributors
and jobbers, who are Automotive's more traditional customers. Tenneco cannot
assure you that Automotive will be able to maintain or increase aftermarket
sales through increasing its sales to retailers. Furthermore, because of the
cost focus of major retailers, Automotive has been, and expects to continue to
be, required to offer price concessions. Automotive's failure to maintain or
increase aftermarket sales, or to offset the impact of any reduced sales or
pricing through cost improvements, could have an adverse impact on its business
and operating results.
AUTOMOTIVE MAY BE UNABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE
AUTOMOTIVE PARTS INDUSTRY.
The automotive parts industry is highly competitive. Although the overall
number of competitors has decreased due to ongoing industry consolidation,
Automotive faces significant competition within each of its major product areas.
The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and
timely delivery. For more information about the automotive parts industry, see
"Description of Tenneco After the Spin-off/Automotive -- Overview of Automotive
Parts Industry." Tenneco cannot assure you that Automotive will be able to
continue to compete favorably in this competitive market or that increased
competition will not have a material adverse effect on Automotive's business by
reducing Automotive's ability to increase or maintain sales or profit margins.
AUTOMOTIVE MAY BE UNABLE TO REALIZE ITS BUSINESS STRATEGY OF IMPROVING
OPERATING PERFORMANCE.
Automotive has either implemented or plans to implement several important
strategic initiatives designed to improve its operating performance. The failure
to achieve the goals of these initiatives could have a material adverse effect
on Automotive's business, particularly since Automotive relies on these
initiatives to offset pricing pressures from its customers, as described above.
Tenneco cannot assure you that Automotive will be able to successfully implement
or realize the expected benefits of any of these initiatives or that Automotive
will be able to sustain improvements made to date. See "Description of Tenneco
After the Spin-off/Automotive -- Business Strategy."
AUTOMOTIVE IS SUBJECT TO RISKS RELATED TO ITS INTERNATIONAL OPERATIONS.
Automotive has manufacturing and distribution facilities in many countries,
principally in North America, Europe and Latin America, and sells its products
worldwide. For 1998, about 53% of Automotive's revenues were derived from its
international operations. International operations are subject to various risks
which could have a material adverse effect on those operations or Automotive's
business as a whole, including:
- exposure to local economic conditions;
- exposure to local political conditions, including the risk of seizure of
assets by foreign government;
- currency exchange rate fluctuations;
- controls on the repatriation of cash; and
- export and import restrictions.
EXCHANGE RATE FLUCTUATIONS COULD CAUSE A DECLINE IN AUTOMOTIVE'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
As a result of its international operations, Automotive generates a
significant portion of its revenues and incurs a significant portion of its
expenses in currencies other than the U.S. dollar. To the extent Automotive is
unable to match revenues received in foreign currencies with costs paid in the
same
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currency, exchange rate fluctuations in that currency could have a material
adverse effect on Automotive's business. For example, where Automotive has
significantly more costs than revenues generated in a foreign currency, it is
subject to risk if that foreign currency appreciates against the U.S. dollar
because this appreciation effectively increases its costs in that country.
Automotive generally seeks to mitigate the effect of exchange rate fluctuations
through the use of foreign currency borrowings and derivative financial
instruments, but cannot assure you that it will be successful in these efforts.
The financial condition and results of operations of some of Automotive's
operating entities are reported in foreign currencies and then translated into
U.S. dollars at the applicable exchange rate for inclusion in Automotive's
consolidated financial statements. As a result, appreciation of the U.S. dollar
against these foreign currencies will have a negative impact on Automotive's
reported revenues and operating profit while depreciation of the U.S. dollar
against these foreign currencies will have a positive effect on reported
revenues and operating profit. Automotive does not generally seek to mitigate
this translation effect through the use of derivative financial instruments. For
more information about the impact of exchange rate fluctuations on Tenneco and
Automotive, see "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" of Tenneco included in Tenneco's Current Report on
Form 8-K dated August 20, 1999, which is incorporated by reference in this
document.
THE CYCLICALITY OF AUTOMOTIVE PRODUCTION AND SALES COULD CAUSE A DECLINE IN
AUTOMOTIVE'S FINANCIAL CONDITION AND RESULTS.
A decline in automotive sales and production would likely cause a decline
in Automotive's sales to vehicle manufacturers, and could result in a decline in
Automotive's results of operations and financial condition. The automotive
industry has been characterized historically by periodic fluctuations in overall
demand for vehicles due to, among other things, changes in general economic
conditions and consumer preferences. These fluctuations generally result in
corresponding fluctuations in demand for Automotive's products. The highly
cyclical nature of the automotive industry presents a risk that is outside
Automotive's control and that cannot be accurately predicted.
LONGER PRODUCT LIVES OF AUTOMOTIVE PARTS ARE ADVERSELY AFFECTING AFTERMARKET
DEMAND FOR SOME OF AUTOMOTIVE'S PRODUCTS.
The average useful life of automotive parts has been steadily increasing in
recent years due to innovations in products and technologies. The longer product
lives allow vehicle owners to replace parts of their vehicles less often. As a
result, a portion of sales in the aftermarket has been displaced. Additional
increases in the average useful lives of automotive parts are likely to
adversely affect the demand for Automotive's aftermarket products. Aftermarket
sales represented approximately 39% of Automotive's revenues for 1998. See
"Description of Tenneco After the Spin-off/Automotive -- Industry Trends."
THE HOURLY WORKFORCE IN THE AUTOMOTIVE INDUSTRY IS HIGHLY UNIONIZED AND
AUTOMOTIVE'S BUSINESS COULD BE ADVERSELY AFFECTED BY LABOR DISRUPTIONS.
Substantially all of the hourly employees of North American vehicle
manufacturers are represented by the United Automobile, Aerospace and
Agricultural Implement Workers of America under collective bargaining
agreements. In addition, vehicle manufacturers and their employees in other
countries are also subject to labor agreements. A work stoppage or strike at the
production facilities of a significant customer, at Automotive's facilities or
at a significant supplier could have an adverse impact on Automotive by
disrupting demand for Automotive's products and/or Automotive's ability to
manufacture its products. The contracts between the UAW and each of the primary
U.S. vehicle manufacturers expire later this year, and Tenneco cannot assure you
that work stoppages or strikes will not occur as part of the new contract
negotiations.
AUTOMOTIVE MAY INCUR MATERIAL PRODUCT WARRANTY COSTS.
Vehicle manufacturers are increasingly requiring their outside suppliers to
guarantee or warrant their products and to bear the costs of repair and
replacement of these products under new vehicle warranties.
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Because this is a trend in the industry and Automotive has only limited
experience in this regard, Automotive cannot assure you that costs associated
with providing product warranties will not be material.
TENNECO CANNOT ASSURE YOU THAT AUTOMOTIVE WILL BE ABLE TO SUCCESSFULLY
TRANSITION TO AN INDEPENDENT PUBLIC COMPANY.
Upon completion of the spin-off, Tenneco's major operations will consist
solely of Automotive. Automotive has never operated as a stand-alone company and
has historically been able to rely, to some degree, on the earnings, assets and
cash flow of Packaging's business for capital requirements and some
administrative services. Accordingly, the pro forma consolidated financial
statements for Tenneco included in this document may not necessarily reflect the
results of operations and financial condition that would have been achieved if
Automotive had operated independently during the periods presented.
IF NOT FULLY RESOLVED, THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT
AUTOMOTIVE'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Many 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 Automotive is 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 Automotive's major suppliers, financial institutions or others
with whom it conducts business are unsuccessful in implementing timely
solutions, Year 2000 issues could have a material adverse effect on Automotive's
financial condition and results of operations. This adverse effect could result
from interruptions in Automotive's ability to manufacture its 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" in Tenneco's Current Report in Form 8-K dated August
20, 1999.
RISK FACTORS RELATING TO THE SPIN-OFF
IF THE SPIN-OFF DOES NOT QUALIFY AS TAX-FREE, AUTOMOTIVE AND PACKAGING COULD
BE ADVERSELY AFFECTED BY THE RESULTING CORPORATE TAX LIABILITY.
If the spin-off does not 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 Tenneco's consolidated group, including 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." If the spin-off did not 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.
Tenneco has received a letter ruling from the Internal Revenue Service to
the effect that, among other things, the spin-off will qualify as a tax-free
distribution and accordingly will not be taxable to Tenneco or its stockholders.
The ruling is based upon various factual representations and assumptions.
Tenneco and Packaging are not aware of any facts or circumstances that would
cause the representations and assumptions to be untrue or incomplete in a
material respect. If, however, any of those factual representations and
assumptions were untrue or incomplete in a material respect, or the facts upon
which that ruling is based are materially different from the facts at the time
of the spin-off, the spin-off could become taxable to Tenneco or its
stockholders. If the spin-off does not qualify as tax-free for these reasons,
your exchange of original securities for new securities would become taxable for
U.S. federal income tax purposes. See "-- Risk Factors if You Exchange."
Furthermore, if the spin-off otherwise qualifies as a tax-free distribution
but there is a change in control of Packaging or Automotive 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 Packaging common stock to its
stockholders. Packaging would be responsible
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for this resulting tax liability in the case of a Packaging change of control,
and Automotive would be responsible for this resulting tax liability in the case
of an Automotive change of control. In these circumstances, however,
securityholders of Automotive and Packaging would not recognize gain or loss as
a result of the spin-off. See "U.S. Federal Income Tax Consequences."
PACKAGING AND AUTOMOTIVE COULD BE ADVERSELY AFFECTED IF THE SPIN-OFF, THE
CORPORATE RESTRUCTURING TRANSACTIONS OR THE DEBT REALIGNMENT ARE NOT VALID
UNDER FRAUDULENT TRANSFER OR LEGAL DIVIDEND STATUTES.
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 determines that one of the parties to these transactions did not
receive fair consideration and, at the time, was insolvent, had unreasonably
small capital or was unable to pay its debts as they came due, the court could
reverse the transactions or the spin-off or impose liability on the parties. The
resulting complications and costs could have a material adverse effect on
Packaging and Automotive.
In addition, the corporate restructuring transactions, debt realignment and
spin-off are subject to state corporate distribution statutes. For example,
under Delaware law, a corporation may only pay dividends to its stockholders
either: (1) out of its surplus, calculated as net assets minus capital; or (2)
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. Although all distributions are intended to be made entirely from
surplus, Tenneco and Packaging 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 unlawful under state corporate law.
This could allow the court to reverse the transactions. The resulting
complications and costs could have a material adverse effect on Packaging and
Automotive.
Before the spin-off, Tenneco expects to obtain an opinion from a
third-party financial advisor. This opinion will confirm that Packaging and
Automotive will be solvent after giving effect to the spin-off and that the
spin-off is permissible under Delaware corporate law. Tenneco and Packaging
cannot assure you, however, that a court would find the financial advisor's
opinion to be binding on creditors of Automotive or Packaging or would reach the
same conclusions provided in the opinion.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. The words "will," "may,"
"designed to," "outlook," "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," "Description of
Packaging" and "Description of Tenneco After the Spin-off/Automotive." Although
Tenneco and Packaging believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, these
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 in the forward-looking
statements. Important factors that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
include those described in "Risk Factors," as well as:
- general economic, business and market conditions;
- operating hazards associated with the Packaging or Automotive business;
- labor disruptions at Packaging, Automotive or with any of their
significant customers or suppliers;
- customer acceptance of new products;
- capital availability or costs, including changes in interest rates or
market perceptions of Packaging or Automotive;
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- 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 the control of
Tenneco or Packaging.
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WHERE YOU CAN FIND MORE INFORMATION
Packaging has filed with the Securities and Exchange Commission (the
"Commission" or "SEC") a registration statement under the Securities Act of 1933
covering the offering of the new securities. Packaging has also filed with the
Commission a registration statement under the Securities Exchange Act of 1934
(the "Exchange Act") covering its common stock (which will be distributed to
Tenneco stockholders in the spin-off). This document does not contain all of the
information included in these registration statements and their associated
exhibits and schedules. For more information about Packaging and the new
securities, you should read these registration statements and their associated
exhibits and schedules. This document summarizes provisions of contracts and
other documents that it refers you to. If Packaging has filed any contract or
other document as an exhibit to the registration statement covering the new
securities, you should read the exhibit for a more complete understanding of the
contract or document involved. Each statement in this document summarizing the
provisions of a contract or other document is qualified in all respects by
reference to the actual document.
Tenneco files annual, quarterly and other reports, proxy statements and
other information with the SEC. Following the spin-off, Packaging also will file
periodic reports, proxy statements and other information with the SEC.
You may read and copy Tenneco's and Packaging's filings with the SEC at the
public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of those
filings at prescribed rates by (a) calling the SEC at 1-800-SEC-0330, or (b)
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also access the filings electronically on the
SEC's website at (http://www.sec.gov). Because Tenneco's common stock is listed
on the New York, Chicago and Pacific Stock Exchanges, you may review reports and
other information concerning Tenneco at these exchanges. Application will be
made to list Packaging's common stock on the NYSE, and you may review reports
and other information concerning Packaging at the NYSE, 20 Broad Street, New
York, New York 10005.
In addition, Tenneco maintains a website where you can find information
about Tenneco, Packaging and Automotive at http://www.tenneco.com.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows "incorporation by reference" of information filed with the
SEC into this document. This means that Tenneco and Packaging can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered part of this prospectus,
except that information filed in later-dated documents will automatically update
and supersede the information contained in earlier-dated documents.
The following documents filed with the Commission by Tenneco (File No.
1-12387) or Packaging (File No. 1-15157), as applicable, are incorporated by
reference into this document and shall be deemed to be a part hereof:
(a) Tenneco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(b) Tenneco's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1999 and Quarterly Report on Form 10, for the
fiscal quarter ended June 30, 1999, as amended;
(c) Tenneco's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on May 11, 1999;
(d) Tenneco's Current Report on Form 8-K dated April 12, 1999;
(e) Tenneco's Current Report on Form 8-K dated July 14, 1999;
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(f) Tenneco's Current Report on Form 8-K dated August 20, 1999, which
includes financial and other information that supersedes the
comparable information in Tenneco's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, Tenneco's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1999
and June 30, 1999 and Tenneco's Current Report on Form 8-K dated
July 14, 1999; and
(g) All documents subsequently filed by Tenneco or Packaging pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this document and prior to the termination of the offering
of the new securities.
Notwithstanding any disclosure to the contrary in documents incorporated by
reference, no safe harbor protection under Section 27A of the Securities Act of
1933 or Section 21E of the Securities Exchange Act of 1934 extends to
forward-looking statements that appear in this document directly or by
incorporation.
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<PAGE> 37
THE EXCHANGE OFFERS AND CONSENT SOLICITATION
Tenneco is offering to exchange Packaging's new securities for any and all
of Tenneco's original securities that are validly tendered before the applicable
expiration time and not withdrawn. The terms and conditions of these exchange
offers are described in this document and in the accompanying letter of
consent/transmittal. Concurrently with the exchange offers, Tenneco is
soliciting consents from the holders of the original securities to the proposed
amendments to the original indenture. Tenneco will accept tenders of original
securities only in principal amounts of $1,000 or integral multiples of $1,000.
If you hold original securities, you may participate in the exchange offers
by following the procedures described in this document. If you tender original
securities, you will be required, as a condition to a valid tender, to consent
to the proposed amendments with respect to the original securities you tendered.
Your proper tender of original securities will constitute your automatic consent
to the proposed amendments and to the execution of a supplement to the original
indenture to effect the proposed amendments. See "-- The Consent Solicitation."
TERMS OF THE EXCHANGE OFFERS
Subject to the terms and conditions described in this document and in the
accompanying letter of consent/transmittal, for each $1,000 principal amount of
original securities validly tendered and accepted for exchange, Tenneco is
offering (1) $1,000 principal amount of the corresponding new securities for
that series of original securities, as shown in the table below, plus (2) the
early exchange premium shown in the table below for holders who tender their
original securities before the early exchange time. See "-- The Consent
Solicitation."
<TABLE>
<CAPTION>
FOR EACH: THE EXCHANGING HOLDER WILL RECEIVE:
----------------------- -----------------------------------------
AGGREGATE $1,000 PRINCIPAL AMOUNT $1,000 PRINCIPAL AMOUNT EARLY
CUSIP PRINCIPAL OF TENNECO'S OF PACKAGING'S EXCHANGE
NO.* AMOUNT ORIGINAL SECURITIES NEW SECURITIES PREMIUM**
- ----- --------- ----------------------- ----------------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
[to be provided by amendment]
- ---------------
* The terms of the exchange offers shall not be affected by any defect in or
omission of CUSIP numbers.
** Tenneco will pay the early exchange premium only for original securities
validly tendered before the early exchange time, and only if Tenneco accepts
those original securities for exchange.
In each case, Tenneco will pay accrued but unpaid interest on the original
securities exchanged in the exchange offers through the date Tenneco accepts
them for exchange. In general, this payment will be made to the holder who
tendered the original securities. If, however, Tenneco accepts for exchange any
series of original securities on or before an interest payment date for that
series but after the record date for that interest payment date, Tenneco will
pay the accrued but unpaid interest to the holder of those original securities
as of that record date (if different from the holder who tenders).
Interest will cease to accrue on original securities exchanged in the
exchange offers from and after the date Tenneco accepts them. Interest on the
new securities will accrue at the applicable rate from and including their
issuance date.
Tenneco reserves the right, in its sole discretion, to purchase or make
offers to purchase any original securities that remain outstanding after the
exchange offers on terms that could differ from the terms of the exchange
offers. Tenneco will not make any purchase or offer except in accordance with
applicable law.
After the exchange offers, Tenneco will extinguish the original securities
accepted by it for exchange.
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<PAGE> 38
THE CONSENT SOLICITATION
As part of the exchange offers, Tenneco is soliciting consents to proposed
amendments to the original indenture under which Tenneco issued the original
securities. Tenneco is making the consent solicitation on the terms and subject
to the conditions described in this document. See "The Proposed Amendments."
YOUR VALID TENDER OF ORIGINAL SECURITIES BEFORE THE EARLY EXCHANGE TIME
WILL CONSTITUTE AN AUTOMATIC CONSENT TO THE PROPOSED AMENDMENTS WITH RESPECT TO
THOSE ORIGINAL SECURITIES. YOU MAY NOT DELIVER CONSENTS WITHOUT TENDERING YOUR
ORIGINAL SECURITIES AND YOU MAY NOT REVOKE CONSENTS WITHOUT WITHDRAWING THE
RELATED ORIGINAL SECURITIES FROM THE EXCHANGE OFFERS. SEE "-- WITHDRAWAL
RIGHTS."
To amend the original indenture, Tenneco must receive consents from the
registered holders of at least a majority in aggregate principal amount of all
series of outstanding securities issued under the original indenture, excluding
securities held at the time by Tenneco or its affiliates, voting as a single
class. The aggregate principal amount of securities outstanding under the
original indenture is $2,459,848,000, which comprises $ of original
securities that are subject to the exchange offers and $ of other debt
securities that are subject to Tenneco's concurrent cash tender offers. Tenneco
is making the cash tender offers by means of a separate offer to purchase and
consent solicitation document. To participate in the cash tender offers, holders
will be required to consent to the proposed amendments.
Tenneco is offering to pay the early exchange premium described above to
holders who validly consent to the proposed amendments before the early exchange
time. Tenneco will make this payment only if it accepts the original securities
to which the consent relates in the exchange offers. Tenneco will not make the
payment to holders who tender their original securities after the early exchange
time. Tenneco will make no separate payments for consents received in the
consent solicitation.
If the proposed amendments to the original indenture become effective, they
will bind all original securities that remain outstanding after the exchange
offers, even if the holder of those securities did not consent to the proposed
amendments. Accordingly, you could suffer adverse consequences if you choose not
to tender your original securities. See "Risk Factors -- Risk Factors if You Do
Not Exchange."
EXPIRATION TIME; EARLY EXCHANGE TIME; EXTENSIONS; TERMINATION; AMENDMENTS
Each of the exchange offers will commence at 9:00 a.m., New York City time,
on , 1999 and will expire at 5:00 p.m., New York City time,
, 1999, unless Tenneco extends any exchange offer in its sole
discretion. As used in this document, the term "expiration time" refers to 5:00
p.m., New York City time, on , 1999 or, if an exchange offer is
extended, the latest date and time to which that exchange offer is extended.
Each exchange offer is subject to Tenneco's right, in its sole discretion, to
the extent that it is legally permitted to do so, to terminate or amend any
exchange offer at any time as discussed below.
The consent solicitation will expire at 5:00 p.m., New York City time, on
, 1999, unless Tenneco extends the consent solicitation in its sole
discretion. As used in this document, the term "early exchange time" refers to
5:00 p.m., New York City time, on , 1999 or, if extended, the
latest date and time to which the consent solicitation is extended. The consent
solicitation is subject to Tenneco's right, in its sole discretion, to the
extent that it is legally permitted to do so, to terminate or amend the consent
solicitation at any time as discussed below.
Tenneco expressly reserves the right, in its sole discretion, subject to
applicable law, at any time or from time to time, to:
- terminate any of the exchange offers or the consent solicitation and
not accept for exchange any original securities if any of the
conditions provided below under "-- Conditions to the Exchange Offers
and Consent Solicitation" are not satisfied and are not waived by
Tenneco;
- waive any condition to any exchange offer and accept all original
securities previously tendered for exchange pursuant to that exchange
offer or waive any condition to the consent solicitation;
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<PAGE> 39
- extend the expiration time of any of the exchange offers or the early
exchange time and retain all original securities tendered in that
exchange offer, subject, however, to any withdrawal rights of holders,
as described under "-- Withdrawal Rights;"
- amend any exchange offer in any respect until the original securities
are accepted for exchange;
- amend the consent solicitation in any respect until the withdrawal
time; and/or
- not accept original securities tendered pursuant to an exchange offer
at any time before the expiration time for that exchange offer as a
result of an invalid tender, withdrawal or the occurrence of other
events as described herein.
The exchange agent may retain your tendered original securities if Tenneco (a)
extends any exchange offer or the consent solicitation, (b) delays the
acceptance of original securities for exchange, or (c) is unable to accept
original securities for exchange pursuant to any exchange offer. You may not
withdraw those original securities, except to the extent you are entitled to
withdrawal rights as described under "-- Withdrawal Rights." However the
exchange agent's right to retain your tendered securities in these circumstances
is subject to Rule 14e-1(c) under the Exchange Act. Rule 14e-1(c) requires that
a bidder pay the consideration offered or return the securities deposited by or
on behalf of holders of securities promptly after the termination or withdrawal
of a tender offer.
Tenneco can extend, terminate or amend any of the exchange offers or the
consent solicitation by giving written or oral notice to the exchange agent,
which will be followed as promptly as practicable by a public announcement. In
the case of an extension, a public announcement will be issued before 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration time of the exchange offer(s) being extended or the previously
scheduled early exchange time, as applicable. Tenneco will have no obligation to
publish, advertise or otherwise communicate a public announcement regarding
extension, amendment or termination other than by making a release to the Dow
Jones News Service or otherwise as required by law. All original securities
tendered pursuant to an exchange offer before any extension and not subsequently
withdrawn will remain subject to that exchange offer.
The terms of any extension or amendment of any exchange offer or the
consent solicitation may vary from the original exchange offers and consent
solicitation depending on factors such as prevailing interest rates and the
principal amount of original securities previously tendered. If Tenneco amends
the terms of any exchange offer before its expiration time, the amendment will
apply to all original securities of the same series tendered pursuant to that
exchange offer but will not, unless expressly provided, apply to any other
exchange offer. Tenneco does not presently intend to change the consideration
currently offered.
If Tenneco makes a material change in the terms of any exchange offer or
the information concerning any exchange offer or waives any condition of any
exchange offer that results in a material change to the circumstances of that
exchange offer, Tenneco will circulate additional exchange offer materials if
and to the extent required by applicable law. In those circumstances, Tenneco
will also extend the exchange offer if and to the extent required by applicable
law in order to permit holders of the original securities subject to that
exchange offer adequate time to consider the additional materials.
If Tenneco makes a material change in the terms of the consent solicitation
or the information concerning the consent solicitation or waives any condition
of the consent solicitation that results in a material change to the
circumstances of the consent solicitation, Tenneco will circulate additional
consent solicitation materials if and to the extent required by applicable law.
In those circumstances, Tenneco will also extend the consent solicitation if and
to the extent required by applicable law to allow holders of the original
securities adequate time to consider the additional materials. If any material
change occurs after the withdrawal time, Tenneco may decide to re-solicit
consents.
If Tenneco decreases the principal amount of original securities sought in
any exchange offer or increases or decreases the consideration offered to
holders of original securities subject to any exchange offer, Tenneco will, to
the extent required by applicable law, cause that exchange offer to be extended
so that it remains open at least ten business days from the date that Tenneco
first publishes, sends or gives notice of the change. For purposes of this
paragraph, "business day" has the meaning set forth in
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<PAGE> 40
Rule 14d-1(e)(6) under the Exchange Act. The minimum period that an exchange
offer or the consent solicitation must remain open following any other material
change in the terms of or information concerning the exchange offer or consent
solicitation depends upon the facts and circumstances, including the relative
materiality of those terms or information.
EFFECT OF TENDER
Your tender of original securities in the exchange offers will constitute a
binding agreement between you and Tenneco upon the terms and subject to the
conditions of the exchange offers described in this document and the
accompanying letter of consent/transmittal. Your tender of original securities
will also constitute your agreement to deliver to Tenneco good and marketable
title to the tendered original securities free and clear of all liens, charges,
adverse claims, encumbrances, interests and restrictions of any kind.
ACCEPTANCE OF CONSENTS AND ORIGINAL SECURITIES; DELIVERY OF EXCHANGE
CONSIDERATION
Tenneco will purchase by accepting for exchange and will promptly pay for
all original securities validly tendered and not withdrawn or, if withdrawn,
validly retendered, in the exchange offers and the consent solicitation. This
purchase and payment will be made only upon the terms and subject to the
conditions of each exchange offer, the consent solicitation, the terms and
conditions of any extension or amendment and applicable law. Tenneco will make
payment for the original securities by depositing with the exchange agent: (1)
new securities in book-entry form, as described below; (2) cash for the payment
of any applicable early exchange premium; and (3) cash for the payment of any
applicable accrued but unpaid interest on original securities. The exchange
agent will act as agent for the tendering holders for the purpose of receiving
payments and/or new securities from Tenneco and then transmitting payments
and/or new securities to or at the direction of those holders.
New securities will be issued and delivered only in book-entry form through
The Depository Trust Company to the DTC account of the exchanging holder or the
exchanging holder's custodian. You must specify on the accompanying letter of
consent/transmittal the DTC participant and account information to which your
new securities should be delivered.
For purposes of the exchange offers, Tenneco will be deemed to have
accepted tendered original securities for exchange when Tenneco gives oral or
written notice of acceptance to the exchange agent. For purposes of the consent
solicitation, consents received by the exchange agent will be deemed to have
been accepted when (1) Tenneco and the trustee under the original indenture
execute the supplemental indenture containing the proposed amendments, which is
expected to occur promptly after the withdrawal time, and (2) Tenneco has
accepted the tendered original securities underlying those consents for exchange
in the exchange offer.
Subject to Rule 14e-1(c) under the Exchange Act, Tenneco may delay
acceptance of original securities tendered for exchange or payment for original
securities accepted for exchange if any of the conditions of the exchange offers
are not satisfied or waived or in order to comply, in whole or in part, with
applicable law. Tenneco may do this in its sole discretion. Tenneco will pay for
original securities accepted for exchange only after the exchange agent
receives, at its address on the back cover page of this document: (1)
certificates for all physically delivered original securities in proper form for
transfer or confirmation of a book-entry transfer of original securities into
the exchange agent's account at The Depository Trust Company according to the
procedures described in this document; (2) a properly completed and duly
executed letter of consent/transmittal or properly transmitted "agent's
message," as described below; and (3) any other documents required by the
accompanying letter of consent/transmittal, in each case together with any
applicable signature guarantees. IN NO EVENT WILL INTEREST ON ANY PAYMENTS BE
MADE IF THERE IS ANY DELAY IN MAKING THOSE PAYMENTS.
If Tenneco does not accept any of your tendered original securities for
exchange, or if you submit to the exchange agent original securities in a
principal amount greater than the principal amount indicated as being tendered,
Tenneco will issue to you an original security for the principal amount not
accepted for
39
<PAGE> 41
exchange or tendered. Tenneco will issue the original security in the same form
as it was originally tendered. Tenneco will do this without expense to you as
promptly as practicable following the expiration or termination of the exchange
offers.
Tenneco may transfer or assign, in whole at any time or in part from time
to time, to one or more of its affiliates, the right to acquire original
securities tendered in any exchange offer. No transfer or assignment will
relieve Tenneco of its obligations under that exchange offer or prejudice your
rights to receive new securities and any applicable accrued interest and early
exchange premium in exchange for original securities validly tendered and
accepted for exchange in that exchange offer.
PROCEDURES FOR TENDERING ORIGINAL SECURITIES AND GIVING CONSENTS
If you hold original securities and wish to receive the early exchange
premium, you must tender your original securities using the procedures described
in this document and in the accompanying letter of consent/transmittal before
the early exchange time. Your proper tender of original securities will
constitute your automatic consent to the proposed amendments. If you hold
original securities and do not wish to receive the early exchange premium but
still wish to participate in the exchange offers, you must tender your original
securities using the procedures described in this document and in the
accompanying letter of consent/transmittal before the applicable expiration
time.
Only registered holders are authorized to tender their original securities
and consent to the proposed amendments. The procedures by which original
securities may be tendered and consents given by beneficial owners that are not
registered holders will depend upon the manner in which the original securities
are held, as described below.
TENDER OF ORIGINAL SECURITIES HELD THROUGH A NOMINEE. If you are a
beneficial owner of original securities that are held of record by a custodian
bank, depositary, broker, trust company or other nominee and you wish to tender
original securities, you should contact the record holder promptly and instruct
the record holder to tender the original securities and deliver a consent on
your behalf using one of the procedures described in this document. A letter of
instructions is contained in the solicitation materials provided with this
document which you may use to instruct the record holder to tender original
securities and deliver consent.
TENDER OF ORIGINAL SECURITIES HELD WITH DTC. Pursuant to authority granted
by DTC, if you are a DTC participant that has original securities credited to
your DTC account and thereby held of record by DTC's nominee, you may directly
tender those original securities and deliver consents as if you were the record
holder. Because of this, references in this document to registered or record
holders include DTC participants with original securities credited to their
accounts. Within two business days after the date of this document, the exchange
agent will establish accounts with respect to the original securities at DTC for
purposes of the exchange offers. Any participant in DTC may tender original
securities and deliver consents by:
- effecting a book-entry transfer of all original securities to be tendered
in the exchange offers into the account of The Chase Manhattan Bank, as
exchange agent, at DTC, using DTC's procedures for transfer; and
- either (1) effecting an agent's message, as described below, or (2)
completing and signing the accompanying letter of consent/transmittal
according to the instructions and delivering it, together with any
signature guarantees and other required documents, to the exchange agent
at its address on the back cover page of this document.
Timely book-entry delivery requires receipt by the exchange agent of a
book-entry confirmation confirming the book-entry transfer of original
securities into the exchange agent's account at DTC. The book-entry confirmation
must be received by the exchange agent before (1) the early exchange time to
receive the applicable new securities and early exchange premium, or (2) the
applicable expiration time to receive the applicable new securities, but not the
early exchange premium. Even if delivery of original securities is effected
through book-entry transfer into the exchange agent's account at DTC, an agent's
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<PAGE> 42
message or a completed letter of consent/transmittal or a facsimile thereof,
together with any required signature guarantees and other required documents,
must be delivered or transmitted to and received by the exchange agent at its
address on the back cover page of this document before (1) the early exchange
time to receive the applicable new securities and early exchange premium, or (2)
the applicable expiration time to receive the applicable new securities, but not
the early exchange premium. A tender of original securities for exchange will
not be considered valid until these items are received by the exchange agent.
Delivery of a letter of consent/transmittal or other documents to DTC will not
be considered a valid delivery to the exchange agent.
The exchange agent and DTC have confirmed that the exchange offers are
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC participants
may electronically transmit their acceptance of any exchange offer and thereby
provide consent to the proposed amendments with respect to the original
securities tendered, by causing DTC to transfer original securities to the
exchange agent using DTC's Automated Tender Offer Program procedures for
transfer. DTC will then send an agent's message to the exchange agent. This
electronic acceptance will be in lieu of completing, signing and delivering the
letter of consent/transmittal.
An "agent's message" is a message which states that DTC has received an
express acknowledgment from a DTC participant tendering original securities that
the participant has received and agrees to be bound by the terms of the letter
of consent/transmittal and that Tenneco may enforce the agreement against the
participant. The agent's message is transmitted by DTC to, and received by, the
exchange agent and forms a part of the book-entry confirmation.
All of the original securities held through DTC have been issued in the
form of global notes registered in the name of Cede & Co., DTC's nominee. Upon
consummation of the exchange offers, the aggregate principal amounts of these
global notes will be reduced to represent the aggregate principal amount of
original securities not tendered and accepted.
TENDER OF ORIGINAL SECURITIES HELD IN PHYSICAL FORM. If you hold original
securities in physical form, you must comply with the following instructions to
tender original securities in the exchange offers:
- complete and sign the accompanying letter of consent/transmittal
according to its instructions; and
- deliver the following to the exchange agent at the address on the back
cover page of this document before the early exchange time or expiration
time, as applicable -- (1) a properly completed and duly executed letter
of consent/transmittal or a facsimile thereof, with any required
signature guarantees, (2) any other documents required by the letter of
consent/transmittal, and (3) the original securities in physical form
suitable for transfer.
To validly tender original securities that are not registered in your name,
you must follow special instructions described below under "-- Proper Execution
and Delivery of Letters of Consent/Transmittal."
LETTERS OF CONSENT/TRANSMITTAL AND PHYSICAL SECURITIES MUST BE SENT ONLY TO
THE EXCHANGE AGENT. DO NOT SEND LETTERS OF CONSENT/TRANSMITTAL OR PHYSICAL
SECURITIES TO TENNECO, PACKAGING, THE INFORMATION AGENT, DTC OR THE DEALER
MANAGERS.
THE EXCHANGE OFFERS AND CONSENT SOLICITATION DO NOT PROVIDE FOR THE
TENDERING OF ORIGINAL SECURITIES OR THE DELIVERY OF CONSENTS BY USE OF A NOTICE
OF GUARANTEED DELIVERY.
PROPER EXECUTION AND DELIVERY OF LETTERS OF CONSENT/TRANSMITTAL. If you
wish to participate in the exchange offers or consent solicitation, delivery of
your original securities, signature guarantees and the other required documents
are your responsibility. Delivery is not complete until the required items are
actually received by the exchange agent. If you mail these items, Tenneco
recommends that you (1) use registered mail with return receipt requested,
properly insured, and (2) mail the required items sufficiently in advance of the
early exchange time or expiration time, as desired, to allow enough time to
ensure timely delivery.
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<PAGE> 43
Except as otherwise provided below, all signatures on a letter of
consent/transmittal or a notice of withdrawal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the NYSE
Medallion Signature Program or the Stock Exchange Medallion Program. Signatures
on a letter of consent/transmittal need not be guaranteed if:
- the letter of consent/transmittal is signed by the registered physical
holder(s) of the original securities or by a participant in DTC whose
name appears on a security position listing as the owner of the original
securities and the holder(s) have not completed the portion entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of consent/transmittal; or
- the original securities are tendered for the account of an "eligible
institution." See Instruction 2 in the letter of consent/transmittal.
An "eligible institution" is one of the following firms or other entities
identified in Rule 17Ad-15 under the Exchange Act, as the terms are defined in
the Rule: (a) a bank; (b) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (c) a credit union; (d) a national securities exchange,
registered securities association or clearing agency; or (e) a savings
institution.
If the letter of consent/transmittal is signed by the registered holder(s)
of original securities tendered, the signature(s) must correspond with the
name(s) as written on the face of the original securities without alteration,
enlargement or any change whatsoever. If any of the original securities tendered
are held by two or more registered holders, all of the registered holders must
sign the letter of consent/transmittal. If any of the original securities are
registered in different names on different original securities, the holders must
complete, sign and submit as many separate letters of consent/transmittal as
there are different registrations of certificates.
In the following cases, the certificates for original securities that are
tendered must be endorsed or accompanied by an appropriate instrument of
transfer, signed exactly as the name of the registered owner appears on the
certificates, with the signatures on the certificates or instruments of transfer
guaranteed:
- if new securities issued in the exchange offers are to be registered in
the name of, or payments are to be made to, a person other than the
person whose signature is on the letter of consent/ transmittal;
- if original securities that are not exchanged are to be returned to a
person other than the registered owner; or
- if a letter of consent/transmittal is signed by a person other than the
registered holder(s) of the original securities tendered.
In addition, a tender of original securities before the early exchange time by
someone other than the registered holder must be accompanied by either a valid
proxy of, or a consent signed by, the registered holder(s). This is because
original securities may not be tendered before the early exchange time without
also delivering a consent with respect to those original securities, and only
registered holders are entitled to deliver consents. The signature on the proxy
or consent must be guaranteed.
Tenneco will not accept any alternative, conditional, irregular or
contingent tenders. By executing the letter of consent/transmittal or facsimile
thereof or transmitting an agent's message, you waive any right to receive any
notice of the acceptance of your original securities for exchange.
You should indicate in the applicable box in the letter of
consent/transmittal the name and address to which payments, certificates
evidencing original securities for amounts not exchanged or not tendered are to
be issued or sent, if different from yours. To issue securities in a different
name, the exchange agent must receive the employer identification or social
security number of the new person named and a Substitute Form W-9 for this new
person must be completed. If you do not give these instructions, payments and
original securities not exchanged will be delivered to the registered holder of
original securities tendered at the address listed in the register maintained by
the trustee for those original
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<PAGE> 44
securities. In the case of original securities tendered by book-entry transfer
into the exchange agent's account at DTC, the original securities will be
credited to the account maintained at DTC from which the original securities
were delivered.
DETERMINATION OF VALIDITY. Tenneco will determine, in its sole discretion,
all questions as to the validity, form, eligibility, time of receipt, acceptance
and withdrawal of tendered original securities using the procedures described
above. Tenneco's determination will be final and binding. Tenneco reserves the
absolute right to reject any or all tenders of original securities determined by
it not to be in proper form or the acceptance of which may be unlawful in the
opinion of counsel for Tenneco. Tenneco also reserves the absolute right, in its
sole discretion, subject to applicable law, to waive any defects or
irregularities of any tender of original securities, whether or not similar
defects or irregularities are waived in the case of other tendered securities.
Tenneco's interpretation of the terms and conditions of the exchange offers,
including the instructions in the letter of consent/transmittal, will be final
and binding.
Tenneco, the exchange agent, the information agent, DTC and the dealer
managers are not under any duty to notify you of defects in your tender and will
not be liable if they fail to so notify you. Unless waived, you must cure any
irregularities in your tender within the time Tenneco determines. Your tender of
original securities will not be considered valid until those irregularities have
been cured or waived. The exchange agent will return any original securities
that are not properly tendered if the irregularities have not been cured or
waived. The original securities will be returned to you, unless otherwise
provided in the letter of consent/transmittal, as soon as practicable following
the applicable expiration time.
TRANSFER TAXES. Tenneco will pay all transfer taxes, if any, applicable to
the transfer and sale of original securities to Tenneco in the exchange offers.
If transfer taxes are imposed for any other reason, the amount of those transfer
taxes, whether imposed on the registered holder or any other persons, will be
payable by the tendering holder. Other reasons transfer taxes could be imposed
include: (a) if substitute original securities for original securities not
exchanged are to be delivered to, or new securities or substitute original
securities are to be registered or issued in the name of, any person other than
the registered holder of the original securities tendered, or (b) if tendered
original securities are registered in the name of any person other than the
person signing the letter of consent/transmittal. If satisfactory evidence of
payment of or exemption from those transfer taxes is not submitted with the
letter of consent/transmittal, the amount of those transfer taxes will be billed
directly to the tendering holder.
BACKUP U.S. FEDERAL INCOME TAX WITHHOLDING. U.S. federal income tax law
requires that a holder of original securities that are accepted for exchange
provide the exchange agent, as payer, with the holder's correct taxpayer
identification number or otherwise establish a basis for an exemption from
backup U.S. federal income tax withholding. In the case of a holder who is an
individual (other than a resident alien), this identification number is his or
her social security number. For holders other than individuals, the
identification number is an employer identification number. Exempt holders,
including, among others, all corporations and certain foreign individuals, are
not subject to these backup withholding and reporting requirements. If you do
not provide the exchange agent with your correct taxpayer identification number
or an adequate basis for an exemption, you may be subject to backup withholding
on payments made in exchange for any original securities and a penalty imposed
by the IRS. Backup withholding is not an additional federal income tax. Rather,
the amount of tax withheld will be credited against the federal income tax
liability of the holder subject to backup withholding. If withholding results in
an overpayment of taxes, you may obtain a refund from the IRS. You should
consult with a tax advisor regarding qualifications for exemption from backup
withholding and the procedure for obtaining the exemption.
To prevent backup withholding, you must provide your correct taxpayer
identification number by completing the IRS Substitute Form W-9 provided in the
letter of consent/transmittal and provide either (a) your correct taxpayer
identification number and other information under penalties of perjury, or (b)
an adequate basis for an exemption. For a discussion of other federal income tax
consequences of the exchange offers, see "U.S. Federal Income Tax Consequences."
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<PAGE> 45
CONDITIONS TO THE EXCHANGE OFFERS AND CONSENT SOLICITATION
Notwithstanding any other provision, extension or amendment of the exchange
offers or consent solicitation, and in addition to, and not in limitation of,
Tenneco's rights to extend or amend any exchange offer or the consent
solicitation at any time in its sole discretion, Tenneco will not be required to
accept, exchange or make any payment for any original securities tendered for
exchange and may terminate any exchange offer and the consent solicitation if,
at or before the applicable expiration time:
- Tenneco does not receive the required consents or Tenneco and the trustee
under the original indenture have not executed and delivered the
supplemental indenture providing for the proposed amendments in the
manner described in this document;
- all conditions to Tenneco's concurrent cash tender offers have not been
satisfied;
- any condition to the spin-off of Packaging remains unsatisfied (see "The
Spin-off -- Conditions to the Spin-off");
- any action has been taken or threatened, or any statute, rule,
regulation, judgment, order, stay, decree or injunction has been
promulgated, enacted, entered, enforced or deemed applicable to the
spin-off or any transaction undertaken in connection with the spin-off,
including the debt realignment, exchange offers and cash tender offers,
collectively, the "transactions," by or before any court or governmental,
regulatory or administrative agency or authority or tribunal, domestic or
foreign, which either:
-- challenges the making of any of these transactions or might directly
or indirectly prohibit, prevent, restrict or delay consummation of
any of these transactions or otherwise adversely affects in any
material manner any component of these transactions; or
-- in the sole judgment of Tenneco, could materially adversely affect
the business, financial condition, income, operations, properties,
assets, liabilities or prospects of Tenneco and its subsidiaries,
taken as a whole, or Packaging and its subsidiaries, taken as a
whole, in each case before and after giving effect to these
transactions, or Automotive and its subsidiaries, taken as a whole,
or materially impair the contemplated benefits of any of these
transactions to Tenneco and/or Packaging;
- any event affecting the business or financial affairs of Tenneco or any
of its subsidiaries has occurred or is likely to occur that, in the sole
judgment of Tenneco, would or might prohibit, prevent, restrict or delay
consummation of any of the transactions described in the preceding
paragraph, or that will, or is reasonably likely to, materially impair
the contemplated benefits of any of these transactions to Tenneco or
Packaging, or might be material to holders of original securities in
determining whether to accept the exchange offers or consent
solicitation;
- there has occurred:
-- any general suspension of or limitation on trading in securities on
the NYSE or in the over-the-counter market, whether or not
mandatory;
-- a material impairment in the trading market for debt securities;
-- a declaration of a banking moratorium or any suspension of payments
in respect of banks by federal or state authorities in the United
States, whether or not mandatory;
-- a commencement or escalation of a war, armed hostilities or other
national or international crisis directly or indirectly relating to
the United States;
-- any limitation, whether or not mandatory, by any governmental
authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending
institutions in the United States; or
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<PAGE> 46
-- any significant adverse change in United States securities or
financial markets generally or the material acceleration or
worsening of an adverse change in the United States securities or
financial markets which existed at the time of the exchange offers;
or
- the trustee under the original indenture has either:
-- objected to or taken any action that could, in the sole judgment of
Tenneco, adversely affect the consummation of, the spin-off or any
other transaction undertaken in connection with the spin-off or
Tenneco's ability to effect the proposed amendments;
-- taken any action that challenges the validity or effectiveness of
the procedures used by Tenneco in soliciting the consents to the
proposed amendments, including the form thereof; or
-- taken any action that challenges the validity or effectiveness of
the procedures used by Tenneco in making or completing the exchange
offers or concurrent cash tender offers.
Tenneco's concurrent cash tender offers are subject to substantially the
same conditions as the exchange offers.
The foregoing conditions are for the sole benefit of Tenneco and may be
waived by Tenneco, in whole or in part, in its sole discretion. Any
determination made by Tenneco concerning an event, development or circumstance
described or referred to above will be final and binding on all parties.
WITHDRAWAL RIGHTS
Subject to applicable law, you may withdraw tenders of original securities
and revoke the related consents at any time before the withdrawal time, but not
after, except as otherwise described below. A valid withdrawal of tendered
original securities made before the withdrawal time is an automatic revocation
of the related consent. If, after the withdrawal time, Tenneco reduces the
principal amount of original securities subject to any exchange offer or reduces
the consideration offered in any exchange offer, then original securities
previously tendered in that exchange offer may be validly withdrawn for ten
business days after the date that Tenneco first publishes or sends notice to
holders of the reduction. In addition, you may validly withdraw tenders of
original securities if the related exchange offer is terminated without any
original securities being accepted for exchange.
For a withdrawal to be effective, (a) the exchange agent must receive a
written notice of withdrawal at its address on the back cover of this document,
or (b) the appropriate procedures of DTC's Automated Tender Offer Program must
be complied with. Any notice of withdrawal must:
- specify the name of the person who deposited the original securities to
be withdrawn;
- identify the original securities to be withdrawn, including the
certificate number or numbers and principal amount of those original
securities;
- be signed by the holder in the same manner as the signature on the letter
of consent/transmittal by which those original securities were tendered,
including any required signature guarantees, or be accompanied by a bond
power in the name of the person withdrawing the tender, in satisfactory
form as determined by Tenneco in its sole discretion, duly executed by
the registered holder, with the signature guaranteed;
- specify the name in which those original securities are to be registered,
if different from the person who tendered those original securities using
the instruments of transfer; and
- if original securities have been tendered using the procedures for
book-entry transfer described above, specify the name and number of the
account at DTC to be credited with the withdrawn original securities and
otherwise comply with the DTC procedures.
A purported notice of withdrawal which lacks any of the required
information will not be an effective withdrawal of a previous tender.
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<PAGE> 47
Any permitted withdrawals may not be rescinded, and any original securities
withdrawn will not be considered validly tendered for purposes of the exchange
offer. However, withdrawn securities may again be tendered by completing the
procedures for tendering before the early exchange time or expiration time, as
applicable.
Any tendered original securities that are withdrawn will be returned to you
free of charge as soon as practicable after withdrawal. If your original
securities were tendered by book-entry transfer into the exchange agent's
account at DTC, the original securities will be credited to an account
maintained with DTC for the original securities as soon as practicable after
withdrawal.
TENNECO WILL DETERMINE, IN ITS SOLE DISCRETION, ALL QUESTIONS AS TO THE
VALIDITY OF NOTICES OF WITHDRAWAL, INCLUDING TIME OF RECEIPT. TENNECO'S
DETERMINATION WILL BE FINAL AND BINDING. NONE OF TENNECO, PACKAGING, THE
EXCHANGE AGENT, DTC, THE DEALER MANAGERS AND ANY OTHER PERSON ARE UNDER ANY DUTY
TO NOTIFY YOU OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF WITHDRAWAL. NONE
OF THEM WILL BE LIABLE TO YOU IF THEY FAIL TO NOTIFY YOU OF ANY DEFECTS OR
IRREGULARITIES IN A NOTICE OF WITHDRAWAL.
DEALER MANAGERS
Tenneco and Packaging have engaged Morgan Stanley Dean Witter and Credit
Suisse First Boston to act as dealer managers in connection with the exchange
offers and to provide financial advisory services to Tenneco and Packaging in
connection with the exchange offers. If you have questions concerning the terms
of the exchange offers or consent solicitation, you may contact the dealer
managers at the addresses and telephone numbers on the back cover page of this
document.
Tenneco and Packaging have agreed to pay the dealer managers predetermined
compensation for the dealer managers' financial advisory services and to
reimburse the dealer managers for their reasonable out-of-pocket expenses,
including reasonable fees and expenses of legal counsel. Tenneco and Packaging
have agreed to indemnify the dealer managers against specified liabilities,
including specified liabilities under the federal securities laws. The dealer
managers have provided in the past, and currently are providing, other
investment banking and financial advisory services to Tenneco and its
affiliates.
Morgan Stanley Dean Witter and Credit Suisse First Boston are also acting
as dealer managers in connection with Tenneco's cash tender offers.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as exchange agent for the
exchange offers. You and your broker, dealer, commercial bank, trust company or
other nominee should send letters of consent/ transmittal and all correspondence
in connection with the exchange offers to the exchange agent at the address and
telephone numbers on the back cover page of this document.
If you have questions concerning tender procedures, you should contact the
exchange agent at the address and telephone number on the back cover page of
this document for instructions.
INFORMATION AGENT
Georgeson & Company Inc. has been appointed as information agent for the
exchange offers. You may direct requests for assistance or additional copies of
this document or the letter of consent/transmittal to the information agent at
the address and telephone number on the back cover page of this document. You
may also contact your broker, dealer, commercial bank or trust company for
assistance concerning the exchange offers.
TRUSTEE
The Chase Manhattan Bank is serving as the trustee under the original
indenture and will also serve as the trustee for the new securities. All
deliveries, correspondence and questions sent or presented to the trustee
relating to the exchange offers should be directed to the trustee at 55 Water
Street, Room 234, North Building, New York, New York 10041.
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<PAGE> 48
Tenneco and Packaging maintain, or may, in the future, maintain, normal
banking relationships with The Chase Manhattan Bank in the ordinary course of
business.
FEES AND EXPENSES
Tenneco will pay the exchange agent, the information agent and the trustee
under the original indenture reasonable and customary fees for their services
and will reimburse them for their reasonable out-of-pocket expenses in
connection with their services. Tenneco will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this document and related materials to
the beneficial owners of original securities, and in handling or forwarding
tenders for their customers. All these fees and expenses will be paid by
Tenneco, subject to the allocation of consolidated Tenneco debt contemplated by
the debt realignment. See "The Spin-off--Debt Realignment."
MARKET AND TRADING INFORMATION
The [to be provided by amendment] are listed and traded on the NYSE. The
following table sets forth, for the calendar periods indicated, the high and low
closing sales prices for these listed securities, as reported by IDD Information
Services:
[To be provided by amendment]
*There were no reported sales of this series of original securities during
the indicated period.
Tenneco and Packaging cannot assure you that the listed securities will be
traded following the exchange offers or at what prices they would trade. After
the exchange offers are completed, Tenneco intends to seek delisting of the
listed securities on the NYSE. See "Risk Factors -- Risk Factors if You Do Not
Exchange." IF YOU HOLD LISTED ORIGINAL SECURITIES, YOU ARE URGED TO OBTAIN
CURRENT INFORMATION REGARDING THE MARKET PRICES OF THE LISTED SECURITIES.
The [to be provided by amendment] are traded in the over-the-counter
market, to the extent trading occurs. These unlisted securities are not actively
traded and, in general, trading of these securities has been limited and
sporadic and information concerning trading prices and volumes may be difficult
to obtain. Tenneco and Packaging cannot assure you that the unlisted securities
will be traded following the exchange offers or at what prices they would trade.
See "Risk Factors -- Risk Factors if You Do Not Exchange." IF YOU HOLD UNLISTED
ORIGINAL SECURITIES, YOU ARE URGED TO OBTAIN THE BEST AVAILABLE INFORMATION
REGARDING THE MARKET PRICES OF THE UNLISTED SECURITIES FROM YOUR BROKER, DEALER,
COMMERCIAL BANK OR TRUST COMPANY.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFERS
The new securities will be recorded by Packaging based on either the fair
value of the new securities or the net carrying amount of Tenneco's original
securities, depending on whether Packaging's new securities are determined to be
"substantially different" than Tenneco's original securities. If the new
securities are "substantially different," the new securities will be recorded at
their fair value and the difference between the fair value of the new securities
and the net carrying amount of the original securities will be recognized as an
extraordinary charge by Tenneco. If the new securities are not "substantially
different," the new securities will be recorded at the net carrying amount of
Tenneco's original securities and no accounting gain or loss will be recognized
by Packaging on the exchange, except for transaction costs. The new securities
will be considered "substantially different" if the present values of the cash
flows, including principal and interest, under the terms of the new securities,
plus any amounts paid by Tenneco as early exchange premium, are at least 10%
different from the present value of the remaining cash flows under the original
securities. For accounting purposes, Packaging will consider the and
series of new securities to be "substantially different" and the and
series of new securities as not "substantially different."
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<PAGE> 49
THE PROPOSED AMENDMENTS
To tender original securities for exchange in the exchange offers, you must
consent to the proposed amendments to the original indenture. The proposed
amendments constitute a single proposal and a tendering holder must consent to
the proposed amendments as an entirety, and may not consent selectively with
respect to some of the proposed amendments.
The proposed amendments will be included in a supplement to the original
indenture that will be signed by Tenneco and the trustee on or promptly
following Tenneco's receipt of the required consents and the withdrawal time.
Accordingly, Tenneco expects to sign the supplemental indenture before the
exchange offers expire. The proposed amendments will not take effect, however,
until Tenneco accepts for exchange or purchase debt securities issued under the
original indenture that represent at least the required consents, whether
tendered in the exchange offers or Tenneco's cash tender offers. See "The
Exchange Offers and Consent Solicitation -- The Consent Solicitation."
As described below, a limited waiver of some provisions of the original
indenture will apply between the time Tenneco executes the supplemental
indenture and the time it closes on the exchange and cash tender offers. This
waiver will terminate if the proposed amendments do not take effect.
ELIMINATION OF OPERATING COVENANTS
The following is a brief description of the proposed amendments to the
original indenture. The summaries are qualified in their entireties by reference
to the full and complete terms of the original indenture, as well as the
proposed supplemental indenture, copies of which can be obtained without charge
from the information agent. A copy of the original indenture and proposed
supplemental indenture is also exhibit and , respectively, to the
registration statement of which this document is a part. These proposed
amendments may have adverse consequences for you if you do not participate in
the exchange offers. See "Risk Factors -- Risk Factors if You Do Not Exchange."
The proposed amendments would eliminate the following restrictive operating
covenants contained in the original indenture.
<TABLE>
<CAPTION>
SECTION OF
ORIGINAL INDENTURE TITLE AND DESCRIPTION OF SECTION
- ------------------ --------------------------------
<S> <C>
Section 3.6 Negative Pledge; Limitation on Sale and Leaseback
Transactions.
Provides that the issuer (Tenneco Inc.) will not issue,
assume, incur or guarantee, and will not permit any
restricted subsidiary (generally any subsidiary that
operates a principal manufacturing property) to issue,
assume, incur or guarantee, any debt upon any principal
manufacturing property (generally any U.S. manufacturing
plant or research and development facility, unless the
issuer's Board of Directors determines that plant or
facility is not of material importance). Also provides that
the issuer will not, and will not permit any restricted
subsidiary to, enter into any arrangement with any person or
entity providing for the leasing of any principal
manufacturing property, where the property has been or is to
be sold or transferred by the issuer or the restricted
subsidiary with the intention of taking back a lease on the
property.
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
SECTION OF
ORIGINAL INDENTURE TITLE AND DESCRIPTION OF SECTION
- ------------------ --------------------------------
<S> <C>
Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property
Except Under Certain Conditions.
Provides that the issuer will not merge or consolidate with
any other person or entity or sell, lease or convey all or
substantially all of its assets unless (a) the issuer is the
continuing corporation, or the successor or transferee
corporation is organized under United States law and
expressly assumes the payment of principal and interest on
all securities and coupons outstanding under the original
indenture and the performance and observance of all
covenants and conditions of the original indenture, by
supplemental indenture, and (b) the issuer or the successor
or transferee is not, immediately after giving effect to the
transaction, in default in the performance of any of those
covenants or conditions.
Section 9.2 Successor Corporation Substituted.
Describes the substitution of the successor or transferee
corporation for the issuer under the original indenture in
the event of any consolidation, merger, sale, lease or
conveyance described in Section 9.2 of the original
indenture.
Section 9.3 Opinion of Counsel Delivered to Trustee.
Provides that the trustee may receive an opinion of counsel
as conclusive evidence that any consolidation, merger, sale,
lease or conveyance described in Section 9.1 of the original
indenture, and any substitution of the successor or
transferee corporation for the issuer under Section 9.2 of
the original indenture, complies with the applicable
provisions.
</TABLE>
The proposed amendments would also eliminate any references in the original
indenture and the original securities to the sections specified above, including
any sentences or provisions that refer or give effect exclusively to the
sections specified above. The proposed amendments would also eliminate any
defined terms in the original indenture that are used solely in those deleted
sentences, provisions, sections or subsections. The text of the proposed
amendments is set forth in Annex A.
WAIVER
To avoid the possibility of a default under the original indenture in
connection with the spin-off and the transactions that will be undertaken to
complete the spin-off, a waiver of the covenants to be eliminated by the
proposed amendments will take effect immediately upon the execution of the
supplemental indenture as described above. If, however, securities representing
at least the required consents are not accepted for exchange or purchase, as the
case may be, because the related exchange offers, cash tender offers or consent
solicitation are terminated or withdrawn, the proposed amendments will not
become operative. In this event, the waiver will also cease to be operative as
to any transactions that occurred during the period the waiver was in effect.
The text of the waiver is set forth in Annex A.
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<PAGE> 51
DESCRIPTION OF THE NEW SECURITIES
The new securities will be issued under an indenture between Packaging and
The Chase Manhattan Bank, as trustee (the "new trustee"), as supplemented by
supplemental indentures providing for the terms of the new securities. This
indenture, as it may be further amended or supplemented from time to time, is
referred to in this document as the "new indenture." The terms of the new
securities will include those stated in the new indenture and those made a part
of the new securities by reference to the Trust Indenture Act of 1939.
A copy of the new indenture, including the forms of supplemental indentures
providing for the new securities, are filed as exhibits through to the
registration statement in which this document is included. The following
summaries of provisions of the new indenture do not include all of the
information included in the new indenture and may not cover information that you
may find important. Accordingly, these summaries are subject to, and qualified
in their entirety by reference to, the detailed provisions of the new indenture.
You should read the new indenture carefully and in its entirety because the
new indenture, and not this description, will define your rights as a holder of
new securities. You may obtain a copy of the new indenture by request directed
to Tenneco's address included on page 2 of this document. As used under this
caption, the term "debt securities" means all evidences of indebtedness for
money borrowed which may be issued under the new indenture and the term
"Packaging" refers only to Tenneco Packaging Inc., and not any of its
subsidiaries.
GENERAL
The new indenture will not limit the amount of debt securities that may be
issued and will provide that debt securities may be issued under the new
indenture from time to time in one or more series. The debt securities will be
unsubordinated and unsecured obligations of Packaging and will rank equally with
all other unsubordinated and unsecured obligations of Packaging. This would
include, for example, accounts payable to suppliers and other general creditors
of Packaging. In addition, the new indenture will generally not limit the amount
of other indebtedness or securities that Packaging or its subsidiaries may
issue. However, the issuance, assumption or guarantee of specified secured debt
will be subject to the restrictions described under "-- Some Important Covenants
of Packaging." There are no provisions of the new indenture that will afford
holders of new securities protection in the event of a highly leveraged
transaction involving Packaging.
NEW SECURITIES
[To be provided by amendment]
SOME IMPORTANT COVENANTS OF PACKAGING
Negative Pledge. The new indenture will provide that Packaging will not,
and will not permit any restricted subsidiary to, issue, assume, incur or
guarantee specified types of secured debt without providing that the outstanding
debt securities be secured equally and ratably with that secured debt. A
restricted subsidiary is generally defined as a subsidiary that operates a
principal manufacturing property, as described below. The restriction applies to
any debt secured by a mortgage, pledge, lien or other encumbrance on any
principal manufacturing property of Packaging or any restricted subsidiary or on
any shares of capital stock or debt of any restricted subsidiary. A principal
manufacturing property is generally defined as any U.S. manufacturing plant or
testing or research and development facility, unless Packaging's Board of
Directors determines it is not of material importance. This restriction will not
apply if, after giving effect to the contemplated transaction, the aggregate
amount of all such secured debt incurred after the initial date of the new
indenture, together with all Attributable Debt, as defined below, of Packaging
and its subsidiaries in respect of specified sale and leaseback transactions
involving principal manufacturing
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<PAGE> 52
properties, would not exceed 15% of the Consolidated Net Tangible Assets, as
defined below, of Packaging and its consolidated subsidiaries. This restriction
will also not apply in the case of:
(a) the creation of encumbrances on any principal manufacturing
property acquired after the initial date of the new indenture to secure
payment of all or any part of the purchase price of that property or
construction of fixed improvements on that property before, at the time of
or within 180 days after the latest of the acquisition, completion of
construction or commencement of commercial operation of that property, or
existing encumbrances on any principal manufacturing property acquired by
Packaging or a restricted subsidiary, so long as the encumbrance does not
apply to any improved property previously owned by Packaging or a
restricted subsidiary and so long as the amount of debt secured by the
encumbrance does not exceed 100% of the lesser of the cost or fair value of
the property,
(b) encumbrances on any principal manufacturing property of a
corporation that is merged into or consolidated with Packaging or a
restricted subsidiary or substantially all of the assets of which are
acquired by Packaging or a restricted subsidiary;
(c) encumbrances on any principal manufacturing property in favor of
governmental bodies to secure partial, progress, advance or other payments
under any contract or statute, or to secure any debt incurred or guaranteed
for the purpose of financing all or any part of the cost of acquiring,
constructing or improving the property subject to those encumbrances;
(d) encumbrances on particular property to secure or provide funds for
all or any part of the cost of exploration, drilling, mining, development,
maintenance or operation of that property intended to obtain or increase
the production of specified natural resources from that property;
(e) encumbrances securing debt owed by a restricted subsidiary to
Packaging or another restricted subsidiary;
(f) encumbrances on any principal manufacturing property of Packaging
or a restricted subsidiary that were in existence on the initial date of
the new indenture;
(g) specified extensions, renewals or replacements of encumbrances
described above; and
(h) Permitted Mortgages, as defined below.
(Section 3.6(a) of the new indenture.) The new indenture will not restrict the
incurrence of unsecured debt by Packaging or any of its subsidiaries.
Restrictions on Sale and Leaseback Transactions. The new indenture will
prohibit Packaging and any restricted subsidiary from entering into any sale and
leaseback transaction involving any principal manufacturing property that has
been or is to be sold or transferred by Packaging or any restricted subsidiary,
unless:
(a) Packaging or the restricted subsidiary would be entitled to create
secured debt on that property, as described in clauses (a)-(h) under "--
Negative Pledge," in an amount equal to the Attributable Debt with respect
to the sale and leaseback transaction, without equally and ratably securing
all outstanding debt securities under the new indenture;
(b) since the date of the new indenture and during the period 12
months before and ending 12 months after a sale and leaseback transaction,
Packaging or the restricted subsidiary makes expenditures for principal
manufacturing properties in an amount equal to the net proceeds of the sale
and leaseback transaction and elects to designate that amount as a credit
against the sale and leaseback transaction; or
(c) to the extent not credited as described above, Packaging applies
an amount equal to the Attributable Debt with respect to the sale and
leaseback transaction to the retirement of long-term consolidated debt.
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<PAGE> 53
(Section 3.6(c) of the new indenture.) This restriction will not apply to any
sale and leaseback transaction (a) between Packaging and a restricted subsidiary
or between restricted subsidiaries, (b) involving the taking back of a lease for
a period of three years or less, or (c) if, after giving effect to a sale and
leaseback transaction, permitted secured debt, plus Attributable Debt of
Packaging and its subsidiaries in respect of sale and leaseback transactions
involving principal manufacturing properties, would not exceed 15% of the
Consolidated Net Tangible Assets of Packaging and its consolidated subsidiaries.
There will be no covenants or other provisions in the new indenture
providing for a put or increased interest or that would otherwise provide
holders of new securities with additional protection in the event of a
recapitalization transaction, a change of control of Packaging or a highly
leveraged transaction.
The following terms which are used in the new indenture have the meanings
described below:
"Attributable Debt" means the total net amount of the rent required to
be paid during the remaining term of any lease, discounted at the weighted
average rate per year then borne by the outstanding debt securities.
(Section 1.1 of the new indenture.)
"Consolidated Net Tangible Assets" means the total assets shown on the
consolidated balance sheet of Packaging and its consolidated subsidiaries
for the most recent fiscal quarter, after deducting the amount of all
current liabilities and intangible assets. (Section 1.1 of the new
indenture.)
"Permitted Mortgage" means:
(a) any governmental, mechanics', materialmen's, carriers' or
similar lien created in the ordinary course of business which is not yet
due or which is being contested in good faith by appropriate proceedings
and any undetermined lien which is incidental to construction;
(b) any right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to
designate a purchaser of, any property;
(c) any lien of taxes and assessments which is (1) for the current
year, or (2) not at the time delinquent or (3) delinquent but the
validity of which is being contested at the time by Packaging or any
Subsidiary in good faith;
(d) any lien arising from or in connection with a conveyance by
Packaging or any subsidiary of any production payment with respect to
oil, gas, natural gas, carbon dioxide, sulphur, helium, coal, metals,
minerals, steam, timber or other natural resources;
(e) any lien to secure obligations imposed by statute or
governmental regulations; or
(f) any lien of, or to secure performance of, leases, other than
leases relating to a sale and leaseback transaction. (Section 1.1 of the
new indenture.)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The new indenture will provide that Packaging may not merge or consolidate
with any other person or entity, or sell, lease or convey all or substantially
all of its assets to any person or entity, unless (a) either Packaging is the
continuing entity or the successor, transferee or lessee is a corporation
organized under the laws of the United States, any State or the District of
Columbia and expressly assumes Packaging's obligations under the debt securities
and new indenture, and (b) immediately after giving effect to the transaction,
Packaging or the successor, transferee or lessee is not in default of any of
those obligations. (Section 9.1 of the new indenture.) The new indenture will
also provide that any successor, transferee or lessee corporation in one of
those transactions be substituted for Packaging under the new indenture and the
debt securities. (Section 9.2 of the new indenture.)
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<PAGE> 54
EVENTS OF DEFAULT
Any one of the following will constitute an "event of default" under the
new indenture with respect to debt securities of any series:
(a) Packaging's failure to pay any interest on that series when due
and continuance of that default for 30 days;
(b) Packaging's failure to pay principal of that series when due;
(c) in general, Packaging's failure to observe or perform any of its
other covenants in the new indenture for 60 days after written notice as
provided in the new indenture, unless the default is expressly covered by
another provision of the new indenture;
(d) events of bankruptcy, insolvency or reorganization of Packaging;
or
(e) any other event of default provided in the supplemental indenture
with respect to debt securities of that series. (Section 5.1 of the new
indenture.)
If any event of default occurs and is continuing, either the new trustee or
the holders of at least 25% in aggregate principal amount of the outstanding
debt securities of each affected series, voting as a single class, may by
written notice declare the principal amount of and accrued interest on all the
debt securities of each affected series to be due and payable immediately.
Events of bankruptcy, insolvency and reorganized are deemed to affect all
outstanding debt securities. If the debt securities of an affected series are
original issue discount debt securities, only that portion of the principal
amount as is specified in the terms of that series may be declared due and
payable. The holders of a majority in aggregate principal amount of outstanding
debt securities of that series may, under limited circumstances, rescind and
annul that acceleration. (Section 5.1 of the new indenture.)
Under the new indenture, the new trustee will generally be required to give
the holders of affected debt securities notice of known defaults within 90 days
after the default, unless the default is cured or waived. Except in the case of
a payment default, however, the new trustee may withhold the notice in the
interests of the holders of the affected series of debt securities. (Section
5.11 of the new indenture.) The new indenture will provide that the holders of a
majority in aggregate principal amount of the outstanding debt securities of
each series affected, with all those series voting as a single class, may direct
the time, method and place of conducting any proceeding for any remedy available
to the new trustee for such series, or exercising any trust or power conferred
on the new trustee. (Section 5.9 of the new indenture.)
In general, the holders of a majority in aggregate principal amount
outstanding of all series of debt securities with respect to which an event of
default has occurred, voting as a single class, may waive any event of default
with respect to that series. This majority action cannot, however, waive
defaults under specified covenants related to the payment terms of the debt
securities. (Section 5.10 of the new indenture.)
The new indenture will require Packaging to file annually with the new
trustee a certificate as to Packaging's compliance with all conditions and
covenants of the new indenture. (Section 3.5 of the new indenture.)
MODIFICATION OF THE NEW INDENTURE
The new indenture will permit Packaging and the new trustee to enter into
one or more supplemental indentures without the consent of the holders of any
debt securities in order:
(a) to transfer or pledge any property to the new trustee as security
for the debt securities;
(b) to substitute a permitted successor corporation for Packaging;
(c) to add to the Packaging's covenants further covenants or
provisions to protect the holders of debt securities;
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(d) to establish the form or terms of debt securities;
(e) to provide for successor trustees; or
(f) to cure any ambiguity, correct any defective provisions or to make
any other provisions as Packaging determines necessary or desirable, as
long as the action does not adversely affect the interests of any holder of
debt securities of any series. (Section 8.1 of the new indenture.)
The new indenture will also permit Packaging and the new trustee, with the
consent of the holders of a majority in aggregate principal amount of the
outstanding series of debt securities affected, voting as one class, to execute
supplemental indentures that change the terms of the new indenture or modify the
rights of debt holders. However, without the consent of the holder of each
affected debt security, this majority action cannot:
(a) extend the time for payment of principal or interest on any debt
security;
(b) reduce the principal of, or the rate of interest on, any debt
security;
(c) reduce the amount of premium, if any, payable upon the redemption
of any debt security;
(d) reduce the amount of principal payable upon acceleration of the
maturity of any original issue discount security;
(e) change the currency or currency unit in which any debt security or
any premium or interest is payable;
(f) impair the right to institute suit for the enforcement of any
payment on or relating to any debt security; or
(g) reduce the percentage consent required to modify or amend the new
indenture. (Section 8.2 of the new indenture.)
DEFEASANCE AND COVENANT DEFEASANCE
The new indenture will allow Packaging to deposit funds in trust and as a
result either (a) be discharged from all obligations under the debt securities
of any series, except for limited administrative obligations ("defeasance"), or
(b) be released from complying with specified covenants of the indenture,
including those described under "-- Some Important Covenants of Packaging" and
"-- Consolidation, Merger and Sale of Assets" ("covenant defeasance"). For
defeasance or covenant defeasance with respect to any series of debt, Packaging
must deposit, in trust with the new trustee, money or U.S. government
obligations that through the payment of interest and principal according to
their terms will provide money in an amount sufficient to make all payments on
that series of debt when they are due. If the defeasance is to occur at least
one year before the debt securities become due and payable or are to be
redeemed, the defeasance may only be established if Packaging delivers an
opinion of counsel stating that the holders of the debt securities will not have
a taxable event for federal income tax purposes as a result of the defeasance.
In addition, the opinion of counsel must be based upon a ruling of the IRS or a
change in applicable federal income tax law occurring after the date of the new
indenture. (Article 10 of the new indenture.)
THE NEW TRUSTEE
The Chase Manhattan Bank will be the new trustee under the new indenture.
Packaging may also maintain banking and other commercial relationships with the
new trustee in the ordinary course of business.
BOOK-ENTRY SYSTEM
Packaging will initially issue the new securities in the form of one or
more global securities that will be deposited with DTC and registered in the
name of Cede & Co., DTC's nominee. Accordingly,
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beneficial interests in the global securities will be shown on, and transfer
will be effected only through, records maintained by DTC and its participants.
You may hold beneficial interests in the global securities directly through DTC
if you have an account with DTC or indirectly through an organization which has
an account with DTC. Unless and until it is exchanged in whole or in part for
new securities of that series in definitive form, a global security may not be
transferred except as a whole to a nominee of DTC for that global security, or
by a nominee of DTC to DTC or another nominee of DTC, or by DTC or any such
nominee to a successor depository or a nominee of a successor depository.
DTC has advised Packaging that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold the
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. Access to DTC's book-entry system is also available to others,
such as banks, brokers, dealers, and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly (collectively, the "indirect participants").
Packaging expects that upon the deposit of the global securities with DTC,
DTC will credit on its book-entry registration and transfer system the principal
amount of new securities represented by those global securities to the accounts
of direct participants. Ownership of beneficial interests in the global
securities will be limited to direct participants or persons that may hold
interests through direct participants. Ownership of beneficial interests in the
global securities will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by DTC, with respect
to direct participants' interest, the direct participants and the indirect
participants, with respect to the owners of beneficial interests in the global
securities other than direct participants. The laws of some jurisdictions may
require that purchasers of securities take physical delivery of the securities
in definitive form. These limits and laws may impair your ability to transfer or
pledge beneficial interests in the global securities.
So long as DTC or a nominee of DTC is the registered holder and owner of
the global securities, DTC or the nominee, for all purposes will be considered
the sole owner or holder of the global securities under the new indenture.
Except as described below, owners of a beneficial interest in the global
securities will not be entitled to have the new securities represented by the
global securities registered in their names, will not receive or be entitled to
receive physical delivery of certified new securities, and will not be
considered to be the owner or holder of any new securities represented by the
global securities. Accordingly, each person owning a beneficial interest in the
global securities must rely on the procedures of DTC and, if a person is not a
direct participant in the book-entry registration and transfer system of DTC, on
the procedures of the direct participant through which that person owns its
interest, to exercise any rights of an owner or holder of the new securities.
Packaging will make principal and interest payments on the new securities
registered in the name of DTC's nominee to DTC's nominee as the registered owner
of the global securities. Under the terms of the new securities, Packaging and
the new trustee will treat the persons in whose names the new securities are
registered as the owners of those new securities for the purpose of receiving
payment of principal and interest on those new securities and for all other
purposes. Therefore, Packaging, the new trustee and any paying agent will not
have any direct responsibility or liability for the payment of principal or
interest on the new securities to owners of beneficial interests in the global
securities.
Packaging expects that DTC will, upon receipt of any payment of principal
or interest, credit direct participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global securities as
shown on DTC's records. Payments by direct and indirect participants to owners
of beneficial interests in the global securities will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in
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"street name," and will be the responsibility of the direct and indirect
participants. These payments by direct and indirect participants will not be the
responsibility of DTC, the new trustee, or Packaging, subject to any statutory
requirements that may be in effect.
Neither Packaging, the New Trustee, any paying agent nor the registrar will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the global
securities, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in the global securities among participants of
DTC, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. None of
Packaging, the new trustee, the registrar, or any paying agent for the exchange
securities will have any responsibility or liability for the performance by DTC
or its direct or indirect participants of their respective obligations under the
rules and procedures governing their operations.
PHYSICAL SECURITIES
Following initial issuance, you may obtain physical new securities in
exchange for global securities in denominations of $1,000 and integral multiples
of $1,000 if:
(1) DTC notifies Packaging that it is unwilling or unable to continue
as depositary for the global securities or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act
and a successor depositary is not appointed by Packaging within 90
days of that notice; or
(2) Packaging in its discretion at any time determines not to have all
of the new securities represented by the global securities.
Subject to the above, the global securities are not exchangeable, except
for global securities of the same aggregate denomination to be registered in the
name of DTC or its nominee.
PAYMENT
Packaging will pay principal of and interest on new securities represented
by a global security according to accordance with the applicable requirements of
DTC for the global securities. The payment of principal of and interest on any
other new securities will be made at the office or agency of Packaging
maintained for that purpose or, at Packaging's option, by mailing a check to the
holder's registered address.
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THE SPIN-OFF
Before the spin-off, Tenneco and Packaging will enter into a distribution
agreement to establish the terms of the spin-off and govern various aspects of
the post-spin-off relationship between Packaging and Tenneco (Automotive, after
the spin-off). In addition, Automotive and Packaging will enter into ancillary
agreements to facilitate further the separation of Tenneco's automotive and
packaging businesses and to govern additional aspects of the ongoing
relationship between Packaging and Automotive.
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. The spin-off will:
- enable each company to concentrate its attention and financial resources
on its own core business and provide independent access to capital
markets;
- permit investors to make more focused investment decisions based on the
specific attributes of each of the two businesses and enhance the
likelihood that each company will achieve appropriate market valuation;
and
- facilitate employee compensation programs custom-tailored to the
operations of each 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.
MANNER OF SPIN-OFF
According to the distribution agreement, the Tenneco board of directors
will formally declare the dividend necessary to effect the spin-off. At that
time, the Tenneco board of directors will also set the effective date of the
spin-off and the date and time for determination of those Tenneco stockholders
entitled to participate in the spin-off. Subject to the conditions described
below, on the spin-off date, those same Tenneco stockholders will each receive
one share of Packaging common stock for each share of Tenneco common stock they
owned as of that determination time.
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 Packaging and (b) its automotive business will be owned and
operated, directly and indirectly, by Tenneco and its non-packaging
subsidiaries.
Packaging's assets upon completion of these corporate restructuring
transactions generally will be:
- those assets related to the conduct of Tenneco's past and current
packaging businesses and administrative services operations, as reflected
on the unaudited pro forma combined balance sheet of Packaging as of June
30, 1999 (see "Description of Packaging -- Unaudited Pro Forma Combined
Financial Statements of Packaging");
- those assets that were acquired after June 30, 1999 and are of a nature
or type that would have been included on Packaging's 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.
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Automotive's assets upon completion of these corporate restructuring
transactions generally will be:
- all of Tenneco's assets not expressly allocated to Packaging or its
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 businesses 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 other 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 of 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
subsidiaries, rather than at the operating-company level, and to centrally
manage various cash functions.
Accordingly, the distribution agreement will provide for the realignment of
Tenneco's debt before the spin-off. The purpose of this debt realignment is to
allocate the debt between Packaging and Automotive before the companies are
separated. The exchange offers and cash tender offers are components of this
debt realignment.
The specific goal of the debt realignment will be to reach approximately
the 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 included
elsewhere in this document. See "Description of Packaging -- Unaudited Pro Forma
Combined Financial Statements of Packaging" and "Description of Tenneco After
the Spin-off/Automotive -- Unaudited Pro Forma Consolidated Financial Statements
of Tenneco." These pro forma balance sheets will also be attached to
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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,
Packaging would have had pro forma debt for money borrowed of about $2.2 billion
and Automotive would have had pro forma debt for money borrowed of about $1.7
billion. The pro forma debt amount for Packaging does not reflect the
application of any proceeds from its planned sale of its containerboard joint
venture interest, which is not part of the debt realignment. If this sale is
completed before the spin-off, the net proceeds will be used to retire the
Tenneco debt that otherwise would 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. See "Description of Packaging -- Unaudited Pro
Forma Combined Financial Statements of Packaging" and "Description of Tenneco
After the Spin-off/Automotive -- Unaudited Pro Forma Consolidated Financial
Statements of Tenneco."
The debt realignment is expected to be accomplished through some
combination of tender offers, exchange offers, prepayments and other
refinancings. In addition to the exchange offers described in this document,
Tenneco expects to undertake the following as part of the debt realignment: (1)
Tenneco will offer to purchase for cash approximately $ million of its
public debt (pursuant to the cash tender offers); (2) Tenneco 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 be entered into by Automotive in
connection with the spin-off and (c) borrowings by Packaging under one or more
new credit facilities to be entered into by Packaging in connection with the
spin-off. See "Description of Packaging -- New Financing" and "Description of
Tenneco After the Spin-off/ Automotive -- New Financing."
Accordingly, after giving effect to the debt realignment and the spin-off,
Automotive will be responsible for all of Tenneco's existing public debt that
remains outstanding and any borrowings under the new Automotive credit facility
and subordinated debt financing described above. Packaging will be responsible
for the new securities and any borrowings under the new Packaging credit
facilities described above. Completion of the debt realignment is a condition to
Tenneco's obligation 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.
RELATIONSHIP BETWEEN AUTOMOTIVE AND PACKAGING AFTER THE SPIN-OFF
Below are summary descriptions of the distribution agreement and principal
ancillary agreements that Automotive and Packaging will enter into in connection
with the spin-off. These agreements are intended to facilitate the separation of
Tenneco's packaging business from its automotive business and to facilitate the
operation of each of Automotive and Packaging as separate companies.
DISTRIBUTION AGREEMENT
In addition to providing for the terms of the spin-off and the various
actions to be taken before the spin-off, the distribution agreement will contain
other provisions governing the relationship between Automotive and Packaging
before and after the spin-off.
Responsibility for Liabilities. The distribution agreement will provide
that after the spin-off date: (a) Automotive will assume, pay, perform and
discharge its allocated liabilities according to their terms, and (b) Packaging
will assume, pay, perform and discharge 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
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connection with Packaging's allocated liabilities or the breach of the
distribution agreement or any ancillary agreement by Packaging.
Further Assurances. Automotive and Packaging have each agreed to use all
reasonable efforts to take all action reasonably necessary or advisable to
consummate the transactions contemplated by and carry out the purposes of the
distribution agreement.
Information Sharing. The distribution agreement will provide for the
transfer and sharing of books and records between Automotive and Packaging and
grants each party access to specified information in the other's possession,
subject to confidentiality requirements and legal privilege issues.
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 administrative
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. Each of Tenneco and Packaging has agreed to pay the fees, costs
and expenses associated with the spin-off that are incurred by it before the
spin-off. Because a majority of these expenses will be incurred directly by
Tenneco, Tenneco will use a portion of the funds borrowed by Automotive and
Packaging as part of the debt realignment to fund these payments. Accordingly,
the allocation of debt described above under "-- Debt Realignment" includes
additional debt incurred to fund these fees, costs and expenses.
Directors. When the spin-off is completed, Packaging and Automotive will
share four common directors, Dana G. Mead, Paul T. Stecko, Mark Andrews and
Roger B. Porter. Each company will adopt policies and procedures for its board
of directors to limit the involvement of Messrs. Mead, Stecko, Andrews and
Porter in situations that could give rise to potential conflicts of interest,
including requesting them to abstain from voting as a director of either
Packaging or Automotive on matters which present a conflict of interest between
the companies. Tenneco and Packaging believe that the number of these conflict
situations will be minimal.
HUMAN RESOURCES AGREEMENT
The human resources agreement to be entered into between Automotive 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.
Packaging 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 Packaging will amend the
Tenneco Retirement Plan to provide that all benefits accrued through that day by
Automotive employees
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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 of the spin-off date,
participation by current and former employees of Automotive in the Tenneco Inc.
Deferred Compensation Plan will be discontinued, and Automotive will succeed to
those liabilities.
Under the human resources agreement, Tenneco will, generally, cause
outstanding restricted stock and performance share equivalent unit awards to
become fully earned and vested before the spin-off. Tenneco common stock options
held by Packaging employees will be replaced by options to purchase shares of
Packaging 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 Packaging
under the terms of the tax sharing agreement. Generally, Packaging will be
liable for taxes imposed exclusively on Packaging and its affiliates engaged in
the packaging and administrative services businesses (the "Packaging group"). In
the case of U.S. federal income taxes imposed on the combined activities of
Automotive and the Packaging group, Packaging 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, Packaging 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") will 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 (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 below), then the resulting
corporate tax burden will be borne by the entity (Automotive or Packaging) that
experienced the 50% ownership shift. Any income tax liability that results from
the spin-off, corporate restructuring transactions or debt realignment, but
which is not due to either a 50% ownership shift or an action that is
inconsistent with the tax treatment contemplated in the IRS letter ruling
request, will be shared equally by Automotive and Packaging.
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 or more persons acting together pursuant to a plan or series of related
transactions that includes the spin-off. This provision can be triggered by
certain reorganizations involving the acquisition of the assets of the company
making the distribution or the spun-off subsidiary. There is a presumption that
any 50% ownership shift that occurs within two years before or after the
spin-off is pursuant to a plan that includes the spin-off. However, the
presumption may be rebutted by establishing that the spin-off and the
acquisitions are not part of a plan or series of related transactions.
Each of Automotive and Packaging will agree not to take or permit 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
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the ability of Automotive or Packaging to engage in certain corporate
transactions, redeem stock, dispose of assets except in the ordinary course of
business or be the target of an acquisition transaction during that period.
TRANSITION SERVICES AGREEMENT
Tenneco's administrative services operations currently provide a number of
services to Tenneco's operating units. These services include (a) financial
accounting services; (b) employee benefits administration for all major salaried
and hourly benefit plans; (c) human resources and payroll services; (d)
mainframes and distributed systems operations; (e) telecommunications and
network operations and management; (f) help desk support; and (g) disaster
recovery support. When the spin-off is complete, Tenneco's administrative
services operations will be a part of Packaging. Accordingly, Automotive and
Packaging will enter into a transition services agreement under which Packaging
will continue to provide Automotive with specified administrative services for
an initial period of years beginning on the date of the spin-off. After the
initial -year period, Automotive may elect to have Packaging continue to
provide specified services for up to additional -year periods at a price to
be negotiated by the parties. During any extension, Automotive may discontinue
using and paying for any or all of the services on 120 days notice to Packaging.
Because Automotive will retain a portion of the administrative support for
Tenneco's European operations, however, Automotive will also agree to provide
Packaging with specified administrative services for its European operations for
an initial period of six months beginning on the date of the spin-off. After the
initial six-month period, Packaging may elect to have Automotive continue to
provide specified services for up to six 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.
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.
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, Packaging will enter into a trademark
transition license agreement with Automotive. Under this agreement, Automotive
or one of its subsidiaries will grant to Packaging and its subsidiaries 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.
62
<PAGE> 64
CONDITIONS TO THE SPIN-OFF
The spin-off is conditioned on, among other things, formal declaration of
the spin-off by the Tenneco Board of Directors. Other conditions to the spin-off
will include:
- execution and delivery of the ancillary agreements and completion of
various pre-spin-off transactions, such as the corporate restructuring
transactions and the debt realignment;
- a determination to the effect that for federal income tax purposes, (1)
the spin-off will be tax-free to Tenneco and its stockholders under
Section 355(a) and Section 361(c)(1) of the Code, and (2) specified
internal restructuring transactions involving Tenneco or its subsidiaries
to be effected by the corporate restructuring transactions will also be
tax-free (Tenneco received an IRS letter ruling to that effect on August
20, 1999);
- approval for listing on the NYSE of the Packaging common stock;
- registration of the Packaging 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.
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.
AMENDMENT OR TERMINATION OF THE DISTRIBUTION AGREEMENT
Before the spin-off, the distribution agreement may be amended or
terminated by Tenneco in its discretion. After the spin-off, the distribution
agreement may be amended or terminated only by a written agreement signed by
Automotive and Packaging. Some amendments or terminations after the spin-off
will also require the consent of third-party beneficiaries to the extent that
the distribution agreement has expressly guaranteed them rights.
63
<PAGE> 65
DESCRIPTION OF PACKAGING
GENERAL
Packaging is a global supplier of specialty packaging and consumer products
with 1998 revenues of approximately $2.8 billion. Packaging operates 89
manufacturing facilities throughout the world and employs over 15,000 people.
Packaging is currently owned by Tenneco and will be an independent, publicly
traded company upon completion of the spin-off. See "The Spin-off."
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 exchanged
for new securities in the exchange offers and that such new securities are
not "substantially different" from the original securities. See "Accounting
Treatment for the Exchange Offers."
64
<PAGE> 66
NEW FINANCING
In connection with the spin-off, Packaging intends to enter into the
following credit facilities: (1) a $750 million long-term revolving senior
credit facility; (2) a $250 million 364-day revolving senior credit facility,
and (3) possibly, a $1.5 billion term loan facility. Definitive agreements for
these facilities are being negotiated and have not been completed. Accordingly,
the terms of such arrangements are preliminary and may change as a result of the
negotiation of definitive agreements.
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 expects to enter into a senior credit facility with a syndicate,
or group, of banks and other financial institutions. This facility is expected
to be a revolving credit facility of up to $750 million, which will terminate in
September 2004. Part of the total facility will be a swingline facility of up to
$50 million, from only one lender in the group, which will provide 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. Packaging expects this senior credit facility to provide that all
amounts outstanding at the termination of the facility, which will be five years
after its signing date, will become due then. Prior to that date, funds may be
borrowed, repaid, and reborrowed, without premium or penalty.
Covenants. Packaging expects this facility will require it 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, for a given four-quarter period; and
- maximum total debt to EBITDA ratio, which is the ratio of Packaging's
indebtedness, less certain exclusions, to EBITDA, for a given
four-quarter period.
Packaging also expects that the senior credit facility will impose
prohibitions or limitations that are customary for similar facilities and
transactions, including, among other things, on Packaging's ability to incur
specified liens, incur subsidiary indebtedness and guarantee obligations,
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, are expected to 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 is expected to bear interest at the rate quoted
in the respective bid. Each swingline loan is expected to bear interest at a
rate 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 expects to enter into an additional revolving credit facility of
up to $250 million.
Packaging expects this senior credit facility to terminate in September
2000, 364 days after its signing date, and all amounts outstanding at
termination to become due then.
65
<PAGE> 67
Packaging expects that initial borrowings will occur under this facility at
the same time as under Packaging's $750 million Long Term Senior Revolving
Facility described above (the "Long-Term Facility") or thereafter during its
term, and that proceeds of the loans will be used for the same purposes as the
Long-Term Facility.
Packaging also expects that the financial tests, prohibitions and
limitations, interest rates and other material terms of this facility will be
the same as for the Long-Term Facility.
$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.
66
<PAGE> 68
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 the 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
Packaging will be transferred to Packaging 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 Packaging's 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. Packaging's
pro forma debt and interest expense balances do not give effect to the
application of any proceeds from Packaging's planned sale of its remaining
interest in the 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 does
not occur before the spin-off, the net proceeds will be used to retire Packaging
debt. You should also read the Combined Financial Statements of The Businesses
of Tenneco Packaging, and related notes, included elsewhere in this document.
67
<PAGE> 69
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
ASSETS ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
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.
68
<PAGE> 70
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.
69
<PAGE> 71
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.
70
<PAGE> 72
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 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;" see "Accounting Treatment of the Exchange
Offers"). The results of the exchange offers could vary based on a number of
factors, including the 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. Estimated proceeds ranging from $ to
$ 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.
71
<PAGE> 73
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%.
72
<PAGE> 74
SUPPLEMENTAL FINANCIAL INFORMATION OF PACKAGING
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. 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>
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<PAGE> 75
COMBINED SELECTED FINANCIAL DATA OF PACKAGING
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 of
Packaging" 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" of
Packaging 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) m@hb:'0000(a)',B'$000,000,000',L$B,H)B,g.6
<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>
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<PAGE> 76
<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 of
Packaging" 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, "Description of
Packaging -- Growth Strategy" and "Description of Packaging -- 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 these functions will be a
part of Packaging upon the spin-off, they are included in Packaging's
historical
(continued on next page)
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<PAGE> 77
combined financial statements. Packaging expects its costs for these
functions will differ following the spin-off. See "Supplemental Financial
Information of Packaging" 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.
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<PAGE> 78
INDUSTRY OVERVIEW AND KEY TERMS
Many of the markets Packaging serves are growing faster than the overall
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. Neilsen, the unit volume growth trend as of
June 12, 1999 for the zippered food storage bag market is 6% 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.
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;
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<PAGE> 79
- engineered foam plank and foam sheet -- packaging material of different
shapes and thicknesses designed to protect and cushion goods, primarily
while in transit;
- polyethylene stretch film -- strong, puncture-resistant packaging used to
contain and protect goods for transportation, often used to secure
individual goods on pallets; and
- polyolefin foam -- foam packaging that is stronger and more resilient
than conventional plastic foam, may be formed into a soft, rubber-like
material that is flexible, elastic and resilient.
- converted protective packaging -- packaging designed and configured for a
specific product application, such as the plastic foam used to secure
home electronics inside the boxes in which they are shipped and foam pipe
insulation.
Many of Packaging's 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.
PRODUCTS AND MARKETS
Packaging manufactures, markets and sells plastic and paper-based consumer
products and food/foodservice packaging, as well as protective and flexible
packaging. Approximately 80% of Packaging's revenue comes from products made
from different types of plastics, with the balance from paper and aluminum
products.
CONSUMER PRODUCTS AND FOOD/FOODSERVICE PACKAGING
Packaging manufactures, markets and sells 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. Packaging
sells 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 Packaging markets and sells them
through a variety of retailers, including supermarkets, mass merchandisers and
other stores where consumers purchase household goods.
Packaging's 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, Packaging offers dual-ovenable
paperboard products, molded fiber egg cartons, foam meat trays, aluminum
containers and modified atmosphere packaging, which extends the shelf life of
meat products.
In addition, Packaging provides plastic zipper closures for a variety of
flexible packaging applications. Packaging's 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 its foodservice customers, Packaging offers products that help
merchandize and serve both on-premises and takeout meals. These products include
tableware products, such as plates, bowls and cups,
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<PAGE> 80
and a broad line of takeout service containers made from clear plastic,
microwaveable plastic, molded fiber, paperboard, foam and aluminum.
PROTECTIVE AND FLEXIBLE PACKAGING
Packaging manufactures, markets and sells protective packaging for use in
the automotive, computer, electronic, furniture, durable goods, building and
construction products industries. Packaging's sheet foams and air encapsulated
bubble products, for example, are used for cushioning and surface protection.
Its paperboard honeycomb and engineered foam plank products protect against
shock, vibration and thermal damage. Packaging also offers other converted
protective packaging products, including padded mailers, a variety of laminated
protective coverings and customized packaging systems.
Packaging's 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.
Packaging also offers polyethylene stretch film, specialty aluminum
materials and film and foam products for use in the construction industry.
GROWTH STRATEGY
Packaging has grown, and plans to continue to grow, by pursuing internal
growth and strategic acquisitions. By pursuing this growth strategy, Packaging
has increased the total revenues of its specialty packaging and consumer
products business from $845 million in 1995 to approximately $2.8 billion in
1998. During this same period, its 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 of Packaging."
As a separate, publicly traded company, Packaging expects to have greater
flexibility to pursue its 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. Packaging expects 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, Packaging has executed a strategy that focuses its business on
markets that have strong underlying growth characteristics and attractive
margins. Packaging offers customers "material neutral" solutions. In other
words, Packaging's goal is not to sell customers a particular product line.
Rather, through its custom design centers and broad product line, Packaging
strives to create the best packaging solutions for its customers, tailored
precisely to their needs. With this approach and Packaging's worldwide
geographical coverage, Packaging has become a primary supplier to national and
international manufacturers and distributors and has developed long-term
relationships with key players in the consolidating packaging and food service
distribution sector. Packaging intends to use these relationships to quickly
identify and focus on growth markets with attractive margins as they develop,
which should expand its customer base and market share.
Packaging seeks to add to its base business by developing new packaging
solutions for markets where it believes its experience and familiarity give it a
competitive advantage. In addition, Packaging grows market share for its
existing products by taking advantage of (a) its broad product line of superior
quality products and its long-term relationships with key manufacturers and
distributors, (b) its product development and design services, (c) its
investment in developing state-of-the-art service capabilities, and (d) its
ongoing effort focused on reducing costs and improving the production of its
operations.
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<PAGE> 81
Product Breadth/Relationships With Key Manufacturers and Distributors
Packaging's ability to provide "one-stop shopping" through its broad
product line is an important selling point with customers. In addition,
Packaging has cultivated long-term relationships with key manufacturers and
distributors who recognize Packaging's strong positions in multiple product
categories. These relationships, coupled with Packaging's complete product line,
are allowing Packaging to grow its market shares for existing products. For
example, in foodservice packaging, Packaging holds the number one market share
position in the United States and Canada with respect to four of its five main
product categories, based on unit volume. Management estimates that products
representing 80% of sales in Packaging's protective packaging business hold the
number one or two market share position in North America, based on sales
revenue.
New Products/Design Services
Packaging further fuels its internal growth by developing and
commercializing proprietary new products and by designing value-added
product-line extensions. In 1998, Packaging's consumer products and
food/foodservice packaging business introduced over 80 new products and
product-line extensions. In Packaging's protective and flexible packaging
business, where custom design services drive revenues, it developed over 500
custom product applications in 1998. Packaging believes its 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 its consumer products and food/foodservice packaging business,
Packaging added jumbo two-gallon bags and sandwich bags to its existing
Hefty One-Zip(R) quart and half-gallon food storage and freezer bag
offerings. Packaging is also leveraging its 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,
Packaging has the leading market share with Hefty(R) disposable
tableware, and its E-Z Foil(R) brand disposable aluminum cookware line
leads its competition by a wide margin in both sales and market share.
Packaging's 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 Packaging's 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.
State-of-the-Art Service Capabilities
To further take advantage of its broad product line offering and strong
alignment with national distributors, Packaging has developed and implemented
its Customer Linked Manufacturing system ("CLM"). CLM is a state-of-the-art
production planning and order fulfillment system which enables Packaging's
customers to do business easily and efficiently. CLM eliminates costs from the
entire supply chain and provides both its customers and Packaging with a
competitive advantage.
Productivity/Cost Reduction
Packaging's strong focus on improving productivity and reducing costs in
its manufacturing and logistics operations is key to supporting the growth of
its base business. For example, the unit manufacturing costs have continuously
declined, net of inflation, for some of Packaging's products, such as
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<PAGE> 82
its foam products, rigid display packaging and performance films. This has
allowed Packaging to maintain or improve its profit margins.
STRATEGIC ACQUISITIONS
Strategic acquisitions have been, and will continue to be, an important
element of Packaging's overall growth strategy. Management has a proven record
of identifying and acquiring businesses and rapidly integrating them into one of
Packaging's business groups. Packaging pursues 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. Packaging also pursues
acquisitions that strengthen its brand presence and expand its product offerings
and markets.
Consumer Products and Food/Foodservice Packaging. Packaging plans to grow
its consumer products and food/foodservice packaging business by acquiring
similar businesses whose products and markets will complement Packaging's.
Packaging will focus on acquiring specialized engineering and manufacturing
capabilities that augment and enhance its existing processes and allow it to
produce top-quality products efficiently. Since the beginning of 1995, its
consumer products and food/foodservice packaging business has grown through the
following acquisitions:
- In 1995, Packaging more than doubled its sales with the acquisition of
Mobil Plastics. This acquisition expanded its 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, Packaging acquired Amoco Foam Products Company, which
enhanced its 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, Packaging augmented its dual-ovenable paperboard
manufacturing capacity by acquiring a Champion International facility in
Belvidere, Illinois. As a result, Packaging has 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. Packaging intends to continue its 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 it one of the largest producers of protective packaging in the United
States. Since the beginning of 1995, Packaging's protective and flexible
packaging business has grown through the following acquisitions:
- In 1995, continuing its growth strategy of acquiring specialty packaging
applications, Packaging entered the protective packaging sector by
buying Hexacomb, a manufacturer of paperboard honeycomb products.
- In 1997, Packaging acquired the protective and flexible packaging
businesses of KNP BT, which operated in Europe and North America. With
this acquisition, Packaging entered the European protective and flexible
packaging markets and enhanced its global specialty packaging position.
This acquisition also broadened the scope of its protective packaging
business to include sheet foam, engineered foam and air encapsulated
bubble and mailer applications. Packaging also acquired two honeycomb
plants in 1997.
- In April 1998, Packaging acquired Richter Manufacturing, a West Coast
manufacturer and distributor of protective packaging products. This
acquisition expanded the geographical coverage of its North American
protective packaging operation.
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<PAGE> 83
- In December 1998, Packaging acquired the foam packaging assets of
Sentinel Products, a North American producer of specialty polyolefin
foams. This acquisition further diversified its protective packaging
product offering and increased its manufacturing capacity. Packaging
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
Packaging's 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. Packaging's 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 Packaging's business is dependent upon a single
customer or even a few customers, and no one customer accounted for more than
10% of Packaging's 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 Packaging's business.
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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 Packaging's
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>
<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
Packaging operates in markets that are highly competitive and faces
substantial competition throughout all of its product lines from numerous
global, national and regional companies, ranging from the largest packaging
companies to small, emerging companies. Companies that compete with Packaging
may have greater financial and other resources than it does, while others are
significantly smaller with lower fixed costs and possibly greater operating
flexibility. In addition to price, competition with respect to many of
Packaging's 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.
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<PAGE> 85
PROPERTIES
HEADQUARTERS LOCATIONS
Packaging leases its executive offices at 1900 West Field Court, Lake
Forest, Illinois, 60045, and its telephone number at that address is (847)
482-2000.
MANUFACTURING AND ENGINEERING FACILITIES
In North America, Packaging operates 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 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, Packaging participates in two North American joint ventures, Sentinel
Polyolefin LLC and Tenneco Packaging de Mexico.
Packaging owns 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.
Packaging's Alupak 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. Packaging also has a wood products operation in
Romania. In addition, Packaging operates or participates 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.
Packaging believes that substantially all of its plants and equipment are,
in general, well maintained and in good operating condition. They are considered
adequate for present needs, and as supplemented by planned construction, are
expected to remain adequate for the near future.
Packaging is of the opinion that Packaging, or its subsidiaries, has
generally satisfactory title to the properties owned and used in its 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 Packaging's
interest in the properties or the use of those properties in its 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 Packaging's
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 Packaging's
plastic resin and recycled fiber tend to fluctuate with economic factors which
generally affect Packaging and its 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 Packaging is subject to existing
and potential federal, state, local and foreign legislation designed to reduce
air emissions. In addition, various consumer and special
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<PAGE> 86
interest groups have lobbied from time to time for the implementation of these
and other similar measures. Although Packaging believes that the legislation and
regulations promulgated to date and the initiatives to date have not had a
material adverse effect on Packaging, Packaging cannot assure you that any such
future legislative or regulatory efforts or future initiatives would not have a
material adverse effect on Packaging.
OTHER
As of July 1, 1999, Packaging employed approximately 15,000 people, 14% of
whom were covered by collective bargaining agreements. Four of these 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. Packaging regards its employee relations as generally
satisfactory. Packaging owns a number of domestic and foreign patents and
trademarks and other intellectual property relating to its products which are
important to the manufacture, marketing and distribution of its products. In
addition, Packaging's administrative services operations hold numerous software
licenses and own computer equipment.
Packaging's 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." Tenneco and Packaging are currently analyzing their 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. Packaging and its subsidiaries are parties to various other legal
proceedings arising from their operations. Packaging believes that the outcome
of these other proceedings, individually and in the aggregate, will not have a
material adverse effect on its financial position or results of operations.
CONTAINERBOARD PACKAGING INTEREST
On April 12, 1999, Packaging contributed all of its containerboard
packaging business to a new joint venture, in which it now owns a 43% common
equity interest. For a description of the contribution and Packaging's plans to
sell its remaining joint venture interest, see "-- Unaudited Pro Forma Combined
Financial Statements of Packaging" and "-- Management's Discussion and Analysis
of Financial Condition and Results of Operations." For a description of the
joint venture, see "Summary-- The Companies -- Packaging."
Packaging Corporation of America manufactures corrugated containers,
containerboard, and lumber and related wood products. It has four mills and 67
corrugated products facilities. It also participates in the wood products
business and has access to approximately 950,000 acres of timberland in the
United States through both owned and leased properties. Revenues from the
containerboard business in 1998 were $1.57 billion.
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<PAGE> 87
MANAGEMENT
BOARD OF DIRECTORS
Upon completion of the spin-off, the Packaging Board of Directors will
consist of six members. Each director will serve an annual term that will expire
at the annual meeting of Packaging stockholders in each year and until his or
her successor has been elected and qualified. Information concerning the
individuals who will serve as directors of Packaging 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 that time, Mr. Stecko served as President and
Chief Executive Officer of Packaging. Prior to joining Tenneco, Mr. Stecko spent
16 years with International Paper Company. He is also a director of State Farm
Mutual Insurance Company and the Chairman of the Board of Packaging Corporation
of America. Mr. Stecko is 54 years old and has been a director of Tenneco since
November 1998. He will continue as a director of Automotive upon the spin-off.
RICHARD L. WAMBOLD -- Mr. Wambold will be the Chief Executive Officer of
Packaging upon the spin-off and has been serving as its President since June
1999. From June 1997 to May 1999, he was Executive Vice President and General
Manager of Packaging's specialty packaging and consumer products units. Prior to
joining Packaging in 1994, Mr. Wambold was Executive Vice President of Case
Corporation's construction equipment and worldwide parts business.
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EXECUTIVE OFFICERS
The following table provides information concerning the persons who will
serve as executive officers of Packaging 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 Packaging's 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
Senior Vice President -- Protective and Flexible
Paul J. Griswold............... 47 Packaging
James V. Faulkner, Jr. ........ 55 Vice President and General Counsel
James D. Morris................ 45 Vice President and GM Operations
Vice President -- Supermarket and Foodservice
Peter J. Lazaredes............. 48 Packaging
[To be provided by
amendment]................... 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.
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 for Packaging, 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;
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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..................... 31,460 -- 31,460
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......................... 1,287,730(5) 53,138 1,340,868(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.
(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
The Packaging Board will establish three standing committees as permitted
by its by-laws, 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
Packaging's independent public accountants; (2) review and approve 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 Packaging's basic accounting system and the effectiveness of
Packaging's internal audit plan and activities; (4) review with management and
the independent public accountants Packaging's certified financial statements
and exercise general oversight of Packaging's financial reporting process; and
(5) review with Packaging litigation and other legal matters that may affect
Packaging's financial condition and monitor compliance with Packaging's business
ethics and other policies.
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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 the compensation structure of Packaging;
and (3) supervise the welfare and pension plans and compensation plans of
Packaging. 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 Packaging Board;
(b) review possible candidates for membership on the Packaging Board and
recommend a slate of nominees for election as directors at Packaging's annual
stockholders' meeting; (c) review the function and composition of the other
committees of the Packaging Board and recommend membership on these committees;
and (d) review the qualifications and recommend candidates for election as
officers of Packaging.
The Three-year Independent Director Evaluation Committee, comprised solely
of outside directors, will have the responsibility, among other things, to
review Packaging's 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 Packaging 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: (a) the
person who will become the Chief Executive Officer of Packaging upon the
spin-off; and (b) each of the persons who will be included among the four most
highly compensated executive officers of Packaging upon the spin-off, based on
1998 compensation, other than the Chief Executive Officer. The table shows the
amounts paid to these persons for all services provided to Tenneco and its
subsidiaries, including Packaging.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
-------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION 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
Foodservice Packaging
</TABLE>
- ---------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Tenneco Thrift Plan.
(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 in 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
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<PAGE> 91
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 $2,704, respectively.
OPTIONS GRANTED IN 1998
The following table shows the number of options to purchase Tenneco common
stock that were granted by Tenneco during 1998 to the persons named in the
Summary Compensation Table above.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON TOTAL
STOCK OPTIONS GRANTED
UNDERLYING TO TENNECO
OPTIONS EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN 1998 (%) PRICE($)(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.
(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.
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<PAGE> 92
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.
91
<PAGE> 93
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 15 20 25 30 35
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$250,000.......................... $ 58,928 $ 78,571 $ 98,214 $117,857 $137,500
300,000.......................... 70,714 94,285 117,857 141,428 165,000
350,000.......................... 82,500 110,000 137,500 165,000 192,500
400,000.......................... 94,285 125,714 157,142 188,571 220,000
450,000.......................... 106,071 141,428 176,785 212,142 247,500
500,000.......................... 117,857 157,142 196,428 235,714 275,000
550,000.......................... 129,642 172,857 216,071 259,285 302,500
600,000.......................... 141,428 188,571 235,714 282,857 330,000
650,000.......................... 153,214 204,285 255,357 306,428 357,500
700,000.......................... 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 on
page 89 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 the Packaging 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
Packaging's common stock after an outside director ceases to serve as a director
of Packaging. 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 Packaging 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 Packaging
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<PAGE> 94
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.
Packaging expects that restricted shares of Tenneco common stock and
directors' 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. Packaging 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 Packaging common stock, which may be paid out in either cash or shares of
Packaging's common stock.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Packaging 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
Packaging 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, Packaging expects that Messrs. Wambold, Griswold, Faulkner, Morris and
Lazaredes would have become entitled to receive payments from Packaging in the
amount of $1,705,200; $1,215,000; $1,076,199; $935,001; and $774,000,
respectively, had their positions been terminated on December 31, 1998 following
a change-in-control. In addition, restricted shares held in the name of those
individuals under the restricted stock plans Packaging will adopt would have
automatically reverted to Packaging, and Packaging 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.
BENEFIT PLANS FOLLOWING THE SPIN-OFF
Packaging will succeed to sponsorship of the Tenneco Retirement Plan and
the Tenneco Thrift Plan. These 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.
Packaging will also succeed to sponsorship of two non-qualified deferred
compensation plans as to its 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 employees 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, Packaging will establish one or more rabbi trusts, from which
assets may be available to pay benefits in specified circumstances.
Packaging will adopt an executive incentive compensation plan similar to
Tenneco's plan to provide annual cash bonuses to eligible employees.
93
<PAGE> 95
Packaging will adopt an employee stock purchase plan similar to the one
maintained by Tenneco, under which approximately 4,000,000 shares of Packaging
common stock will be available for purchase. Tenneco will approve this plan as
Packaging's sole stockholder prior to the spin-off.
Packaging will adopt a plan calling for the grant of stock options,
restricted stock, performance share equivalent units and other stock rights
patterned after the 1996 Tenneco Inc. Stock Ownership Plan. Approximately
20,000,000 shares of Packaging common stock will be available for grant under
this plan. This plan will be approved by Tenneco as Packaging's sole stockholder
prior to the spin-off.
94
<PAGE> 96
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 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.
Packaging expects the sale to be completed before the spin-off discussed
below.
The containerboard assets contributed to the new joint venture represented
substantially all of the assets of Packaging's paperboard packaging segment and
included four mills, 67 corrugated products plants, and an ownership or
leasehold interest in approximately 950,000 acres of timberland. Before 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 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 ("Speciality"), Tenneco's administrative services
operations, and the remaining interest in the containerboard joint venture if
the sale has not been completed. Tenneco and Packaging are, however, currently
analyzing the alternatives with respect to the administrative services
operations.
95
<PAGE> 97
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. 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.
The spin-off is subject to various conditions, as described under "The
Spin-off -- Conditions to the Spin-off."
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.
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>
96
<PAGE> 98
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.
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.
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<PAGE> 99
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.
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 $4 million, or $.04 per diluted common share.
See Note 7 to the Combined Financial Statements of The Businesses of
Tenneco Packaging for a further discussion of discontinued operations.
OUTLOOK
See "Summary -- Recent Developments" for information concerning Packaging's
expectations for third quarter 1999 results of operations.
98
<PAGE> 100
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement requires prospective
application, for fiscal years beginning after December 15, 1998. Packaging
adopted SOP 98-1 on January 1, 1999. The impact of this new standard did not
have a significant effect on Packaging's financial position or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement was effective for fiscal years beginning after
December 15, 1998. This statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Packaging previously
capitalized 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 ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments,
including 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.
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.
99
<PAGE> 101
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.
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
100
<PAGE> 102
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 $1.8 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 offers and (2) make
new borrowings under new credit facilities to be entered into in connection with
the spin-off. Cash proceeds will be remitted to Tenneco to fund the debt
realignment.
Definitive agreements for these financings are being negotiated and have
not been completed. Accordingly, the terms of such arrangements described below
are preliminary and may change as a result of the negotiation of definitive
agreements. In addition, funding under the financings described below 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. See "Description of The New Securities."
In addition, Packaging intends to enter 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.
Although the terms of these facilities have not been finalized, Packaging does
not expect these facilities to include any general restrictions on its ability
to pay dividends or make capital expenditures, although they may include
limitations on incurring liens, or incurring debt and guarantee obligations at
the subsidiary level. Packaging does expect, however, that these facilities will
require it to comply with specified financial ratios, as well as other customary
covenants and agreements. Borrowings under these facilities are expected to 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 may
also bear interest based on competitive bids. See "Description of
Packaging -- New Financing" for further information.
101
<PAGE> 103
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. See "Description of
Packaging -- New 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 combined balance sheet at their undiscounted
amounts. Recoveries are evaluated separately from the liability and, when
assured, are recorded and reported separately from the associated liability in
the combined financial statements.
As of July 1, 1999, Packaging has been designated as a potentially
responsible party at three Superfund sites and it has estimated its share of the
liability at these sites to be approximately $2 million in the aggregate. In
addition, Packaging also may have liability to remediate several current or
former facilities and it has estimated its share of the remediation costs at
these facilities to be approximately $4 million in the aggregate. For both the
Superfund sites and its current and former facilities, Packaging has established
reserves that it believes are adequate for these costs. Although Packaging
believes its estimates of remediation costs are reasonable and based on the
latest information, 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.
102
<PAGE> 104
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 historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries. Tenneco's financial instruments that are sensitive to market risk
for changes in interest rates are its debt securities. Tenneco primarily uses
commercial paper to finance its short-term capital requirements. Since
commercial paper generally matures in three months or less, Tenneco pays a
current market rate of interest on these borrowings. Tenneco finances its
long-term capital requirements with long-term debt with original maturity dates
ranging up to 30 years. All of Tenneco's existing long-term debt obligations
have fixed interest rates. Consequently, Tenneco is not exposed to cash flow or
fair value risk from market interest rate changes on its long-term debt
portfolio.
Packaging's interest expense in each period includes an allocation of
interest on Tenneco corporate debt. The allocated interest expense carries with
it exposure to Tenneco's interest rate risk. The table 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.
103
<PAGE> 105
(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 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.
104
<PAGE> 106
If Packaging is unable to complete on a timely and cost-effective basis the
remediation or replacement of critical systems or equipment not yet in
compliance, or develop alternative procedures, or if those with whom Packaging
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on Packaging's financial condition
or results of operations. Possible worst case scenarios include interruptions in
Packaging's ability to manufacture its products, process and ship orders, and
bill and collect accounts receivable due to internal system failures or the
system failures of its suppliers or customers. Packaging believes it will be
able to timely resolve its own Year 2000 issues.
As part of its planning and readiness activities, Packaging is developing
Year 2000 contingency plans for critical business processes such as banking,
data center operations and just-in-time manufacturing operations. Contingency
plans are being developed on a business unit basis, where needed, to respond to
previously undetected Year 2000 problems and business interruption from
suppliers. Contingency plans will include alternative suppliers, as necessary,
as well as assuring the availability of key personnel at year end to address
unforeseen Year 2000 problems.
Prior to the spin-off, Tenneco's administrative services operation has been
assisting both Packaging and Automotive with their Year 2000 remediation,
replacement and testing activities. Except for mainframe testing, substantially
all of these Year 2000 assistance activities have been completed for Automotive.
Shortly after the spin-off, Packaging is scheduled to assist Automotive with the
completion of the mainframe testing.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the "Euro," among eleven European nations. The Euro is being adopted over a
three-year transition period beginning January 1, 1999. In October 1997, Tenneco
established a cross-functional Euro Committee, comprised of representatives of
Tenneco's operational divisions, including Packaging, as well as its corporate
offices. That Committee had two principal objectives: (1) to determine the
impact of the Euro on Tenneco's business operations; and (2) to recommend and
facilitate implementation of those steps necessary to ensure that Tenneco would
be fully prepared for the Euro's introduction. As of January 1, 1999, Packaging
had implemented those Euro conversion procedures that it had determined to be
necessary and prudent to adopt by that date, and is on track to becoming fully
"Euro ready" on or before the conclusion of the three-year Euro transition
period. Packaging believes that the costs associated with transitioning to the
Euro will not be material to its combined financial position or the results of
its operations.
YEARS 1998 AND 1997
RESULTS OF CONTINUING OPERATIONS
Packaging reported income from continuing operations of $82 million for the
year ended December 31, 1998, compared to $106 million for the same period in
1997. The 1998 figure includes a $20 million after-tax charge to reduce overhead
and manufacturing costs throughout every part of Packaging's business. Excluding
the restructuring charge, Packaging's income from continuing operations for the
1998 period was $102 million. The decline resulted from costs related to
Packaging's data center 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>
105
<PAGE> 107
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 ("KNP") in 1997 and
from the May 1998 acquisition of Richter Manufacturing. The KNP businesses
contributed $160 million of incremental revenue in 1998 measured through the
first anniversary of their acquisition in late April 1997. Richter Manufacturing
revenue during 1998 was $39 million. The remaining revenue increase reflects
higher unit volumes in numerous product lines which more than offset lower
pricing.
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
106
<PAGE> 108
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>
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.
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<PAGE> 109
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.
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.
108
<PAGE> 110
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.
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>
109
<PAGE> 111
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.
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.
110
<PAGE> 112
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.
111
<PAGE> 113
PRINCIPAL STOCKHOLDERS
All of the capital stock of Packaging is currently owned by Tenneco. In the
spin-off, Tenneco stockholders will receive one share of Packaging common stock
per share of Tenneco common stock. The following table provides information
about these persons that Packaging expects to own more than 5% of Packaging's
common stock upon completion of the spin-off. It is based on Packaging's
knowledge of those persons who owned more than 5% of Tenneco's common stock on
June 30, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF PACKAGING PERCENT OF COMMON
OF BENEFICIAL OWNER(1) COMMON STOCK OWNED(1) STOCK OUTSTANDING(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) This information is based on information contained in filings made with the
Securities and Exchange Commission regarding the ownership of Tenneco common
stock.
(2) Barrow, Hanley, Mewhinney & Strauss, Inc. has indicated that it has sole
voting power over 5,104,460 shares, shared voting power over 16,227,200
shares, and sole dispositive power over 20,761,040 shares. 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.
112
<PAGE> 114
DESCRIPTION OF TENNECO AFTER THE SPIN-OFF/AUTOMOTIVE
Tenneco is a global manufacturing company whose major businesses currently
consist of Automotive and Packaging. See "Incorporation of Information by
Reference" and "Summary." Upon completion of the spin-off, Packaging will be an
independent, publicly traded company and Tenneco's remaining operations will
consist solely of Automotive. See "The Spin-off."
Automotive, with 1998 revenues of over $3.2 billion, is one of the world's
largest producers of emissions control and ride control systems and products.
The company serves both original equipment (OE) manufacturers and replacement
markets world wide through leading brands, including Monroe(R) brand ride
control and Walker(R) brand emissions control products. Automotive, on an
independent basis, would have ranked as number 457 based on revenues on the 1998
Fortune 500 listing of U.S. companies.
As an automotive parts supplier, Automotive designs, markets and sells
individual component parts for vehicles as well as groups of components that are
combined as modules or systems within vehicles. These parts, modules and systems
are sold globally to the vast majority of vehicle manufacturers and throughout
all aftermarket distribution channels.
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
Tenneco as of June 30, 1999, and the unaudited pro forma capitalization of
Tenneco as of June 30, 1999, after giving effect to the debt realignment,
spin-off and related transactions, each as if they occurred on that date. You
should read this table in conjunction with the financial statements of Tenneco
Inc. and Consolidated Subsidiaries and related notes, and Tenneco's Management
Discussion and Analysis of Financial Condition and Results of Operations, each
included in the Tenneco Current Report on Form 8-K dated August 20, 1999. The
Form 8-K is incorporated by reference in this document. You should also read
this table in conjunction with the "Unaudited Pro Forma Consolidated Financial
Statements of Tenneco," included elsewhere in this document.
<TABLE>
<CAPTION>
TENNECO
----------------------
JUNE 30, 1999
----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt, including current maturities of long-term
debt...................................................... $ 206 $ --
Long-term debt.............................................. 832 1,673(a)
Debt allocated to discontinued operations................... 1,861(b) --
------ ------
Total debt.................................................. 2,899 1,673
------ ------
Minority interest of continuing operations.................. 411 17
Minority interest of discontinued operations................ 14 --
------ ------
Total minority interest..................................... 425 17
------ ------
Shareowners' equity......................................... 2,122 659
------ ------
Total capitalization........................................ $5,446 $2,349
====== ======
</TABLE>
- ---------------
(a) Represents amounts expected to be outstanding under the new Tenneco
borrowings to be incurred in connection with the debt realignment. The pro
forma capitalization assumes that 100% of the original securities are
exchanged for new securities in the exchange offers and that these new
securities are not "substantially different" from the original securities.
See "Accounting Treatment of the Exchange Offers."
(b) 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. Consequently, corporate debt of Tenneco has been allocated
to the net assets of Tenneco's discontinued paperboard packaging segment
based on the portion of Tenneco's investment in the paperboard packaging
segment which Tenneco deemed to be debt. This allocation is generally based
upon the ratio of paperboard packaging's net assets to Tenneco's
consolidated net assets plus debt.
113
<PAGE> 115
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF TENNECO
The following Unaudited Pro Forma Consolidated Balance Sheet of Tenneco as
of June 30, 1999, and the Unaudited Pro Forma Consolidated 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;
- the spin-off of Packaging and related transactions; and
- the unaudited pro forma consolidated statement of income data set forth
below also reflects the April 1999 contribution of Packaging's
containerboard assets to a new joint venture and the June 1999 sale of
Packaging's folding carton assets.
The Unaudited Pro Forma Consolidated Statements of Income have been
prepared as if these transactions occurred as of January 1, 1998. The Unaudited
Pro Forma Consolidated Balance Sheet has been prepared as if the debt
realignment, spin-off and related transactions occurred on June 30, 1999. The
Unaudited Pro Forma Consolidated Financial Statements for these periods 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 spin-off represents the pro rata distribution of Packaging common stock
to the holders of Tenneco common stock. Consequently, no gain or loss will be
recognized as a result of the spin-off.
The pro forma adjustments, as described in the Notes to the Unaudited Pro
Forma Consolidated Financial Statements, are based upon available information
and upon certain assumptions that management believes are reasonable.
You should read the Unaudited Pro Forma Consolidated Financial Statements
in conjunction with the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries for the year ended December 31, 1998 and the six months ended June
30, 1999 contained in the Tenneco Current Report on Form 8-K dated August 20,
1999, which is incorporated by reference into this document.
114
<PAGE> 116
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------
SPIN-OFF CONSOLIDATED
TENNECO DEBT AND RELATED TENNECO
AS REPORTED REALIGNMENT TRANSACTIONS PRO FORMA
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments.............. $ 40 $ -- $ -- $ 40
Receivables...................................... 606 -- 100(c) 785
79 (b)
Inventories...................................... 401 -- -- 401
Other current assets............................. 129 31(a) -- 160
------ ----- ------- ------
Total current assets........................... 1,176 31 179 1,386
Plant, property, and equipment, net................ 1,049 -- -- 1,049
Goodwill and intangibles, net...................... 510 -- -- 510
Other assets and deferred charges.................. 260 41(a) (54)(h) 247
Net assets of discontinued operations.............. 1,421 -- (1,421)(d) --
------ ----- ------- ------
Total assets................................... $4,416 $ 72 $(1,296) $3,192
====== ===== ======= ======
LIABILITIES AND
SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)................................ $ 206 $(206)(a) $ -- $ --
Trade payables................................... 351 -- 20(c) 371
Other current liabilities........................ 287 -- -- 287
------ ----- ------- ------
Total current liabilities...................... 844 (206) 20 658
Long-term debt..................................... 832 841(a) -- 1,673
Deferred income taxes.............................. 39 -- (22)(h) 17(f)
Other liabilities and deferred credits............. 168 -- -- 168
Minority interest.................................. 411 (394)(a) -- 17
Shareowners' equity................................ 2,122 (169)(a) (1,421)(d) 659
80(c)
(32)(h)
79(b)
------ ----- ------- ------
Total liabilities and shareowners' equity...... $4,416 $ 72 $(1,296) $3,192
====== ===== ======= ======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
115
<PAGE> 117
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------
SPIN-OFF CONSOLIDATED
TENNECO PAPERBOARD DEBT AND RELATED TENNECO
AS REPORTED TRANSACTIONS REALIGNMENT TRANSACTIONS PRO FORMA
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating
revenues....................... $ 1,657 $ -- $ -- $ -- $ $1,657
Other income, net................. 8 -- -- -- 8
------------ ---- ---- ----- ------------
1,665 -- -- -- 1,665
------------ ---- ---- ----- ------------
OPERATING COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)...... 1,212 -- -- -- 1,212
Engineering, research, and
development.................... 27 -- -- -- 27
Selling, general, and
administrative................. 203 -- -- 3(h) 206
Depreciation and amortization..... 71 -- -- -- 71
------------ ---- ---- ----- ------------
1,513 -- -- 3 1,516
INCOME BEFORE INTEREST EXPENSE,
INCOME TAXES, AND MINORITY
INTEREST.......................... 152 -- -- (3) 149
Interest expense.................... 42 (15)(e) 53(g) -- 80(g)
Income tax expense.................. 44 6(i) (21)(i) (1)(i) 28
Minority interest................... 13 -- (13)(j) -- --
------------ ---- ---- ----- ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................ $ 53 $ 9 $(19) $ (2) $ 41
============ ==== ==== ===== ============
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........................ $.32 $.25
Diluted...................... $.32 $.25
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
116
<PAGE> 118
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------
SPIN-OFF CONSOLIDATED
TENNECO PAPERBOARD DEBT AND RELATED TENNECO
AS REPORTED TRANSACTIONS REALIGNMENT TRANSACTIONS PRO FORMA
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating
revenues................... $ 3,237 $ -- $ -- $ -- $ 3,237
Other income, net............. (25) -- -- -- (25)
------------ ---- ---- ----- ------------
3,212 -- -- -- 3,212
------------ ---- ---- ----- ------------
OPERATING COSTS AND EXPENSES:
Cost of sales (exclusive of
depreciation shown
below)..................... 2,332 -- -- -- 2,332
Engineering, research, and
development................ 31 -- -- -- 31
Selling, general, and
administrative............. 472 -- -- 5(h) 477
Depreciation and
amortization............... 150 -- -- -- 150
------------ ---- ---- ----- ------------
2,985 -- 5 2,990
------------ ---- ---- ----- ------------
INCOME BEFORE INTEREST EXPENSE,
INCOME TAXES, AND MINORITY
INTEREST...................... 227 -- -- (5) 222
Interest expense................ 69 (53)(e) 145(g) -- 161(g)
Income tax expense (benefit).... 13 21(i) (58)(i) (2)(i) (26)
Minority interest............... 29 -- (29)(j) -- --
------------ ---- ---- ----- ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.................... $ 116 $ 32 $(58) $ (3) $ 87
============ ==== ==== ===== ============
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.................... $.69 $.52
Diluted.................. $.68 $.52
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
117
<PAGE> 119
TENNECO
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) To reflect adjustments to Tenneco's debt for the debt realignment and the
assumed payment of interest on Tenneco consolidated debt tendered or
exchanged as part of the pre-spin-off 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 debt realignment.
Tenneco will acquire certain subsidiary preferred stock as part of the debt
realignment. At this time, Tenneco cannot determine the ultimate amount of
securities which will be purchased in the cash tender offers, or the
ultimate amount of the original securities which will be exchanged for new
securities in the exchange offers, and the amounts could vary significantly.
These pro forma adjustments assume that 100% of the securities subject to
the cash tender offers are purchased and 100% of the original securities are
exchanged for new securities. These pro forma adjustments also assume that
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;" see "Accounting Treatment of the Exchange
Offers"). The results of the exchange offers could vary based on a number of
factors, including the level of acceptance of the exchange offers, the
ultimate interest rate of the exchanged securities and whether the exchanges
will be considered extinguishments for accounting purposes. Based on current
interest rate markets, it is expected that the exchange offers will not be
extinguishments for accounting purposes. Tenneco expects to incur an
extraordinary charge as a result of the debt realignment related to the cash
tender offers. Tenneco estimates that this cost will be approximately $20 to
$25 million after-tax based on current market rates of interest. Other
costs, including transaction costs related to the acquisition of certain
subsidiary preferred stock and costs associated with foreign tax
restructuring initiatives, will be incurred by Tenneco in connection with
the corporate restructuring transactions and the spin-off which Tenneco
estimates will be approximately $50 million after-tax. The effect on
Tenneco'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 consolidated statements of income.
(b) To reflect the purchase of Automotive accounts receivable at fair value
which had previously been sold to a third party.
(c) To reflect affiliated receivables and payables with Packaging that were
eliminated in the Tenneco consolidated balance sheet.
(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) To reflect the adjustment to interest expense resulting from the use of $854
million of proceeds from (1) the contribution of the containerboard assets
of Tenneco's paperboard packaging segment to a new joint venture with an
affiliate of Madison Dearborn Partners, Inc. and (2) the sale of Tenneco's
folding carton operations. For the purpose of this pro forma adjustment, the
$854 million of Tenneco short-term debt, with an average annual effective
interest rate of 6 1/4%, was assumed to be repaid.
(f) Deferred income taxes at June 30, 1999 include $79 million of net operating
loss carryforwards which will be utilized by Packaging upon the planned sale
of Packaging's remaining interest in its containerboard joint venture.
118
<PAGE> 120
(g) 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).......... $(42) $(69)
Reduction of interest expense from paperboard
transactions(2)............................... 15 53
Interest expense on the new Tenneco
borrowings(3)................................. 76 153
Commitment fees and amortization of debt
financing costs............................... 4 8
---- ----
Adjustment to interest expense.................. $ 53 $145
==== ====
</TABLE>
- ---------------
(1) Weighted average outstanding historical debt and average annual
effective interest rates were $985 million and 7.3% for the six
months ended June 30, 1999 and $1,155 million and 7.0% for the year
ended December 31, 1998.
(2) See Note (e) above.
(3) Weighted average outstanding debt and average annual effective
interest rate for the new Tenneco borrowings were assumed to be
$1,673 million and 9 1/8% for the six months ended June 30, 1999 and
the year ended December 31, 1998.
(4) Represents commitment fees on the unused borrowing capacity of the
new financing arrangements to be entered into prior to the spin-off
and 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 $2 million, before the effect of income
taxes.
(h) To reflect the increase in net periodic pension costs resulting from the
transfer to Packaging of prepaid pension costs attributable 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.
(i) To reflect the income tax expense effects of pro forma adjustments at an
assumed statutory tax rate of 40%.
(j) To eliminate the minority interest related to the acquisition of subsidiary
preferred stock in connection with the debt realignment.
119
<PAGE> 121
SUPPLEMENTAL FINANCIAL INFORMATION OF TENNECO
RESULTS OF OPERATIONS
Tenneco's historical and pro forma EBIT are shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Historical EBIT............................................. $227 $152
Pro forma EBIT.............................................. $222 $149
</TABLE>
Tenneco has historically incurred costs at the corporate level, including
administrative services, corporate overhead, and costs related to operation as a
public company, which have not been fully allocated to the operating segments.
Because these functions will become part of Packaging following the spin-off,
the costs have been included in Packaging's historical operating results and are
not in Automotive's historical or pro forma EBIT. Tenneco must be able to obtain
these functions in order to operate as a public company following the spin-off.
Additionally, Automotive's EBIT includes charges for restructuring and sales of
receivables which Tenneco believes require additional explanation. The following
information discusses these items in detail and their financial impact on
Tenneco.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
(MILLIONS)
<S> <C> <C>
- Costs for shared services -- Packaging will own the
administrative services operations after the
spin-off. Tenneco must acquire the services from
Packaging under a transition services agreement which
Tenneco and Packaging will negotiate before the
spin-off. Had the administrative services operations
been allocated based on a usage charge, approximately
$28 million would have been billed to Automotive..... $(28) $(14)
- Public company costs -- Tenneco will not have the
benefit of corporate operations such as treasury,
corporate secretary, tax reporting, internal audit,
board of directors and other public company functions
following the spin-off. Tenneco must replace these
functions so that it can operate as a public company
following the spin-off. Tenneco estimates that had it
operated as a stand-alone, separate entity it would
have incurred additional costs for these
functions............................................ $(19) $ (8)
- Sale of receivables -- Tenneco's results of
operations include costs related to a receivables
sale program operated by Tenneco prior to the
spin-off. The debt realignment contemplates the
termination of this program. The pro forma financial
statements of Tenneco calculate interest on debt
balances assuming these receivables have not been
sold................................................. $ 19 $ 2
- Restructuring charge -- Tenneco recorded a
restructuring charge in the fourth quarter of 1998
for the costs of a plan designed to reduce
administrative and operational costs. Refer to Note 3
to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries incorporated into this
document by reference from Tenneco's Current Report
on Form 8-K dated August 20, 1999.................... $ 54 $ --
- Cost savings -- The restructuring plan contemplates
closing certain facilities and terminating employees
to reduce cost of sales. Refer to Management's
Discussion and Analysis of Tenneco incorporated by
reference into this document from Tenneco's Current
Report on Form 8-K dated August 20, 1999 for further
information on the expected savings.................. $ 25 $ 6
</TABLE>
120
<PAGE> 122
TENNECO AND CONSOLIDATED SUBSIDIARIES SELECTED FINANCIAL DATA
The following consolidated selected financial data as of and for each of
the fiscal years in the five years ended December 31, 1998, were derived from
the audited financial statements of Tenneco and its consolidated subsidiaries.
The following consolidated selected financial data as of and for each of the six
months ended June 30, 1999 and 1998, were derived from Tenneco's unaudited
condensed financial statements and its consolidated subsidiaries. In the opinion
of Tenneco's management, the selected financial data of Tenneco 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 Tenneco believes is relevant to understanding
its results of operations following the spin-off. These items relate to
corporate overhead costs incurred by Tenneco and its administrative services
operations that Tenneco expects will differ following the spin-off. For further
information you should see "Supplemental Financial Information of Tenneco"
included elsewhere in this document.
You should read all of this information in conjunction with the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries for the year ended
December 31, 1998 and for the six months ended June 30, 1999, contained in the
Tenneco Current Report on Form 8-K, dated August 20, 1999. The Form 8-K is
incorporated by reference into this document.
121
<PAGE> 123
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------------------------------------------------- -------------------------
1998(a) 1997(a) 1996(a) 1995 1994 1999(a) 1998(a)
------- ------- ------- ---- ---- ------- -------
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA(b):
Net sales and operating
revenues from continuing
operations.................. $ 3,237 $ 3,226 $ 2,980 $ 2,479 $ 1,989 $ 1,657 $ 1,664
=========== =========== =========== =========== =========== =========== ===========
Income from continuing
operations before interest
expense, income taxes, and
minority interest --
Automotive.................. $ 248 $ 407 $ 249 $ 240 $ 223 $ 156 $ 219
Other....................... (21) (12) (7) 8 7 (4) (12)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total..................... 227 395 242 248 230 152 207
Interest expense (net of
interest capitalized)(c)...... 69 58 60 44 33 42 30
Income tax expense.............. 13 80 79 91 52 44 55
Minority interest............... 29 23 21 23 -- 13 16
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations.................... 116 234 82 90 145 53 106
Income (loss) from discontinued
operations, net of income
tax(d)........................ 139 127 564 645 307 (111) 106
Extraordinary loss, net of
income tax(e)................. -- -- (236) -- (5) (7) --
Cumulative effect of changes in
accounting principles, net of
income tax(f)................. -- (46) -- -- (39) (134) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............... 255 315 410 735 408 (199) 212
Preferred stock dividends....... -- -- 12 12 60 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) to common
stock......................... $ 255 $ 315 $ 398 $ 723 $ 348 $ (199) $ 212
=========== =========== =========== =========== =========== =========== ===========
Average number of shares of
common stock outstanding
Basic....................... 168,505,573 170,264,731 169,609,373 172,764,198 162,307,189 166,937,362 169,341,555
Diluted..................... 168,834,531 170,801,636 170,526,112 173,511,654 162,912,425 167,319,412 169,936,676
Earnings (loss) per average
share of common stock --
Basic:
Continuing operations..... $ .69 $ 1.37 $ .49 $ .52 $ .90 $ .32 $ .62
Discontinued
operations(d)........... .83 .75 3.25 3.67 1.52 (.67) .63
Extraordinary loss(e)..... -- -- (1.39) -- (.03) (.04) --
Cumulative effect of
changes in accounting
principles(f)........... -- (.27) -- -- (.24) (.80) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1.52 $ 1.85 $ 2.35 $ 4.19 $ 2.15 $ (1.19) $ 1.25
=========== =========== =========== =========== =========== =========== ===========
Diluted:
Continuing operations..... $ .68 $ 1.36 $ .49 $ .52 $ .89 $ .32 $ .62
Discontinued
operations(d)........... .83 .75 3.23 3.65 1.52 (.67) .63
Extraordinary loss(e)..... -- -- (1.38) -- (.03) (.04) --
Cumulative effect of
changes in accounting
principles(f)........... -- (.27) -- -- (.24) (.80) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1.51 $ 1.84 $ 2.34 $ 4.17 $ 2.14 $ (1.19) $ 1.25
=========== =========== =========== =========== =========== =========== ===========
Cash dividends per common
share......................... $ 1.20 $ 1.20 $ 1.80 $ 1.60 $ 1.60 $ .60 $ .60
</TABLE>
(continued on next page)
122
<PAGE> 124
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
--------------------------------------------------------- ---------------------
1998(a) 1997(a) 1996(a) 1995 1994 1999(a) 1998(a)
------- ------- ------- ---- ---- ------- -------
(Millions Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(b):
Net assets of discontinued
operations(d)........................... $ 1,739 $ 1,771 $ 1,883 $ 1,469 $ 700 $ 1,421 $ 1,793
Total assets.............................. 4,759 4,682 4,653 3,635 2,315 4,416 4,829
Short-term debt(c)........................ 304 75 74 109 31 206 168
Long-term debt(c)......................... 671 713 639 469 303 832 747
Debt allocated to discontinued
operations(c)........................... 2,456 2,123 1,590 1,454 813 1,861 2,302
Minority interest......................... 407 408 304 301 301 411 407
Shareowners' equity....................... 2,504 2,528 2,646 3,148 2,900 2,122 2,559
STATEMENT OF CASH FLOWS DATA(b)
Net cash provided (used) by operating
activities.............................. $ 532 $ 519 $ 253 $ 1,443 $ 450 $ (181) $ 178
Net cash used by investing activities..... (754) (887) (685) (1,162) (113) (976) (314)
Net cash provided (used) by financing
activities.............................. 216 354 147 (356) (151) 1,170 125
Capital expenditures for continuing
operations.............................. (195) (221) (188) (208) (114) (70) (80)
OTHER DATA:
EBITDA(g)................................. $ 377 $ 505 $ 336 $ 331 $ 282 $ 223 $ 279
Ratio of earnings to fixed charges(h)..... 2.16 4.80 2.33 2.62 5.36 2.28 3.82
</TABLE>
- -------------------------
NOTE: The Financial Statements of Tenneco Inc. and Consolidated Subsidiaries
discussed in the following notes are included in and incorporated by reference
from the Tenneco Current Report on Form 8-K dated August 20, 1999. They cover
the three years ended December 31, 1998 and the six months ended June 30, 1999
and 1998.
(a) For a discussion of the significant items affecting comparability of the
financial information for the years ended 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 in
Tenneco's Current Report on Form 8-K dated August 20, 1999.
(b) During the periods presented, Tenneco completed numerous acquisitions. The
most significant acquisition was Automotive's acquisition of Clevite for
$328 million in July 1996. See Notes to the Financial Statements of Tenneco
Inc. and Consolidated Subsidiaries for additional information. See also
"Description of Tenneco After the Spin-off/Automotive -- Strategic
Acquisitions and Alliances" included elsewhere in this document.
(c) Debt amounts for 1998, 1997, and 1996, and for June 30, 1999 and 1998, are
net of allocations of corporate debt to the net assets of Tenneco's
discontinued specialty packaging and paperboard packaging segments. Debt
amounts for 1995 and 1994 are net of allocations of corporate debt to the
net assets of Tenneco's discontinued specialty packaging, paperboard
packaging, energy, and shipbuilding segments. Interest expense for periods
presented is net of interest expense allocated to income from discontinued
operations. These allocations of debt and related interest expense are based
on the ratio of Tenneco's investment in the specialty packaging, paperboard
packaging, energy, and shipbuilding segments' respective net assets to
Tenneco consolidated net assets plus debt. See Notes to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries for additional
information.
(d) Discontinued operations reflected in the above periods consist of Tenneco's
(1) specialty packaging segment, which was discontinued in August 1999, (2)
paperboard packaging segment, which was discontinued in June 1999, (3)
energy and shipbuilding segments, which were discontinued in December 1996,
(4) farm and construction equipment segment, which was discontinued in March
1996, and (5) chemicals and brakes operations, which were discontinued
during 1994. See Notes to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for additional information.
(e) Represents Tenneco's costs related to prepayment of debt, including the 1996
loss recognized in the realignment of Tenneco's debt preceding its 1996
corporate reorganization and the 1999 loss recognized in connection with the
contribution of the containerboard assets to a new joint venture. See the
Notes to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries.
(f) In 1999, Tenneco implemented the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." In addition, effective January 1, 1999, Tenneco changed its
method of accounting for customer acquisition costs from a deferred method
to an expense-as-incurred method. In 1997, Tenneco 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." In 1994, Tenneco adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." See
the Notes to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries for additional information regarding changes in accounting
principles.
(g) 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 historical statements of income data. In addition,
EBITDA should not be considered as an alternative to net income or operating
income as an indicator of the operating
(continued on next page)
123
<PAGE> 125
performance of Tenneco, or as an alternative to operating cash flows as a
measure of liquidity. Tenneco 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. Tenneco 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.
(h) 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. For purposes of computing these ratios, have been
included in the calculations on a pre-tax basis.
124
<PAGE> 126
OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY
The automotive parts industry is generally separated into two categories:
(1) "original equipment" or "OE" sales, in which parts are sold in large
quantities directly to original equipment vehicle manufacturers; and (2)
"aftermarket" sales, in which parts are sold as replacement parts in varying
quantities to a wide range of wholesalers, retailers and installers. In the OE
market, parts suppliers are generally divided into tiers -- "Tier 1" suppliers,
who provide their products directly to original equipment manufacturers, and
"Tier 2" or "Tier 3" suppliers, who sell their products principally to other
suppliers for combinations into the other suppliers' own product offerings.
Demand for automotive parts in the OE market is driven by the number of new
vehicle sales, which in turn is largely determined by prevailing economic
conditions. Although OE demand is tied to planned vehicle production, parts
suppliers also have the opportunity to grow through increasing product content
and customer and market penetration. Companies with global presence in advanced
technology, engineering, manufacturing and support capabilities, such as
Automotive, are in the best position to take advantage of these opportunities.
Demand for aftermarket products is fundamentally driven by the quality of
OE parts, the number of vehicles in operation, the average age of the vehicle
fleet and vehicle usage. Innovative aftermarket products that upgrade the
performance or safety of an automobile's original parts, as several of
Automotive's products do, can also drive aftermarket demand.
ANALYSIS OF AUTOMOTIVE'S REVENUES
The following table provides for each of the years 1996 through 1998, and
for the six months ended June 30, 1999, information relating to Automotive's net
sales, by primary product lines and markets:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
-------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
JUNE 30, 1999 1998 1997 1996
------------- ---- ---- ----
<S> <C> <C> <C> <C>
EMISSIONS CONTROL SYSTEMS & PRODUCTS
Aftermarket............................. $ 268 $ 590 $ 686 $ 710
OE Market............................... 696 1,224 1,067 989
------ ------ ------ ------
964 1,814 1,753 1,699
------ ------ ------ ------
RIDE CONTROL SYSTEMS & PRODUCTS
Aftermarket............................. 316 685 782 768
OE Market............................... 377 738 691 513
------ ------ ------ ------
693 1,423 1,473 1,281
------ ------ ------ ------
Total Automotive................... $1,657 $3,237 $3,226 $2,980
====== ====== ====== ======
</TABLE>
CUSTOMERS
Automotive has developed long-standing business relationships with its
customers around the world. It works together with its customers in all stages
of production, including design, development, component sourcing, quality
assurance, manufacturing and delivery. With a balanced mix of OE and aftermarket
products and facilities in major markets worldwide, Automotive is
well-positioned to meet customer needs. Automotive has a strong, established
reputation with its customers for providing high-quality products at competitive
prices, as well as for timely delivery and customer service.
125
<PAGE> 127
Automotive serves more than 25 different original equipment manufacturers
on a global basis, and its products are included on six of the 10 top cars and
eight of the 10 top trucks produced globally in 1998. Automotive's current OE
customers include:
<TABLE>
<S> <C> <C>
NORTH AMERICA EUROPE INDIA
CAMI BMW Maruti Suzuki
DaimlerChrysler DaimlerChrysler TELCO
Ford DAF Bajaj
Freightliner Daihatsu
General Motors Fiat AUSTRALIA
Honda Ford Ford
Mazda Jaguar General Motors/Holden
Mitsubishi Lada Mitsubishi
Navistar Leyland Toyota
Nissan Mitsubishi
NUMMI Nissan JAPAN
Toyota Opel Mazda
Volkswagen Peugeot/Citroen Nissan
Porsche Suzuki
SOUTH AMERICA Renault/Matra Toyota
DaimlerChrysler Rover/Land Rover
Fiat Saab/Scania CHINA
Ford Toyota DaimlerChrysler
General Motors Volkswagen/Audi/SEAT/Skoda Citroen
Honda Volvo Ford
Renault Toyota
Toyota Volkswagen
Volkswagen
THAILAND
General Motors
Isuzu
</TABLE>
Automotive's aftermarket customers are comprised of full-line and specialty
warehouse distributors, retailers, jobbers (traditional automotive parts stores
that have historically sold primarily to installers), installer chains and car
dealers. These customers include such wholesalers and retailers as National Auto
Parts Association (NAPA), Monro Muffler and Brake, and Advance Auto Parts in
North America and Temot, Autodistribution International and Kwik-Fit in Europe.
Automotive has a balanced mix of aftermarket customers, with its top 10
aftermarket customers accounting for less than 30% of Automotive's total
aftermarket revenues.
The loss of a principal customer or a material decline in the requirements
for Automotive's products from a principal customer, resulting, for example,
from a prolonged strike against the customer, could have a material adverse
effect on the operating results or financial condition of Automotive. For each
of the last three years, less than five customers individually accounted for 5%
or more of Automotive's revenues. Ford accounted for about 11.5%, 13.2% and
12.8% of Automotive's net sales in 1996, 1997 and 1998, and DaimlerChrysler
accounted for about 9.6%, 8.9% and 10.9% of Automotive's net sales in 1996, 1997
and 1998, respectively. No other customer accounted for more than 10% of
Automotive's revenues for those years.
COMPETITION
Automotive operates in highly competitive markets. Customer loyalty is a
key element of competition in these markets and is developed through
long-standing relationships, customer service, value-added products and timely
delivery. Product pricing and services provided are other important competitive
factors.
126
<PAGE> 128
In both the OE market and aftermarket, Automotive competes with the vehicle
manufacturers, some of which are also customers of Automotive, and numerous
independent suppliers. In the OE market, Automotive believes that it is among
the top three suppliers in the world for both emissions control and ride control
products and systems. In the aftermarket, Automotive believes that it is the
market share leader in the supply of both emissions control and ride control
products in the world.
EMISSIONS CONTROL SYSTEMS
Vehicle emissions control products and systems play a critical role in
safely conveying noxious exhaust gases away from the passenger compartment,
reducing the level of pollutants and engine exhaust noise to an acceptable
level. Precise engineering of the exhaust system -- from the manifold that
connects an engine's exhaust ports to an exhaust pipe, to the catalytic
converter that eliminates pollutants from the exhaust, to the muffler -- leads
to a pleasant, tuned engine sound, reduced pollutants and optimized engine
performance.
Automotive designs, manufactures and distributes a variety of automotive
emissions control systems, which include components such as:
- mufflers,
- resonators -- help the muffler eliminate noise,
- catalytic converters -- devices used to convert harmful gaseous
emissions, such as carbon monoxide, from a vehicle's exhaust system into
harmless components such as water vapor and carbon dioxide,
- fabricated exhaust manifolds -- made of sheet metal or tubes and collect
gases from individual cylinders of a vehicle's engine and direct them
into a single exhaust pipe,
- pipes -- connect various parts of an exhaust system,
- hydroformed tubing -- forms into various geometric shapes, such as
Y-pipes or T-pipes, and provide flexibility in design, and
- electronic noise cancellation products.
Automotive entered this product line in 1967 with the acquisition of Walker
Manufacturing Company, which was founded in 1888. When the term "Walker" is used
in this document, it refers to the affiliates of Automotive that produce
emissions control products and systems.
Walker supplies emissions control products used in six of the 10 top
globally produced cars and five of the 10 top globally produced light trucks for
1998. With the acquisition of Heinrich Gillet GmbH & Co. ("Gillet") in 1994,
Walker also became one of Europe's leading OE emissions control systems
suppliers.
127
<PAGE> 129
The following table provides for each of the years 1996 through 1998, and
for the six months ended June 30, 1999, information relating to Automotive's
sales of emissions control systems:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
JUNE 30, 1999 1998 1997 1996
------------- ---- ---- ----
<S> <C> <C> <C> <C>
UNITED STATES MARKET
Aftermarket............................ 30% 37% 43% 46%
OE Market.............................. 70% 63% 57% 54%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
FOREIGN SALES
Aftermarket............................ 27% 30% 36% 38%
OE Market.............................. 73% 70% 64% 62%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
TOTAL SALES BY GEOGRAPHIC AREA
United States.......................... 39% 41% 44% 44%
European Union......................... 45% 44% 41% 43%
Canada................................. 8% 7% 7% 6%
Other areas............................ 8% 8% 8% 7%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
RIDE CONTROL SYSTEMS
Superior ride control is governed by a vehicle's suspension system,
including its shock absorbers and struts. Shock absorbers and struts help
maintain vertical loads placed on a vehicle's tires to help keep the tires in
contact with the road. A vehicle's ability to steer, brake and accelerate
depends on the contact between the vehicle's tires and the road. Worn shocks and
struts can allow excess weight transfer from side to side (roll), from front to
rear (pitch) and up and down (bounce). Variations in tire-to-road contact can
affect a vehicle's handling and braking performance and the safe operation of a
vehicle. Shock absorbers are designed to control vertical loads placed on tires
by providing resistance to vehicle roll, pitch and bounce. Thus, by maintaining
the tire-to-road contact, ride control products are designed to function as
safety components of a vehicle, in addition to providing a comfortable ride.
Automotive designs, manufactures and distributes a variety of ride control
products and systems. Its ride control offerings include:
- shock absorbers,
- struts,
- electronically adjustable suspension systems that change performance
based on inputs like steering and braking,
- vibration control components, including rubber-like bushings and
mountings that reduce vibration between metal parts of a vehicle,
- springs, and
- modular assemblies which are combinations of parts that are provided to
customers as a unit.
Automotive manufactures and markets replacement shock absorbers for
virtually all North American, European and Asian makes of automobiles. In
addition, Automotive manufactures and markets shock absorbers and struts for use
on passenger cars and trucks, as well as for other uses such as exercise and
recreational equipment. Monroe supplies ride control products used in three of
the 10 top globally produced cars and eight of the 10 top globally produced
light trucks for 1998. Automotive entered the ride control product line in 1977
with the acquisition of Monroe Auto Equipment, which was founded in 1916 and
introduced the world's first automotive shock absorber in 1926. When the term
"Monroe" is used in this document it refers to the affiliates of Automotive that
produce ride control products and systems.
128
<PAGE> 130
The following table provides for each of the years 1996 through 1998, and
for the six months ended June 30, 1999, information relating to Automotive's
sales of ride control equipment:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
JUNE 30, 1999 1998 1997 1996
------------- ---- ---- ----
<S> <C> <C> <C> <C>
UNITED STATES MARKET
Aftermarket............................ 40% 43% 50% 62%
OE Market.............................. 60% 57% 50% 38%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
FOREIGN SALES
Aftermarket............................ 51% 53% 56% 59%
OE Market.............................. 49% 47% 44% 41%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
TOTAL SALES BY GEOGRAPHIC AREA
United States.......................... 50% 47% 48% 48%
European Union......................... 29% 32% 27% 34%
Canada................................. 5% 3% 3% 3%
Other areas............................ 16% 18% 22% 15%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
SALES AND MARKETING
Automotive sells directly to original equipment manufacturers. To maintain
its customer focus, Automotive's OE sales force is organized into
customer-dedicated teams. These sales teams service the original equipment
manufacturers at a regional facility level, with global coordination and support
from Automotive's headquarters.
For the aftermarket, Automotive uses a dedicated sales force and consumer
brand marketing professionals to sell and market its products. This group
provides extensive marketing support to aftermarket customers, including trade
and consumer marketing, promotions and general advertising. Automotive maintains
an aftermarket customer order fill rate of 95%, which reflects the percentage of
the average customer order Automotive is able to fill from inventory. Automotive
sells its aftermarket products through five primary channels of distribution:
(1) the traditional three-step distribution system: full-line warehouse
distributors, jobbers and installers; (2) the specialty two-step distribution
system: specialty warehouse distributors that carry only specified automotive
product groups and installers; (3) direct sales to retailers; (4) direct sales
to installer chains; and (5) direct sales to car dealers.
MANUFACTURING AND ENGINEERING
Automotive uses state-of-the-art manufacturing to achieve superior product
quality at the lowest operating costs possible. Automotive's manufacturing
strategy centers on a lean production system that reduces overall
costs -- especially indirect costs -- while maintaining quality standards and
reducing manufacturing cycle time. Automotive deploys new technology where it
makes sense to differentiate its processes from its competitors' or to achieve
balance in one piece flow-through production lines.
EMISSIONS CONTROL
Walker operates 11 manufacturing facilities in the U.S. and six engineering
and technical facilities worldwide. Walker also operates 32 manufacturing
facilities outside of the U.S. and has a controlling interest in six joint
ventures that own manufacturing facilities in China, Germany, India, and Sweden.
See "-- Properties."
129
<PAGE> 131
Walker attempts to locate original equipment manufacturing facilities close
to its OE customers to provide products on demand, or "just-in-time." Eleven of
Walker's plants are just-in-time facilities.
During the 1990's, Walker expanded its converter and emission system
design, development, test and manufacturing capabilities. Walker's engineering
capabilities now include advanced predictive design tools, advanced prototyping
processes and state-of-the-art testing equipment. This expanded technological
capability makes Walker a "full system" integrator, supplying complete emissions
control systems from the manifold to the tailpipe, to provide full emission and
noise control. It also allows Walker to provide just-in-time delivery and, when
feasible, sequence delivery of emissions control systems to meet customer
production requirements.
RIDE CONTROL
Monroe operates seven manufacturing facilities in the U.S. and ten
engineering and technical facilities worldwide. Monroe also operates 16
manufacturing facilities outside of the U.S. and has a controlling interest in
three joint ventures that own manufacturing facilities in China and India.
Monroe is attempting to locate original equipment manufacturing facilities close
to customers to provide products on demand, or just-in-time. See
"-- Properties."
In designing its shock absorbers and struts, Monroe uses advanced
engineering and test capabilities to provide product reliability, endurance and
performance. Monroe's engineering capabilities feature advanced computer-aided
design equipment and testing facilities. Monroe's dedication to innovative
solutions has led to such technological advances as:
- adaptive damping systems -- adapts to the vehicle's motion to better
control undesirable vehicle motions;
- electronically adjustable suspensions -- changes suspension performance
based on a variety of inputs such as steering, braking, vehicle height,
and velocity; and
- air leveling systems -- manually or automatically adjust the height of
the vehicle.
Conventional shock absorbers and struts generally compromise either ride comfort
or vehicle control. Monroe's innovative grooved-tube, gas-charged shock
absorbers and struts provide both ride comfort and vehicle control, resulting in
improved handling (less roll), reduced vibration and a wider range of vehicle
control. This technology can be found in Monroe's premium quality Sensa-Trac(R)
shock absorbers. In late 1997, Monroe further enhanced this technology by adding
the Safe-Tech(TM) fluon banded piston, which improves shock absorber performance
and durability.
INDUSTRY TRENDS
Currently, several significant existing and emerging trends are
dramatically reshaping the automotive industry. As the dynamics of the
automotive industry change, so do the roles, responsibilities and relationships
of its participants. Key trends that Automotive believes are affecting
automotive parts suppliers include:
CUSTOMER AND SUPPLIER CONSOLIDATION
The customer base for automotive parts is consolidating in both the OE
market and aftermarket. Because of recent business combinations among vehicle
manufacturers -- such as the DaimlerChrysler merger and Ford's acquisition of
Volvo -- and in the aftermarket -- such as AutoZone's acquisition of Chief Auto
Parts and CSK Auto's acquisition of Big Wheel/Rossi -- suppliers are competing
for the business of fewer customers. The cost focus of these major customers is
causing suppliers to reduce prices.
Consolidation is also occurring among automotive parts suppliers,
particularly those who supply vehicle makers. The approximate number of Tier 1
suppliers is projected to decrease from 1,500 to 600 between 1998 and 2005. The
primary reasons for this consolidation include: (1) an increasing desire by
original equipment manufacturers to work with fewer, larger suppliers that can
provide fully-integrated
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systems; and (2) the inability of smaller suppliers to compete on price with the
larger companies who benefit from purchasing and distribution economies of
scale. A supplier's viability in this consolidating market depends, in part, on
its continuing ability to maintain and increase operating efficiencies by
reducing costs and improving productivity. Also important is a supplier's
ability to provide value-added services such as materials management,
specialized engineering capabilities and integration of individual components
into modules and systems. With its strong market positions in emissions control
and ride control products and its demonstrated ability to integrate and deliver
modules and systems, Automotive is well-positioned to respond to increasing
customer consolidation.
INCREASED OE OUTSOURCING AND DEMAND FOR FULL-SYSTEM INTEGRATION BY
SUPPLIERS
Original equipment manufacturers are moving towards outsourcing automotive
parts and systems to simplify the vehicle assembly process, lower costs and
reduce vehicle development time. Outsourcing allows original equipment
manufacturers to take advantage of the lower cost structure of the automotive
parts suppliers and to benefit from multiple suppliers engaging in simultaneous
development efforts. Development of advanced electronics has enabled formerly
independent vehicle components to become "interactive," leading to a shift in
demand from individual parts to fully-integrated systems. As a result,
automotive parts suppliers offer original equipment manufacturers component
products individually, as well as in a variety of integrated forms such as
modules and systems:
- "Modules" are groups of component parts arranged in close physical
proximity to each other within a vehicle. Modules are often assembled by
the supplier and shipped to the original equipment manufacturer for
installation in a vehicle as a unit. Seats, instrument panels, axles and
door panels are examples.
- "Systems" are groups of component parts located throughout a vehicle
which operate together to provide a specific vehicle function. Anti-lock
braking systems, safety restraint systems, emissions control and power
train systems are examples.
This shift has created the role of the Tier 1 systems integrator. These systems
integrators will increasingly have the responsibility to execute a number of
activities, such as design, product development, engineering, testing of
component systems and purchasing from Tier 2 suppliers. Automotive is an
established Tier 1 supplier with ten years of product integration experience and
28 modular vehicle platforms in production worldwide. For example, Automotive
supplies ride control modules for the Chrysler JA Cirrus/Stratus/Breeze and the
emissions control system for the Porsche Boxster.
GLOBALIZATION OF THE AUTOMOTIVE INDUSTRY
Original equipment manufacturers are increasingly requiring suppliers to
provide parts on a global basis. As the customer base of original equipment
manufacturers changes, and emerging markets become more important to achieving
growth, suppliers must be prepared to provide products any place in the world.
This requires a worldwide approach to supply chain management, engineering,
sales and distribution:
- Growing Importance of Emerging Markets. Because the North American and
Western European automotive markets are relatively mature, original
equipment manufacturers are increasingly focusing on emerging markets for
growth opportunities, particularly China, Eastern Europe, India and Latin
America. This increased OE focus has, in turn, increased the growth
opportunities in the aftermarkets in these regions.
- Governmental Tariffs and Local Parts Requirements. Many governments
around the world require that vehicles sold within their country contain
specified percentages of locally produced parts. Additionally, some
governments place high tariffs on imported parts.
- Location of Production Closer to End Markets. Original equipment
manufacturers and parts suppliers have relocated production globally on
an "on-site" basis that is closer to end markets. This
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international expansion allows suppliers to pursue sales in developing
markets and take advantage of relatively lower labor costs.
With facilities around the world, including the key regions of North America,
South America, Europe and Asia, Automotive can supply its customers on a global
basis.
GLOBAL RATIONALIZATION OF OE VEHICLE PLATFORMS
Original equipment manufacturers are increasingly designing "world car"
platforms. A "world car" platform is a basic mechanical structure of a vehicle
that can accommodate different features. Thus, original equipment manufacturers
can design one platform for a number of similar vehicle models. This allows
manufacturers to realize significant economies of scale through limiting
variations across items such as steering columns, brake systems, transmissions,
axles, exhaust systems, support structures and power window and door lock
mechanisms. Automotive believes that this shift towards standardization will
have a large impact on automotive parts suppliers, who should experience a
reduction in production costs as original equipment manufacturers reduce
variations in components. Automotive also expects parts suppliers to experience
higher production volumes per unit and greater economies of scale, as well as
reduced total investment costs for molds, dies and prototype development.
Automotive currently works with original equipment manufacturers on 33 "world
car" platforms.
INCREASING ELECTRONIC COMPONENTS AND TECHNOLOGICAL INNOVATION
As consumers continue to demand competitively priced vehicles with
increased performance and functionality, the number of electronic components
utilized in vehicles is increasing. By replacing mechanical functions with
electronics and by integrating mechanical and electronic functions within a
vehicle, original equipment manufacturers are achieving improved emissions
control, improved safety and more sophisticated features at lower costs.
In addition, automotive parts customers are increasingly demanding
technological innovation from suppliers to address more stringent emissions and
other regulatory standards and to improve vehicle performance. To continue
developing innovative products, systems and modules, Automotive maintains 16
research and development facilities and has entered into several strategic
alliances focused on advanced technology designs. For example, Automotive has
developed several adaptive damping systems which reduce undesirable vehicle
motion. Also, Automotive has developed the self-lubricating elastomer which has
the additional capability to reduce friction between moving components in a
suspension-system thereby reducing audible noise and vibration.
INCREASING ENVIRONMENTAL STANDARDS
Automotive parts suppliers and original equipment manufacturers are
designing products and developing materials to comply with increasingly
stringent environmental requirements. Government regulations adopted over the
past decade require substantial reductions in automobile tailpipe emissions,
longer warranties on parts of an automobile's pollution-control equipment and
additional equipment to control fuel-vapor emissions. Some of these regulations
also mandate more frequent emissions and safety inspections for the existing
fleet of vehicles. Manufacturers have responded by focusing their efforts
towards technological development to minimize pollution. As a leading supplier
of emissions control systems with strong technical capabilities, Automotive is
well-positioned to benefit from more rigorous environmental standards.
EXTENDED PRODUCT LIFE OF AUTOMOTIVE PARTS
The average useful life of automotive parts -- both OE and
replacement -- has been steadily increasing in recent years due to innovations
in products and technologies. The longer product lives allow vehicle owners to
replace parts of their vehicles less often. As a result, a portion of sales in
the aftermarket has been displaced. Accordingly, a supplier's future viability
in the aftermarket will depend, in part, on its ability to reduce costs and
leverage its advanced technology and recognized brand names to maintain or
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achieve additional sales. As a Tier 1 OE supplier, Automotive is well-positioned
to leverage its products and technology into the aftermarket. Furthermore, an
opportunity exists for replacement of automobile parts to increase as the
average age of vehicles on the road increases. For example, from 1990 to 1997
the average age of cars in the U.S. increased from 7.8 to 8.7 years.
GROWING RETAIL AFTERMARKET DISTRIBUTION
During the last decade, the number of retail automotive parts chains, such
as AutoZone and Advance Auto Parts, has been growing while the number of
traditional automotive parts stores that sell to installers ("jobbers") has been
declining. Since 1990, the number of retail automotive parts stores has
increased from approximately 10,000 to approximately 14,000, while the number of
jobbers has decreased from approximately 25,000 to approximately 21,000. In
addition, since retailers are attempting to grow their commercial sales to
automotive parts installers, they are increasingly adding premium brands to
their product portfolios. This enables them to offer the option of a premium
brand, which is often preferred by their commercial customers, or a standard
product, which is often preferred by their retail customers. Automotive is
well-positioned to respond to this changing aftermarket situation because of its
focus on cost reduction and high-quality, premium brands.
BUSINESS STRATEGY
Automotive's primary goal is to grow and enhance its global position in the
manufacture of emissions control and ride control products and systems.
Automotive intends to apply its competitive strengths and balanced mix of
products, markets, customers and distribution channels to capitalize on many of
the significant existing and emerging trends in the automotive industry. The key
components of Automotive's business strategy are described below.
CAPITALIZE ON PRODUCT LIFE CYCLES
Using its global engineering capabilities and its advanced technology
position, Automotive is pursuing opportunities to design unique, value-added
products for vehicle manufacturers that yield higher margins in the OE market.
Automotive expects to take advantage of its OE technology investments by moving
these differentiated products into the aftermarket, where they should continue
to generate future revenue streams through the entire life of the vehicle.
Innovative products such as Sensa-Trac(R) shocks and Quiet-Flow(TM) mufflers are
examples of where Automotive's market balance between OE and aftermarket sales
allows Automotive to leverage its cost structure over the entire product life
cycle to produce sustained, higher-margin returns.
DEVELOP AND COMMERCIALIZE INNOVATIVE, VALUE-ADDED PRODUCTS
Automotive intends to continue to focus on the development of highly
engineered systems and complex assemblies and modules which provide value-added
solutions to customers and generally carry higher profit margins than
individualized components. Furthermore, Automotive intends to expand its product
lines by continuing to identify and fill new fast-growing niche markets, by
developing new products for existing markets, by acquiring companies with
product portfolios that complement the products currently supplied by Automotive
and by establishing strategic alliances with other suppliers.
One example of Automotive's focus on innovation is its acquisition in early
1999 of Kinetic Ltd., an Australian advanced suspension engineering company with
advanced roll-control technology. This technology also provides enhanced on-road
handling while improving off road performance. In addition, in an effort to
further enhance its electronic competencies Automotive entered into an agreement
with Siemens Automotive S.A. in late 1998 to cooperate in the development and
commercialization of advanced electronically controlled ride control and
suspension technologies. Also in late 1998, Automotive reached an agreement with
Ohlins Racing A.B. to jointly develop advanced, electronically controlled
suspension damping systems, which decreases spring movement.
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LEVERAGE AFTERMARKET BRAND NAMES
Automotive manufactures and markets leading brand-name products. Monroe(R)
ride control products and Walker(R) emissions control products, which have been
offered to consumers for over 50 years, are two of the most recognized
brand-name products in the automotive parts industry. Automotive continues to
emphasize product value differentiation with these brands and its other primary
brands, including:
- the Monroe Sensa-Trac(R) line of shock absorbers, that has been enhanced
by the Safe-Tech(TM) system technology which incorporates a fluon banded
piston to improve performance and durability;
- Walker's Quiet-Flow(TM) muffler, which features an open-flow design that
increases exhaust flow, improves sound quality and significantly reduces
exhaust backpressure when compared to other replacement mufflers;
- Rancho(R) ride control products for the high-performance light truck
market;
- DynoMax(R) high-performance emissions control systems;
- Walker Perfection(TM) catalytic converters;
- Clevite(TM) elastomeric vibration control components, which are primarily
rubber products used to reduce vibration through "cushioning" a
connection or contact point; and
- in European markets, Walker(R) and Aluminox(TM) mufflers.
Automotive is also capitalizing on its brand strength by incorporating
newly acquired product lines within existing product families. Automotive's
brand equity is an important asset in a time of customer consolidation and
merging channels of distribution.
DIVERSIFY END-MARKETS
One of Automotive's goals is to apply its existing design, marketing and
manufacturing capabilities to produce products for a variety of adjacent
markets. Automotive believes that these capabilities could be used for heavy
duty vehicle and industrial applications, various recreational vehicles,
scooters and bicycles. Automotive expects that expanding into markets other than
automotive parts will allow it to capitalize on its advancing technical and
manufacturing infrastructure to achieve growth in higher margin businesses.
EXPAND FULL-SYSTEM CAPABILITIES
The automotive parts industry is encountering a consolidation of parts
suppliers, as original equipment manufacturers require suppliers to provide
design assistance and innovation and full-system capabilities rather than just
specific parts. In response to this trend, Automotive has developed integrated,
electronically linked global engineering and manufacturing facilities to
maintain its presence on top selling vehicles. Automotive has over 10 years of
experience as an integrator of systems and modules, and is currently supplying
modules for 28 vehicle platforms worldwide. Automotive also plans to continue to
dedicate more resources towards strengthening technical capability and design
expertise and to pursue appropriate strategic acquisitions, joint ventures,
strategic alliances and cooperative development agreements to increase its
ability to deliver full-system capabilities.
MAINTAIN OPERATING COST LEADERSHIP
Automotive intends to continue to reduce costs by:
- standardizing its products and processes throughout its operations,
- further developing its global supply chain management capabilities,
- improving its information technology,
- increasing efficiency through employee training,
- investing in more efficient machinery, and
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- enhancing the global coordination of costing and quoting procedures.
In the fourth quarter of 1998, Automotive began a restructuring designed to
reduce administrative and operational overhead costs. The largest part of the
$53 million pre-tax restructuring charge which was recorded in income from
continuing operations related to the restructuring of its North American
aftermarket operations. The operational restructuring, designed to better match
Automotive's capacity to market demand, involves closing two plant locations and
five distribution centers, with the elimination of 302 positions at those
locations. Automotive expects to complete this by mid-2000. The administrative
restructuring involves the reduction of approximately 450 administrative staff
positions. Automotive expects to complete this by the end of 1999.
Automotive has also adopted Business Operating System ("BOS") as a
disciplined system to promote and manage continuous improvement. BOS focuses on
the assembly and analysis of data for quick and effective problem resolution to
create more efficient and profitable operations.
Automotive has also adopted a management process of measuring the economic
value of its operations to help ensure returns exceed capital costs. Automotive
is planning to link the successful application of this management discipline to
its incentive compensation program.
EXECUTE FOCUSED ACQUISITIONS AND ALLIANCES
In the past, Automotive has been successful in identifying and capitalizing
on strategic acquisitions and alliances to achieve growth. Through these
acquisitions and alliances, Automotive has: (a) expanded its product portfolio;
(b) realized incremental business with existing customers; (c) gained access to
new customers; and (d) achieved leadership positions within new geographic
markets.
Where appropriate, Automotive intends to continue to pursue strategic
acquisitions that complement its existing technology and systems development
efforts. This focused strategy will assist Automotive to identify and acquire
smaller-scale companies with proven proprietary technology and recognized
research capabilities necessary to help develop further leadership in systems
integration. Any potential acquisition will be expected to meet strict financial
criteria to ensure it increases economic value. Automotive also plans to
continue to pursue its joint venture and alliance opportunities to achieve its
objectives and enhance its profitability.
PROPERTIES
Automotive leases its principal executive offices, which are located in
Lake Forest, Illinois.
Walker operates 11 manufacturing facilities in the U.S. and six engineering
and technical facilities worldwide. Walker also operates 32 manufacturing
facilities outside of the U.S. and has a controlling interest in six joint
ventures that own manufacturing facilities in China, Germany, India and Sweden.
Monroe operates seven manufacturing facilities in the U.S. and ten
engineering and technical facilities worldwide. Monroe also operates 16
manufacturing facilities outside of the U.S. and has a controlling interest in
three joint ventures that own manufacturing facilities in China, South Africa
and India.
Automotive's manufacturing locations outside of the U.S. are located in
Canada, Mexico, Belgium, Spain, the United Kingdom, the Czech Republic, Turkey,
South Africa, France, Denmark, Sweden, Germany, Poland, Portugal, Argentina,
Brazil, Australia, and New Zealand. Sales offices are located in Australia,
Canada, Italy, Japan, Poland, Russia, and Sweden.
Of Automotive's properties described above, approximately one-half are
owned and one-half are leased. Twelve of the properties are held through joint
ventures. Automotive also has distribution facilities at its manufacturing sites
and at a few offsite locations, substantially all of which are leased.
Automotive's commitment to sound management practices and policies is also
demonstrated by its successful participation in the International Standards
Organization/Quality Systems certification process (ISO/QS). ISO/QS
certifications are yearly audits that certify that a company's facilities meet
stringent
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quality and business systems requirements. Without either ISO or QS
certification, Automotive would not be able to supply original equipment
manufacturers locally or globally. Ninety-nine percent of Automotive's
facilities eligible to participate in the ISO program have achieved ISO 9000
certification. Eighty-five percent of Automotive's facilities eligible to
participate in the QS program have achieved QS 9000 certification.
Automotive believes that substantially all of its plants and equipment are,
in general, well maintained and in good operating condition. They are considered
adequate for present needs and, as supplemented by planned construction, are
expected to remain adequate for the near future.
Automotive also believes that it and its subsidiaries have generally
satisfactory title to the properties owned and used in their respective
businesses.
LEGAL AND ENVIRONMENTAL PROCEEDINGS
As of June 1, 1999, Automotive has been designated as a potentially
responsible party at four "Superfund" sites and it has estimated its share of
the liability at these sites to be approximately $2 million in the aggregate. In
addition, Automotive may have liability to remediate contaminant releases at 18
of its current or former facilities and it has estimated its share of the
remediation costs at these facilities to be $19 million in the aggregate. For
both the Superfund sites and its current and former facilities, Automotive has
established reserves that it believes are adequate for these costs. Although
Automotive believes its estimates of remediation costs are reasonable and are
based on the latest available information, the clean-up costs are estimates and
are subject to revision as more information becomes available about the extent
of remediation required. At some sites, Automotive 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 Automotive's liability could be joint and several, meaning that
Automotive could be required to pay in excess of its share of remediation costs.
Automotive's understanding of the financial strength of other potentially
responsible parties at both the Superfund sites and at its former facilities has
been considered, where appropriate, in Automotive's determination of its
estimated liability. Automotive 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.
Automotive estimates that its capital expenditures for environmental
matters for 1999 and 2000 will not be material.
Automotive is party to various other legal proceedings arising from its
operations. Tenneco believes that the outcome of these other proceedings,
individually and in the aggregate, will not have a material adverse effect on
Automotive's financial position or results of operations.
STRATEGIC ACQUISITIONS AND ALLIANCES
Strategic acquisitions, joint ventures and alliances have been an important
part of Automotive's growth. Through this strategy, Automotive has expanded to
meet customers' global requirements. This strategy has also allowed Automotive
to acquire or align with companies that possess proven technology and research
capabilities, furthering Automotive's leadership in systems integration.
EMISSIONS CONTROL
- In 1996, Automotive established a joint venture in Dalian, China to
supply emissions control systems to the Northern Chinese automotive
market, expanded its North American heavy duty truck aftermarket business
through the acquisition of Stemco Inc. and acquired Minuzzi, the second
largest manufacturer of exhaust products in Argentina.
- In 1997, Automotive acquired Autocan, a Mexican catalytic converter and
exhaust pipe assembly manufacturer. It also acquired the manufacturing
operations of MICHEL, a privately owned,
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Polish-based manufacturer of replacement market emissions control systems
for passenger cars in Eastern Europe.
- In 1998, Automotive established a joint venture in Shanghai, China to
supply emissions control systems to the Central and Southern Chinese
automotive markets. Automotive also established a joint venture in Pune,
India to supply emissions control systems to OE customers and the
aftermarket.
- In 1999, Automotive began manufacturing emissions control systems at a
new facility in Curitiba, Brazil to supply original equipment customers
in this growing regional market.
RIDE CONTROL
- In 1995, Automotive acquired a 51% interest in a joint venture that has
three ride control manufacturing facilities in India and acquired a 51%
interest in a joint venture that has one ride control manufacturing
facility in China.
- In July 1996, Automotive acquired The Pullman Company and its Clevite
products division ("Clevite"). Clevite is a leading original equipment
manufacturer of elastomeric vibration control components, including
bushings, engine mounts and control arms, for the auto, light truck and
heavy truck markets. These products connect major metal parts and help
isolate noise, vibration and shock. With this acquisition, Automotive
expanded its capability to deliver ride control systems to original
equipment manufacturers. The Clevite acquisition also complemented
Automotive's interest in global growth opportunities, since both Clevite
and Monroe have manufacturing operations in Mexico and Brazil.
- In September 1996, Automotive acquired full ownership of Monroe Amortisor
Imalat ve Ticaret, a Turkish shock absorber manufacturer, in which it
previously held a 16.7% ownership interest.
- In December 1996, Automotive acquired 94% of the voting stock of Fric-Rot
S.A.I.C., the leading producer and marketer of ride control products in
Argentina. In 1997, Automotive increased its interest in Fric-Rot to more
than 99% through the purchase of additional shares.
- In 1996, Automotive also expanded its presence in Australia's ride
control product market with the acquisition of National Springs.
- In 1997, Automotive entered into a joint venture which resulted in its
acquisition of majority ownership of Armstrong, a leading South African
manufacturer of ride control products.
- Earlier this year, Automotive completed its acquisition of Kinetic, an
Australian advanced suspension engineering company with advanced
roll-control technology. Also this year, Automotive licensed elastomer
technology and equipment from Draftex, a French company. Automotive
intends to apply this technology to manufacturing engine mounts and ride
control products for sale in Mexico, Central America and South America.
OTHER
As of June 1, 1999, Automotive had approximately 23,500 employees, 34% of
which were covered by collective bargaining agreements and 16% of which are
governed by European works councils. Twenty-three of Automotive's existing labor
agreements, covering a total of 3,000 employees, are scheduled for renegotiation
in 1999 and 2000. Automotive regards its employee relations as generally
satisfactory.
The principal raw material utilized by Automotive is steel. Automotive
believes that an adequate supply of steel can presently be obtained from a
number of different domestic and foreign suppliers.
Automotive holds a number of domestic and foreign patents and trademarks
relating to its products and businesses. It manufactures and distributes its
products primarily under the Walker(R) and Monroe(R) brand names, which are well
recognized in the marketplace and are registered trademarks of Automotive. The
patents, trademarks and other intellectual property owned by or licensed to
Automotive are important in the manufacturing, marketing and distribution of its
products.
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MANAGEMENT AFTER THE SPIN-OFF
BOARD OF DIRECTORS
In connection with the spin-off, the current Board of Directors of Tenneco
Inc. will be restructured. This restructured Board of Directors will govern the
management and operations of Automotive upon completion of the spin-off.
The Automotive Board of Directors is currently divided into three classes
serving staggered three-year terms. At each annual meeting of stockholders,
successors to the directors whose terms expire at that meeting are elected.
However, Tenneco intends to submit a proposal for stockholder consideration to
eliminate its staggered board structure and provide instead for the annual
election of directors. Tenneco plans to submit this proposal at a special
stockholders' meeting to be held on October 25, 1999. If this proposal is
approved, the staggered board structure will be phased-out over the next three
annual stockholders' meetings, with directors being elected annually after the
expiration of the current staggered board terms set forth below.
Information concerning the individuals who will serve as directors of
Automotive upon completion of the spin-off and their terms is provided below.
Any current directors of Tenneco Inc. who will not be continuing as Automotive
directors will resign effective upon the spin-off.
Terms Expiring at the 2000 Annual Meeting of Stockholders (Class I)
MARK ANDREWS -- See "Description of Packaging -- Management -- Board of
Directors" for information about Mr. Andrews.
DAVID B. PRICE, JR. -- Mr. Price has been an Executive Vice President of
the BFGoodrich Company and President and Chief Operating Officer of BFGoodrich
Performance Materials, a producer of chemical additives and specialty plastics
for use in consumer and industrial products, since July 1997. Prior to joining
BFGoodrich, Mr. Price held various executive positions over a 20-year span at
Monsanto Company, most recently serving as President of the Performance
Materials Division of Monsanto Company. Mr. Price is 53 years old and will be
named a director in connection with the spin-off.
Terms Expiring at the 2001 Annual Meeting of Stockholders (Class II)
DANA G. MEAD, CHAIRMAN OF THE BOARD -- See "Description of
Packaging -- Management -- Board of Directors" for information about Mr. Mead.
M. KATHRYN EICKHOFF -- Ms. Eickhoff has been President of Eickhoff
Economics, Inc., a consulting firm, since 1987. From 1985 to 1987, she was
Associate Director for Economic Policy for the U.S. Office of Management and
Budget, and prior to 1985, was Executive Vice President and Treasurer of
Townsend-Greenspan & Co., Inc., an economic consulting firm. She is also a
director of AT&T Corp., Pharmacia & Upjohn, Inc., and Fleet Bank, NA. Ms.
Eickhoff is 60 years old, and has been a director of Tenneco since 1987. She
previously served as a member of the Tenneco Board of Directors from 1982 until
her resignation to join the Office of Management and Budget in 1985.
ROGER B. PORTER -- See "Description of Packaging -- Management -- Board of
Directors" for information about Mr. Porter.
Terms Expiring at the 2002 Annual Meeting of Stockholders (Class III)
MARK P. FRISSORA -- Mr. Frissora will be the Chief Executive Officer of
Automotive upon the spin-off and has been serving as its President since April
1999. From 1996 to April 1999, he held various positions within Automotive's
operations including Senior Vice President and General Manager of North American
Original Equipment. Mr. Frissora joined Automotive in 1996 from Aeroquip-Vickers
Corporation, where he served from 1991 as Vice President of North American
marketing, sales and distribution. Mr. Frissora is 43 years old and will be
named a director in connection with the spin-off.
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SIR DAVID PLASTOW -- Sir David Plastow was Chairman of the Medical Research
Council, which promotes and supports research and post-graduate training in the
biomedical and other sciences, from 1990 until his retirement in 1998. He served
as Chairman of Inchcape plc, a multi-national marketing and distribution
company, from June 1992 to December 1995, and Chairman and Chief Executive
Officer of Vickers plc, an engineering and manufacturing company headquartered
in London, from January 1987 to May 1992. He is also a director of Lloyds TSB
Group plc and FT Everard & Sons Limited. Sir David Plastow is 67 years old and
has been a director of Tenneco since May 1996. He previously served as a member
of the Board of Directors of Tenneco from 1985 until 1992.
PAUL T. STECKO -- See "Description of Packaging -- Management -- Board of
Directors" for information about Mr. Stecko.
EXECUTIVE OFFICERS
The following provides information concerning the persons who will serve as
the executive officers of Automotive 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 and will serve at the discretion of the
Automotive Board of Directors.
<TABLE>
<CAPTION>
AGE AT
NAME JUNE 30, 1999 TITLE
---- ------------- -----
<S> <C> <C>
Mark P. Frissora............... 43 Chief Executive Officer
Richard P. Schneider........... 52 Senior Vice President -- Global Administration
Mark A. McCollum............... 40 Senior Vice President and Chief Financial Officer
Timothy R. Donovan............. 43 Senior Vice President and General Counsel
Timothy E. Jackson............. 45 Senior Vice President and General Manager -- North
American Original Equipment and Worldwide Program
Management
David G. Gabriel............... 40 Senior Vice President and General Manager -- North
American Aftermarket
</TABLE>
MARK P. FRISSORA -- See "-- Board of Directors," above, for information
about Mr. Frissora.
RICHARD P. SCHNEIDER -- As Senior Vice President -- Global Administration,
Mr. Schneider is responsible for the development and implementation of human
resources programs and policies and corporate communications activities for
Automotive's worldwide operations. He joined Automotive in 1994 from
International Paper Company where, during his 20-year tenure, he held key
positions in labor relations, management development, personnel administration
and equal employment opportunity.
MARK A. MCCOLLUM -- Mr. McCollum joined Automotive in April 1998 from
Tenneco, where as Vice President, Corporate Development he was responsible for
executing Tenneco's strategic transactions. From January 1995 to April 1998, he
served in various capacities with Tenneco, including Vice President, Financial
Analysis and Planning and Corporate Controller. Before joining Tenneco, Mr.
McCollum spent 14 years with the international public accounting firm of Arthur
Andersen LLP, serving as an audit and business advisory partner of the company's
worldwide partnership from 1991 to 1994.
TIMOTHY R. DONOVAN -- Mr. Donovan was named Senior Vice President and
General Counsel of Automotive in August 1999. Since 1989, Mr. Donovan has been a
partner in the law firm of Jenner & Block, where he serves as the Chairman of
the Corporate and Securities Group and as a member of the firm's Executive
Committee. Mr. Donovan will continue with Jenner & Block through the end of
1999, at which time he will resign.
TIMOTHY E. JACKSON -- Mr. Jackson was named Senior Vice President and
General Manager -- North American Original Equipment and Worldwide Program
Management in June 1999. Mr. Jackson joined the company from ITT Industries
where he was President of the company's Fluid Handling Systems Division. With
over 20 years of management experience, 14 within the automotive industry, he
was also Chief Executive Officer for HiSAN, a joint venture between ITT
Industries and Sanoh Industrial Company.
139
<PAGE> 141
Mr. Jackson has also served in senior management positions at BFGoodrich
Aerospace and General Motors Corporation.
DAVID G. GABRIEL -- Mr. Gabriel was named Senior Vice President and General
Manager -- North American Aftermarket in August 1999. From March to August 1999,
Mr. Gabriel was the Vice President of Operations for Automotive's North American
aftermarket business. From March 1997 to March 1999, he served as Vice President
of Manufacturing for Automotive's North American aftermarket business. From
February 1995 to March 1997, he served as Executive Director of Supplier
Development for Tenneco Business Services. Before joining Tenneco in February
1995, Mr. Gabriel spent 15 years in various operating positions of increasing
responsibility with the Pepsi Cola Company and Johnson and Johnson.
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 Automotive upon the spin-off; (2) each person who is named in the
Summary Compensation Table for Automotive, below; and (3) all persons who will
be directors or executive officers of Automotive 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.
<TABLE>
<CAPTION>
SHARES OF COMMON COMMON STOCK TOTAL SHARES
STOCK OWNED(1)(2)(3) EQUIVALENTS AND EQUIVALENTS
-------------------- ------------ ---------------
<S> <C> <C> <C>
DIRECTORS
Mark Andrews............................................. 14,155 1,600 15,755
M. Kathryn Eickhoff...................................... 9,728 1,600 11,328
Mark P. Frissora......................................... 33,968 -- 33,968
Dana G. Mead............................................. 765,821 44,737 810,558
Sir David Plastow........................................ 4,700 2,610 7,310
Roger B. Porter.......................................... 2,000 3,420 5,420
David B. Price, Jr. ..................................... -- -- --
Paul T. Stecko........................................... 314,362 -- 314,362
EXECUTIVE OFFICERS
Richard P. Schneider..................................... 24,751 -- 24,751
Mark A. McCollum......................................... 30,959 -- 30,959
Timothy R. Donovan....................................... -- -- --
Timothy E. Jackson....................................... -- -- --
David G. Gabriel......................................... 15,742 -- 15,742
All executive officers and directors as a group.......... 1,216,186(5) 53,967 1,270,153(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, Tenneco stock options held by the executive officers listed
above will be adjusted so that the options immediately after the spin-off
will have equivalent economic terms to the options immediately before the
spin-off. Tenneco stock options held by directors will be adjusted in the
same manner, except that one-half of the Tenneco options held by Messrs.
Mead, Andrews and Porter will be replaced with Packaging options having
equivalent economic terms, and options held by Mr. Stecko will terminate
unless exercised prior to the spin-off.
(2) Includes restricted shares. At June 30, 1999, Ms. Eickhoff and Messrs.
Andrews, Frissora, Mead, Plastow, Schneider and Gabriel held 3,963; 6,547;
12,000; 66,025; 300; 3,000; 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 Ms. Eickhoff and Messrs. Andrews, Frissora, Mead,
Plastow, Porter, Stecko, Schneider, McCollum and Gabriel to purchase 2,000;
2,000; 20,887; 616,176; 2,000; 2,000; 288,814; 15,844; 30,959; and 9,848
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.
(5) Includes 990,528 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 96,835 restricted shares for all executive officers
and directors as a group.
140
<PAGE> 142
COMMITTEES OF THE BOARD OF DIRECTORS AFTER THE SPIN-OFF
The Automotive Board of Directors will have three standing committees when
the spin-off is completed. These committees 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
Automotive's independent public accountants; (2) review and approve 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 Automotive's basic accounting system and the effectiveness of
Automotive's internal audit plan and activities; (4) review with management and
the independent public accountants Automotive's certified financial statements
and exercise general oversight of Automotive's financial reporting process; and
(5) review with Automotive litigation and other legal matters that may affect
Automotive's financial condition and monitor compliance with Automotive's
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 Automotive and its
subsidiaries; (2) examine periodically the compensation structure of Automotive;
and (3) supervise the welfare and pension plans and compensation plans of
Automotive. 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 Automotive Board;
(b) review possible candidates for membership on the Automotive Board and
recommend a slate of nominees for election as directors at Automotive's annual
stockholders' meeting; (c) review the function and composition of the other
committees of the Automotive Board and recommend membership on these committees;
and (d) review the qualifications and recommend candidates for election as
officers of Automotive.
The Three-year Independent Director Evaluation Committee, comprised solely
of outside directors, will have the responsibility, among other things, to
review Automotive's qualified offer rights plan at least every three years and,
if it deems it appropriate, recommend that the full Automotive Board modify or
terminate that plan.
EXECUTIVE COMPENSATION
The following table shows the compensation paid for 1998 by Tenneco to: (a)
the person who will become the Chief Executive Officer of Automotive upon the
spin-off; and (b) each of the persons who will be included among the four most
highly compensated executive officers of Automotive upon the spin-off, based on
1998 compensation, other than the Chief Executive Officer. The table shows
amounts paid to these persons for all services provided to Tenneco and its
subsidiaries. Messrs. Donovan and Jackson had no compensation from Tenneco and
its subsidiaries prior to 1999.
141
<PAGE> 143
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>
Mark P. Frissora.............. $252,300 $130,000 $ 31,234 $450,720 35,000 $ 9,393
Chief Executive Officer
Richard P. Schneider.......... $216,310 $ 80,000 $ 39,169 -- 15,000 $12,683
Senior Vice
President -- Global
Administration
Mark A. McCollum.............. $211,800 $ 75,000 $110,678 -- 15,000 $ 584
Senior Vice President and
Chief Financial Officer
David G. Gabriel.............. $182,353 $ 60,000 $ 15,720 $187,800 10,000 $ 7,288
Senior Vice President and
General Manager -- North
American Aftermarket
</TABLE>
- ---------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Tenneco Thrift Plan.
(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: $1,013 for reimbursement of taxes; $8,760 in Dividend Equivalents
and $20,000 perquisite allowance for Mr. Frissora; $3,950 for reimbursement
of taxes, $10,200 in Dividend Equivalents and $20,000 perquisite allowance
for Mr. Schneider; $58,946 in relocation expenses, $20,745 for reimbursement
of taxes, $8,400 in Dividend Equivalents and $20,000 perquisite allowance
for Mr. McCollum; and $3,720 in Dividend Equivalents and $12,000 perquisite
allowance for Mr. Gabriel.
(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.
Frissora, Schneider, McCollum and Gabriel held 19,300; 11,500; 7,000; and
8,100 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 $657,416 for Mr. Frissora, $391,725 for
Mr. Schneider, $238,441 for Mr. McCollum, and $275,910 for Mr. Gabriel.
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, options will be adjusted so that the
options immediately after the spin-off will have equivalent economic terms
to the options immediately before the spin-off.
(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. Frissora, Schneider and Gabriel were $6,400, $5,013
and $5,000, respectively.
(b) The dollar values paid by Tenneco for insurance premiums under the
Tenneco group life insurance plan (including dependent life) for Messrs.
Frissora, Schneider, McCollum, and Gabriel were $2,993, $7,670, $584,
and $2,288, respectively.
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<PAGE> 144
OPTIONS GRANTED IN 1998
The following table shows the number of options to purchase Tenneco common
stock granted during 1998 to the persons named in the Summary Compensation Table
above.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF TOTAL
COMMON STOCK OPTIONS GRANTED
UNDERLYING TO TENNECO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED(#)(1) IN 1998(%) PRICE($)(2) DATE PRESENT VALUE(3)
---- --------------------- -------------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Mr. Frissora......... 35,000 2.0% $36.63 7/21/08 $360,150
Mr. Schneider........ 15,000 .9% $36.63 7/21/08 $154,350
Mr. McCollum......... 15,000 .9% $36.63 7/21/08 $154,350
Mr. Gabriel.......... 10,000 .5% $36.63 7/21/08 $102,900
</TABLE>
- ---------------
(1) In connection with the spin-off, the Tenneco stock options held by the
persons listed above will be adjusted so that the options immediately after
the spin-off will have equivalent economic terms to the options immediately
before the spin-off.
(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.
OPTIONS AT 1998 YEAR-END
The following table shows the number of options to purchase Tenneco common
stock held at 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 Tenneco 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. Frissora................................................ 8,291 65,495
Mr. Schneider............................................... 9,180 57,862
Mr. McCollum................................................ 22,476 49,583
Mr. Gabriel................................................. 5,894 23,346
</TABLE>
- ---------------
(1) In connection with the spin-off, the Tenneco stock options held by the
persons listed above will be adjusted so that the options immediately after
the spin-off will have equivalent economic terms to the options immediately
before the spin-off.
LONG-TERM INCENTIVE PLANS
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN 1998
The following table shows information concerning performance-based awards
made during 1998 to the persons named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR OTHER PERIOD NON-STOCK PRICE-BASED PLANS(1)
OTHER UNTIL MATURATION ---------------------------------------
NAME RIGHTS(1)(2) OR PAYOUT(3) THRESHOLD(4) TARGET(4) MAXIMUM(4)
---- ----------------- ---------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Frissora.................. 5,000 4 years 25% 100% 150%
Mr. Schneider................. 4,500 4 years 25% 100% 150%
Mr. McCollum.................. 3,500 4 years 25% 100% 150%
Mr. Gabriel................... 2,000 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.
143
<PAGE> 145
(2) Each performance share equivalent unit represents one share of Tenneco's
common stock that may be earned under this award and the number of
performance share equivalent units listed in this column represents the
maximum number of performance share equivalent units that may be earned
under this award.
(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.
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. In connection with the
spin-off, Packaging will become the sponsor of the Tenneco Retirement Plan.
Automotive expects to adopt a salaried defined benefit pension plan patterned
after the Tenneco Retirement Plan. The Automotive plan will count service prior
to the spin-off for all purposes, including benefit accrual, but there will be
an offset for benefits accrued under the Tenneco Retirement Plan. Therefore, as
to Automotive employees, the benefits described in the table will be provided by
a combination of payments from the Tenneco Retirement Plan and the Automotive
plan. Automotive also expects to continue plans similar to the Tenneco Inc.
supplemental pension plan.
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
ANNUAL ----------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$250,000............. $ 58,928 $ 78,571 $ 98,214 $117,857 $137,500
$300,000............. $ 70,714 $ 94,285 $117,857 $141,428 $165,000
$350,000............. $ 82,500 $110,000 $137,500 $165,000 $192,500
$400,000............. $ 94,285 $125,714 $157,142 $188,571 $220,000
$450,000............. $106,071 $141,428 $176,785 $212,142 $247,500
$500,000............. $117,857 $157,142 $196,428 $235,714 $275,000
$550,000............. $129,642 $172,857 $216,071 $259,285 $302,500
$600,000............. $141,428 $188,571 $235,714 $282,857 $330,000
$650,000............. $153,214 $204,285 $255,357 $306,428 $357,500
$700,000............. $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, which is comprised of 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. Frissora, Schneider, McCollum and
Gabriel are 2, 4, 4 and 4, respectively. See the Summary Compensation Table
on page 142 for salary and bonus information for these individuals.
2. If Mr. Frissora completes 10 years of service in the period commencing
January 1, 1999, he will be entitled to benefits commencing at age 55 of at
least 40% of his average salary plus bonus determined over a three-year
period.
COMPENSATION OF DIRECTORS
Fee Structure. Following the spin-off, each director who is not also an
employee of Automotive or its subsidiaries, an "outside director," will be paid
a yearly retainer fee of $35,000 for service on the Automotive 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.
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<PAGE> 146
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
Automotive common stock after an outside director ceases to serve as a director
of Automotive. 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
will be 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 6,500 shares of Automotive 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 Automotive 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.
Automotive expects that restricted shares of Tenneco common stock and
directors' stock equivalents held by outside directors will be vested prior to
the completion of the spin-off, and the directors will be paid an amount in cash
to defray taxes incurred on that vesting.
Deferred Compensation Plan. Automotive will have a voluntary deferred
compensation plan for outside directors. Under the plan, an outside director may
elect, prior to 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 Automotive common
stock, which may be paid out in either cash or shares of Automotive common
stock.
Restricted Stock. In satisfaction of residual obligations of Automotive
under the discontinued retirement plan for directors, Ms. Eickhoff and Mr.
Andrews will receive a yearly grant of $15,400 in value of restricted shares of
Automotive common stock. The restricted shares may not be sold, transferred,
assigned, pledged or otherwise encumbered and are subject to forfeiture if Ms.
Eickhoff or Mr. Andrews ceases to serve on the Board prior to the expiration of
the restricted period. This restricted period ends upon his or her normal
retirement from the Board, unless he or she is disabled, dies, or the
Compensation/Nominating/Governance Committee of the Board, at its discretion,
determines otherwise. During the restricted period, Ms. Eickhoff and Mr. Andrews
will be entitled to vote the shares and receive dividends.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Automotive will maintain a key executive change-in-control severance
benefit plan similar to the existing Tenneco plan and incorporating some
provisions of the benefits protection trust. The purpose of the plan is to
enable Automotive to continue to attract, retain and motivate highly qualified
employees by eliminating, to the maximum practicable extent, any concern on the
part of such employees that their job security or benefit entitlements will be
jeopardized by a "change-in-control" of Automotive, 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, Automotive expects that Messrs. Frissora, Schneider, McCollum and Gabriel
would have become entitled to receive payments from Automotive in the amount of
$1,200,000; $986,001; $1,119,399 and $760,749, respectively, had their positions
been terminated on December 31, 1998 following a change-in-control. In addition,
restricted shares held in the name of those individuals under restricted stock
plans would have automatically reverted to Automotive, and Automotive would have
been obliged to pay those individuals the fair market value of those restricted
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 for purposes of Tenneco's current or the new change-in-control severance
benefits plans. The Tenneco benefits protection trust and rabbi trust will be
terminated prior to the spin-off.
145
<PAGE> 147
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During fiscal year 1998, Tenneco paid the firm Eickhoff Economics, Inc., of
which Ms. Eickhoff is the sole owner, approximately $25,000 for financial
consulting services. These services have not been and will not be provided in
1999.
AUTOMOTIVE BENEFIT PLANS FOLLOWING THE SPIN-OFF
Automotive will continue its sponsorship of the defined benefit pension
plans covering hourly employees. Automotive expects to adopt a salaried defined
benefit pension plan patterned after the Tenneco Retirement Plan, which will
count service prior to the spin-off for all purposes including benefit accrual,
but there will be an offset for benefits accrued under the Tenneco Retirement
Plan. Automotive will adopt thrift plans covering salaried and hourly employees
to which the employees' account balances in the existing Tenneco Thrift Plan
will be transferred. The Automotive thrift plans will be 401(k) plans, and there
will be employer contributions.
Automotive will adopt two non-qualified deferred compensation plans
patterned after the existing Tenneco deferred compensation plans and
supplemental defined benefit pension plan. These plans will be unfunded.
Automotive will continue the executive incentive compensation plan to
provide annual cash bonuses to eligible employees.
Participation in the existing Tenneco employee stock purchase plan has been
suspended. Automotive expects to permit resumed participation in that plan after
the spin-off.
Automotive will continue the 1996 Tenneco Inc. Stock Ownership Plan.
Tenneco options which will continue to be held by Automotive personnel will be
adjusted in connection with the spin-off to maintain economic equivalent terms.
Shares underlying options previously held by non-Automotive personnel will
become available for regrant at the time of the spin-off.
NEW FINANCING
In connection with the spin-off, Automotive intends to (1) enter into a new
senior secured credit facility and (2) issue new senior subordinated debt.
Automotive plans to use the proceeds of the senior subordinated debt issue and
borrowings of approximately $1,150 million under the new senior credit facility
to fund a portion of the debt realignment. See "The Spin-off -- Debt
Realignment."
Definitive agreements for the issuance and sale of the senior subordinated
notes and the senior secured credit facility are being negotiated and have not
been completed. Accordingly, the terms of such arrangements described below are
preliminary and may change as a result of the negotiation of definitive
agreements. In addition, funding under both of the financings described below
will be subject to the satisfaction of numerous conditions.
NEW CREDIT FACILITY
Automotive intends to enter into a senior secured credit facility with a
syndicate, or group, of banks and other financial institutions. Automotive
expects the total available borrowing capacity under the senior secured credit
facility to amount to $1,650 million, including a $500 million revolving credit
facility, with commitment terms ranging from six to eight and one-half years.
Repayment. Automotive expects that the terms of the senior secured credit
facility will require the revolving credit facility to be repaid on or before
the date that is the sixth anniversary of the funding date. Prior to that date,
funds may be borrowed, repaid and reborrowed without premium or penalty.
Automotive expects that the revolving credit facility will terminate in 2005.
Automotive expects the term loans under the senior secured credit facility
will have varying maturities from six to eight and one-half years, a portion of
which will be payable in quarterly installments beginning 18 months after the
funding and the remainder of which will be payable at maturity.
146
<PAGE> 148
Guarantee; Security. Automotive expects the senior credit facility to be
guaranteed by each of Automotive's direct and indirect wholly-owned domestic
subsidiaries. Automotive also expects the senior credit facility to be secured
by a perfected security interest in (1) substantially all of the tangible and
intangible assets of Automotive and its domestic subsidiaries, (2) the capital
stock of Automotive's domestic subsidiaries, and (3) up to 65% of the capital
stock of Automotive's first-tier foreign subsidiaries, excluding joint venture
interests. Automotive expects that the collateral will be permanently released
if Automotive achieves specified long-term debt ratings and a portion of the
term loans have been paid in full.
Covenants. Automotive expects the senior credit facility will require
Automotive 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;
- minimum fixed charge coverage ratio, which is the ratio of consolidated
EBITDA less consolidated capital expenditures to consolidated cash
interest expense; and
- maximum leverage ratio, which is the ratio of consolidated indebtedness
to consolidated EBITDA.
In addition, the senior credit facility will contain restrictions on
Automotive's operations that are customary for similar facilities and
transactions, including limitations on: (a) incurring additional liens; (b)
liquidations and dissolutions; (c) incurring additional indebtedness or
guarantees; (d) sales or other dispositions of assets; (e) capital expenditures;
(f) dividends; (g) mergers and consolidations; (h) loans and advances; (i)
prepayments and modifications of subordinated and other debt instruments; and
(j) sales and leasebacks.
Interest. Automotive expects the borrowings under the senior credit
facility to bear interest at floating rates, generally based, at Tenneco's
option, on a base rate defined in the senior secured credit facility or the
Eurodollar rate, in each case plus an applicable margin that will depend on
Automotive's leverage ratio.
Mandatory Prepayments. Automotive expects that the senior secured credit
facility will require Automotive to prepay the term loan facilities and reduce
commitments under the revolving credit facility with:
- 100% of the net proceeds of any issuance or incurrence of indebtedness
after the funding date by Automotive or its subsidiaries, subject to
exceptions for permitted debt;
- 50% of the net proceeds of any issuance of equity by Automotive or its
subsidiaries, subject to some exceptions;
- 100% of the net proceeds of any sale or other disposition by Automotive
or its subsidiaries of any assets, unless such proceeds are reinvested in
assets useful in Automotive's business, with some exceptions;
- 75% of excess cash flow, to be defined in the senior credit facility; and
- 100% of the net proceeds of casualty insurance, condemnation awards or
other recoveries, to the extent the proceeds are not reinvested in other
assets useful in Automotive's business, subject to some exceptions.
Automotive expects that the mandatory prepayment percentages will be
reduced if Automotive achieves certain performance measures to be established in
the facility.
NEW SUBORDINATED DEBT
In connection with the spin-off, Automotive intends to offer $500 million
of senior subordinated notes in a private placement for resale pursuant to Rule
144A under the Securities Act of 1933. The senior
147
<PAGE> 149
subordinated notes will be general unsecured obligations of Automotive, junior
to all senior indebtedness of Automotive. While the interest rate, interest
payment dates, maturity and other material terms of the senior subordinated
notes have not been finalized, Automotive expects that the senior subordinated
notes will have terms customary for senior subordinated note offerings of
issuers similar to Automotive. Automotive also expects that the senior
subordinated notes will:
- mature in 10 years;
- be guaranteed by all of Automotive's material domestic wholly-owned
subsidiaries;
- have registration rights;
- be redeemable at the option of the holders upon a change of control; and
- include customary limitations on Automotive for this type of financing,
including limitations on indebtedness, liens, dividends, stock
repurchases, investments, assets sales, mergers, subsidiary stock
issuances and affiliate transactions.
148
<PAGE> 150
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of U.S. federal income tax
consequences of the exchange offers and consent solicitation to holders of
original securities. This discussion, to the extent it summarizes matters of law
or legal conclusions, is the opinion of Jenner & Block, tax counsel to Tenneco
and Packaging in connection with the exchange offers, based on United States
federal income tax laws as now in effect. This discussion does not discuss all
aspects of U.S. federal income taxation that may be relevant to you in light of
the your particular circumstances. For example, special rules may apply to you
if you are one of the following types of holders:
- an insurance company,
- a tax-exempt organization,
- an employee stock ownership plan,
- a bank, broker, dealer or financial institution,
- a holder that holds original securities as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for U.S.
federal income tax purposes,
- a holder that has a "functional currency" other than the United States
dollar, or
- a taxpayer that is not a citizen or resident of the United States, or
that is a foreign corporation, foreign partnership or foreign estate or
trust as to the United States.
In addition, the discussion does not consider the effect of any foreign,
state, local, or other tax laws, or any United States tax consequences (for
example, estate or gift tax) other than income tax consequences, that may be
applicable to you. Further, this summary assumes that you hold the original
securities as "capital assets" (generally, property held for investment) within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"). This summary is based on the Code and applicable Treasury
Regulations promulgated and proposed under the Code, rulings, administrative
pronouncements and decisions as of the date of this document, all of which are
subject to change or differing interpretations at any time with possible
retroactive effect.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFERS AND
CONSENT SOLICITATION.
TAX CONSIDERATIONS IF YOU EXCHANGE
New Securities. In general, if you tender your original securities in the
exchange offers, you should not recognize any gain or loss as a result of your
receipt of new securities, except on the receipt of accrued and unpaid interest
on the original securities and on the receipt of an early exchange premium, as
discussed below. Your basis of the new securities immediately after the exchange
offers will be the same as the basis of your original securities exchanged for
those new securities, increased by the amount of gain you recognized in the
applicable exchange offer and decreased by the amount of any related early
exchange premium received. The holding period of the new securities received by
you in the exchange offers will include the period during which you held the
original securities exchanged for those new securities, assuming the original
securities were held as capital assets. No ruling has been requested from the
Internal Revenue Service regarding the consequences of the exchange offers and,
accordingly, Tenneco and Packaging cannot assure you that the IRS will not take
a view contrary to those expressed above.
The above conclusions are based on the assumption, among others, that the
original securities and new securities are "securities" for federal income tax
purposes. Whether a debt instrument constitutes a security for U.S. federal
income tax purposes depends on the terms, conditions and other facts and
circumstances relating to the instrument. Prominent factors that the courts have
relied upon in making this determination include: (a) the term to maturity of
the debt; (b) the collateral securing the debt; (c) the degree of subordination
of the debt; (d) the ratio of debt to equity of the issuer; (e) the riskiness of
the business of the issuer; and (f) the negotiability of the instrument.
Generally, notes with terms to maturity
149
<PAGE> 151
of ten years or more, such as some of the original securities and some of the
new securities, are treated as securities for federal income tax purposes.
Securities with terms to maturity of five years or less are generally not
treated as securities for federal income tax purposes. Nevertheless, the IRS has
taken the position that while the term to maturity is an important factor, the
determination of whether a debt instrument is a security should be based upon an
evaluation of the overall nature of the debt, including the degree of
participation and continuing interest in the business of the debtor obligated
for the debt. [Terms to maturity of new securities to be provided by amendment.]
Based on all of the factors discussed above, in the opinion of Jenner &
Block, both the original securities and the new securities should be treated as
securities for U.S. federal income tax purposes. However, due to the inherently
factual nature of the determination of whether a debt instrument is a security
for tax purposes, the IRS or a court could determine that the original
securities or the new securities do not constitute securities.
The above conclusions are also based on the assumption that the spin-off
will qualify as a tax-free distribution under Section 355 of the Code. Tenneco
has received a letter ruling from the IRS to that effect. The letter ruling is
based on various factual representations and assumptions. If any of these
factual representations or assumptions are incomplete or untrue in a material
respect, or the facts on which the letter ruling is based are materially
different from the facts at the time of the spin-off, the spin-off could become
taxable to Tenneco, its stockholders and its other securityholders.
If the spin-off does not qualify as a tax-free distribution under Section
355 of the Code, other than as a result of a 50% ownership shift in Automotive
or Packaging, or if either the original securities or new securities are
determined not to be securities for U.S. federal income tax purposes, you would
recognize capital gain or loss if you participate in the exchange offers equal
to the difference between the issue price of the new securities and your tax
basis of the original securities exchanged. Any gain may be subject to ordinary
income treatment if you acquired the original securities at a market discount.
The "issue price" of the new securities will be equal to (a) the fair market
value of the original securities or the new securities, if either the original
securities or the new securities are traded on an established market, or (b) the
stated principal amount of the new securities, if neither the original
securities nor the new securities are traded on an established market.
If either the original securities or the new securities are traded on an
established market, the new securities may have original issue discount equal to
the difference between their issue price and their stated principal amount. You
would include any original issue discount in income as it accrued on the basis
of a constant yield to the maturity date, and thus would be required to include
amounts in income prior to the date such income is actually paid in cash.
Early Exchange Premium. The law is unclear as to how an early exchange
premium that is received by you with respect to an Old Exchange Security
exchanged in the exchange offers will be treated for U.S. federal income tax
purposes. It is possible that an early exchange premium will be treated as: (a)
additional consideration received by you in exchange for your original
securities; (b) a separate payment in the nature of a fee; or (c) a payment of
additional interest. If the early exchange premium is treated as additional
interest or a fee, it would result in ordinary income to you. If the early
exchange premium is treated as additional consideration received by you in
exchange for your original securities, it would result in the recognition of
capital gain by you to the extent of the lesser of (1) the early exchange
premium received and (2) the gain, if any, realized by you on the exchange of
those original securities. Tenneco intends to treat the early exchange premium
for U.S. federal income tax purposes as additional consideration received by
holders in exchange for original securities and accordingly not subject to
backup withholding. However, no ruling has been requested from the IRS regarding
the tax consequences of the payment of the early exchange premium. Thus, no
assurance can be given that the position intended to be taken by Tenneco
described above will be accepted by the IRS.
Accrued Interest. Any portion of the payment received by you which is
attributable to accrued interest on the original securities will be taxable as
ordinary income in accordance with your method of accounting for U.S. federal
income tax purposes.
150
<PAGE> 152
TAX CONSIDERATIONS IF YOU DO NOT EXCHANGE
If you do not exchange your original securities in the exchange offers you
should not recognize gain or loss for U.S. federal income tax purposes unless
the supplemental indenture with respect to the original indenture (providing for
the proposed amendments) becomes effective and is deemed to constitute a
significant modification of the original securities under Section 1001 of the
Code. The changes in the terms of the original securities to be effected by the
supplemental indenture should not constitute a significant modification under
the applicable Treasury Regulations, and should not result in a deemed exchange
of securities for U.S. federal income tax purposes. Accordingly, if you hold
original securities and elect to retain then, you should not recognize gain or
loss as a result of the changes to the terms of the original securities effected
by the Supplemental Indenture. Alternatively, even if the supplemental indenture
were to result in a deemed exchange of securities for U.S. federal income tax
purposes, if you do not tender your original securities into the exchange
offers, you should not recognize gain or loss on the deemed exchange since the
deemed exchange should qualify as a tax-free recapitalization (assuming the
original securities constitute securities for federal income tax purposes).
BACKUP WITHHOLDING
Under the U.S. federal income tax backup withholding provisions of the Code
and applicable Treasury Regulations, you will be subject to backup withholding
at the rate of 31% with respect to interest received by you unless you: (a) are
a corporation or come within another exempt category and, when required,
demonstrate this fact; or (b) provide a correct taxpayer identification number
to the exchange agent, certify as to no loss of exemption from backup
withholding, and otherwise comply with the applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against your U.S. federal income tax liability. To prevent backup withholding
with respect to the payment of interest, you must complete and sign a substitute
Form W-9, which is included as part of the consent and letter of transmittal,
and return it to the exchange agent. If the exchange agent is not provided with
the correct taxpayer identification number, you may also be subject to a penalty
imposed by the IRS. If withholding results in an overpayment of taxes, a refund
may be obtained by you from the IRS.
LEGAL MATTERS
Legal matters regarding the authorization and issuance of the new
securities will be passed upon for Tenneco and Packaging by Jenner & Block,
Chicago, Illinois. Matters regarding the federal income tax treatment of the
exchange offers and consent solicitation are also being passed upon for Tenneco
and Packaging by Jenner & Block. Theodore R. Tetzlaff, General Counsel of
Tenneco and a partner of Jenner & Block, beneficially owns 188,406 shares of
Tenneco common stock (including options to purchase 89,871 shares of Tenneco
common stock, which options are either presently exercisable or exercisable
within 60 days). Timothy R. Donovan, also a partner of Jenner & Block, was named
Senior Vice President and General Counsel of Automotive in August 1999. Legal
matters relating to exchange offers and consent solicitation will be passed upon
for the dealer managers by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York. Cahill Gordon & Reindel has in
the past represented and continues to represent Tenneco in various matters.
EXPERTS
The following financial statements and schedules included or incorporated
by reference in this document or elsewhere in this registration statement to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, and are included in this
document in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports: (a) Tenneco Inc. and Consolidated
Subsidiaries included in Tenneco's Current Report on Form 8-K dated August 20,
1999, incorporated by reference in this document; and (b) The Businesses of
Tenneco Packaging, included in this document.
151
<PAGE> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
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> 181
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> 182
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> 183
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> 184
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> 185
ANNEX A
PROPOSED AMENDMENTS AND WAIVER
The following is the text of the proposed amendments and waiver. The
following is qualified in its entirety by reference to the supplemental
indenture and the original indenture, copies of which can be obtained without
charge from the information agent. Capitalized terms used below without
definition have the meanings assigned to them in the original indenture.
1. IF TENNECO RECEIVES THE REQUIRED CONSENTS, THE FOLLOWING PROVISIONS
REGARDING THE WAIVER WILL TAKE EFFECT UPON EXECUTION OF THE SUPPLEMENTAL
INDENTURE ON OR PROMPTLY FOLLOWING THE WITHDRAWAL TIME.
"SECTION 1. Definitions: As used herein, the following terms shall have the
meanings set forth below:
"Cash Tender Offers" means Tenneco's offers to purchase for cash certain
series of Securities issued under the Original Indenture pursuant to the Offer
to Purchase and Consent Solicitation of Tenneco dated , 1999, as amended
from time to time.
"Consent Solicitation" means Tenneco's solicitation of consents to
amendments to the Original Indenture and the execution of this Eleventh
Supplemental Indenture pursuant to the Exchange Offers and Cash Tender Offers.
"Debt Realignment" means the realignment, prior to the Spin-off, of
Tenneco's debt through some combination of tender offers, exchange offers,
prepayments and other refinancings.
"Exchange Offers" means Tenneco's offers to exchange notes and debentures
issued by Tenneco Packaging Inc. for certain Securities issued under the
Original Indenture pursuant to the Prospectus and Consent Solicitation of
Packaging and Tenneco dated , 1999, as amended from time to time.
"Exchange Securities" means the series of Securities subject to the
Exchange Offers.
"Original Indenture" means the Indenture, dated November 1, 1996, between
Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as
trustee, as amended.
"Packaging" means Tenneco Packaging Inc., a Delaware corporation.
"Spin-off" means the distribution of all Packaging common stock to the
holders of Tenneco common stock at a ratio of one share of Packaging common
stock for each share of Tenneco common stock.
"Tender Securities" means the series of Securities subject to the Cash
Tender Offers.
"Tenneco" means Tenneco Inc., a Delaware corporation.
"Trustee" means The Chase Manhattan Bank, as trustee under the Original
Indenture.
SECTION 2. Waiver. Subject to Section 3.2 of this Eleventh Supplemental
Indenture, the application of the covenants contained in Sections 3.6, 9.1, 9.2
and 9.3 of the Original Indenture is hereby waived to the extent required to
effect the Spin-off, including, without limitation, to effect the Debt
Realignment (the "Waiver").
SECTION 3. Operation of Amendments and Waiver.
Section 3.1. Upon the execution and delivery of this Eleventh Supplemental
Indenture by Tenneco and the Trustee, the Original Indenture shall be amended
and supplemented in accordance herewith, and this Eleventh Supplemental
Indenture shall form a part of the Original Indenture for all purposes, and
every holder of Securities heretofore or hereafter authenticated and delivered
under the Original Indenture shall be bound hereby, as hereby amended and
supplemented; provided, however, that the provisions of the Eleventh
Supplemental Indenture, except as described in Section 3.2 with respect to the
Waiver, shall not become operative until Tenneco has notified the Trustee that
it has accepted for exchange or payment the Exchange Securities and/or Tender
Securities, as the case may be, tendered pursuant to the Exchange
A-1
<PAGE> 186
Offers and/or Tender Offers which represent at least a majority of all
Securities outstanding under the Original Indenture (and at such time the
provisions of this Eleventh Supplemental Indenture shall automatically become
operative without the requirement of any further action by or notice to Tenneco,
the Trustee or any holder of Exchange Securities or Tender Securities).
SECTION 3.2 The Waiver shall become operative immediately upon the
execution and delivery of this Eleventh Supplemental Indenture by Tenneco and
the Trustee. However, if Exchange Securities and/or Tender Securities which
represent at least a majority of all Securities outstanding under the Original
Indenture are not accepted for exchange or purchase, as the case may be, because
the related Exchange Offers, Cash Tender Offers or Consent Solicitation are
terminated or withdrawn, the Waiver will cease to be operative."
2. IF THE PROPOSED AMENDMENTS ARE ADOPTED, THE FOLLOWING ITALICIZED TEXT
WILL BE DELETED IN ITS ENTIRETY FROM THE ORIGINAL INDENTURE, AND THE UNDERLINED
TEXT WILL BE ADDED FOLLOWING THE APPROPRIATE SECTIONS THEREOF.
SECTION 3.6. NEGATIVE PLEDGE; LIMITATION ON SALE AND LEASEBACK
TRANSACTIONS.
[ADD: Intentionally Deleted by Amendment]
[DELETE: (a) The Issuer will not issue, assume, incur or guarantee, and
will not permit any Restricted Subsidiary to issue, assume, incur or guarantee,
any Debt secured by any mortgage, pledge, lien or other encumbrance (any such
mortgage, pledge, lien and other encumbrance being hereinafter called a
"Mortgage") upon any principal Manufacturing Property of the Issuer or any
Restricted Subsidiary, or upon shares of capital stock or Debt of any Restricted
Subsidiary (whether such Principal Manufacturing Property or shares of stock are
now owned or hereafter acquired or such Debt is now existing or hereafter
incurred or assumed), without in any such case effectively providing,
concurrently with the issuance or assumption of such Debt, that the Securities
(together with, if the Issuer shall so determine, any other Debt of the Issuer
or such Restricted Subsidiary ranking equally with the Securities and then
existing or thereafter created) shall be secured equally and ratably with such
Debt; provided, however, that the foregoing restrictions shall not apply to:
(i) the creation of Mortgages on any Principal Manufacturing Property
(including any improvements on an existing property, as to which the
Mortgage may include such underlying real property as the Issuer may deem
necessary for the improvement and unnecessary for the operation of any
theretofore existing Principal Manufacturing Property on the same or
adjoining real property) hereafter acquired by the Issuer or a Restricted
Subsidiary prior to, at the time of, or within 180 days after the latest of
the acquisition, completion of construction or commencement of commercial
operation of such property, to secure or provide for the payment of
financing of all or any part of the purchase price thereof or construction
of fixed improvements thereon, or, in addition to assumptions in
transactions contemplated by subparagraph (ii) below, the assumption of any
Mortgage upon any Principal Manufacturing Property hereafter acquired
existing at the time of such acquisitions, or the acquisition of any
Principal Manufacturing Property subject to any Mortgage without the
assumption thereof; provided that the aggregate principal amount of Debt
secured by any such Mortgage so issued, assumed or existing shall not
exceed 100% of the cost of such Principal Manufacturing Property to the
corporation acquiring the same or of the fair value thereof (as determined
by resolution adopted by the Board of Directors) at the time of such
acquisition, whichever is less, and, provided further, that in the case of
any such acquisition, construction or improvement the Mortgage shall not
apply to any property theretofore owned by the Issuer or a Restricted
Subsidiary, other than, in the case of any such construction or
improvement, any theretofore unimproved real property on which the property
so constructed, or the improvement, is located (which unimproved real
property may at the option of the Issuer be segregated by legal description
from other real property of the Issuer appurtenant to such Principal
Manufacturing Property and subjected to the Mortgage related to such
construction or improvement);
A-2
<PAGE> 187
(ii) any Mortgages on any Principal Manufacturing Property of a
corporation which is merged into or consolidated with the Issuer or a
Restricted Subsidiary or substantially all of the assets of which are
required by the Issuer or a Restricted Subsidiary (whether or not the
obligations secured by any such Mortgage are assumed by the Issuer or a
Restricted Subsidiary); provided that such Mortgages were not created in
contemplation of such merger, consolidation or acquisition;
(iii) Mortgages on any Principal Manufacturing Property of the Issuer
or a Restricted Subsidiary in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in
favor of any other country, or any political subdivision thereof, to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any Debt incurred or guaranteed for the purpose of
financing all or any part of the cost of acquiring, construction or
improving the property subject to such Mortgages (including Mortgages
incurred in connection with financings of the type contemplated by Section
103 of the Internal Revenue Code, maritime financings under Title XI of the
United States Code or similar financings);
(iv) Mortgages on particular property (or any proceeds of the sale
thereof) to secure all or any part of the cost of exploration, drilling,
mining, development, operation or maintenance thereof (including, without
limitation, construction of facilities for field processing) intended to
obtain or increase the production and sale or other disposition of oil,
gas, coal, natural gas, carbon dioxide, sulphur, helium, metals, minerals,
steam, timber or other natural resources, or any Debt created, issued,
assumed or guaranteed to provide funds for any or all such purposes;
(v) Mortgages securing Debt of a Restricted Subsidiary owing to the
Issuer and/or another Restricted Subsidiary;
(vi) Mortgages on any Principal Manufacturing Property of the Issuer
or a Restricted Subsidiary which Mortgages were in existence on the date of
this Indenture; provided, however, that each such Mortgage shall be limited
to all or a part of the property which secured such Mortgage at such date
(plus improvements and construction on such Property);
(vii) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part, of any Mortgage referred to
in the foregoing clauses (i) through (vi); provided, however, that the
principal amount of Debt so secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or
replacement, and that such extension, renewal or replacement shall be
limited to all or a part of the property which secured the Mortgage so
extended, renewed or replaced (plus improvements and construction on such
property); and
(viii) Permitted Mortgages.]
[DELETE: (b) Notwithstanding the provisions of subsection (a) of this
Section, the Issuer or anyone or more Restricted Subsidiaries may issue or
assume Debt secured by a Mortgage on a Principal Manufacturing Property in
addition to those permitted by subsection (a) of this Section and renew, extend
or replace such Mortgages; provided that at the time of such creation,
assumption, renewal, extension or replacement, and after giving effect thereto,
Exempted Debt does not exceed 15% of Consolidated Net Tangible Assets.]
[DELETE: (c) The Issuer will not, nor will it permit any Restricted
Subsidiary to, enter into any arrangement with any Person providing for the
leasing by the Issuer or any Restricted Subsidiary of any Principal
Manufacturing Property, whether such principal Manufacturing Property is now
owned or hereafter acquired (except for temporary leases for a term, including
renewals at the option of the lessee, of not more than three years and except
for leases between the Issuer and a Restricted Subsidiary or between Restricted
Subsidiaries), which property has been or is to be sold or transferred by the
Issuer or such Restricted Subsidiary to such Person with the intention of taking
back a lease on such property (a "sale and leaseback transaction") unless the
net proceeds of such sale or transfer shall be at least equal to the fair value
of such property as determined by resolution adopted by the Board of Directors
and either:
A-3
<PAGE> 188
(i) the Issuer or such Restricted Subsidiary would be entitled,
pursuant to the provisions of subsection (a) of this Section, to issue or
assume Debt secured by a Mortgage on such property at least equal in amount
to the Attributable Debt in respect of such sale and leaseback transaction
without equally and ratably securing the Securities; or
(ii) since the date hereof and within a period commencing twelve
months prior to the consummation of such sale and leaseback transaction and
ending twelve months after the consummation of such sale and leaseback
transaction the Issuer or such Restricted Subsidiary, as the case may be,
has expended or will expend, or a combination of both, for facilities
comprising all or a part of a Principal Manufacturing Property an amount
equal to (A) the net proceeds of such sale and leaseback transaction and
the Issuer elects to designate such amount as a credit against such sale
and leaseback transaction or (B) a part of the net proceeds of such sale
and leaseback transaction and the Issuer elects to designate such amount as
a credit against such sale and leaseback transaction and applies an amount
equal to the remainder of the net proceeds as provided in clause (iii)
hereof; or
(iii) such sale and leaseback transactions do not come within the
exceptions provided in clause (i) hereof and the Issuer does not make the
election permitted by clause (ii) hereof or makes such election only as to
part of such net proceeds, in either which event the Issuer will, within
180 days after such sale and leaseback transaction, apply an amount equal
to the Attributable Debt in respect of such sale and leaseback transaction
(less an amount equal to the amount, if any, elected under clause (ii)
hereof to the retirement (other than any mandatory retirement or by way of
payment at maturity) of Debt with a maturity of greater than one year of
the Issuer or any Restricted Subsidiary (other than Debt of the Issuer to
any Restricted Subsidiary or of any Restricted Subsidiary to the Issuer or
another Restricted Subsidiary).
(d) Notwithstanding the provisions of paragraph (c) of this Section, the
Issuer and any Restricted Subsidiary may enter into sale and leaseback
transactions in addition to those permitted by paragraph (c) of this Section and
without any obligation to make expenditures for facilities comprising a part or
all of a Principal manufacturing Property or to retire any Debt, provided that
at the time of entering into such sale and leaseback transaction and after
giving effect thereto, Exempted Debt does not exceed 15% of Consolidated Net
Tangible Assets.]
SECTION 9.1. COVENANT NOT TO MERGE, CONSOLIDATE, SELL OR CONVEY PROPERTY
EXCEPT UNDER CERTAIN CONDITIONS.
[ADD: Intentionally Deleted by Amendment]
[DELETE: The Issuer covenants that it will not merge or consolidate with
any other Person or sell, lease or convey all or substantially all of its assets
to any other Person, unless (i) either the Issuer shall be the continuing
corporation, or the successor corporation or the Person which acquires by sale,
lease or conveyance substantially all the assets of the Issuer (if other than
the Issuer) shall be a corporation organized under the laws of the United States
of America or any State thereof or the District of Columbia and shall expressly
assume the due and punctual payment of the principal of and interest on all the
Securities and Coupons, if any, according to their tenor, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed or observed by the Issuer, by supplemental
indenture satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, and (ii) the Issuer, such Person or such successor
corporation, as the case may be, shall not, immediately after such merger or
consolidation, or such sale, lease or conveyance, be in default in the
performance of any such covenant or condition.]
SECTION 9.2. SUCCESSOR CORPORATION SUBSTITUTED.
[ADD: Intentionally Deleted by Amendment]
[DELETE: In case of any such consolidation, merger, sale, lease or
conveyance, and following such an assumption by the successor corporation, such
successor corporation shall succeed to and be substituted for the Issuer, with
the same effect as if it had been named herein. Such successor corporation may
cause to
A-4
<PAGE> 189
be signed, and may issue either in its own name or in the name of the Issuer
prior to such succession any or all of the Securities issuable hereunder which
together with any Coupons appertaining thereto theretofore shall not have been
signed by the Issuer and delivered to the Trustee; and, upon the order of such
successor corporation, instead of the Issuer, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities together with any Coupons
appertaining thereto which previously shall have been signed and delivered by
the officers of the Issuer to the Trustee for authentication, and any Securities
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All of the Securities so issued
together with any Coupons appertaining thereto shall in all respects have the
same legal rank and benefit under this Indenture as the Securities theretofore
or thereafter issued in accordance with the terms of this Indenture as though
all of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phrasing and form (but not in substance) may be made in the
Securities and Coupons thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Issuer or any successor corporation which shall theretofore have
become such in the manner described in this Article shall be discharged from all
obligations and covenants under this Indenture and the Securities and may be
liquidated and dissolved.]
SECTION 9.3. OPINION OF COUNSEL DELIVERED TO TRUSTEE.
[ADD: Intentionally Deleted by Amendment]
[DELETE: The Trustee, subject to the provisions of Section 6.1 and 6.2, may
receive an Opinion of Counsel as conclusive evidence that any such
consolidation, merger, sale, lease or conveyance, and any such assumption, and
any such liquidation or dissolution, complies with the applicable provisions of
this Indenture.]
A-5
<PAGE> 190
THE DEALER MANAGERS FOR THE EXCHANGE OFFERS ARE
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
1585 Broadway, Second Floor Eleven Madison Avenue
New York, NY 10036 New York, NY 10010
Attn: Liability Management Group Attn: Liability Management Group
(800) 624-1808 800-820-1653
</TABLE>
Any questions concerning the terms of the exchange offers may be directed to
the dealer managers.
THE INFORMATION AGENT FOR THE EXCHANGE OFFERS IS
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800)223-2064
Any questions concerning tender procedures or requests for additional copies of
this
document may be directed to the information agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFERS IS
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Hand: By Registered Mail: By Overnight Delivery:
Corporate Trust Securities Window The Chase Manhattan Bank The Chase Manhattan Bank
55 Water Street Money Market Operations Money Market Operations
Room 234 55 Water Street 55 Water Street
North Building Room 234 Room 234
New York, NY 10041 North Building North Building
Attn: Carlos Esteves New York, NY 10041 New York, NY 10041
Attn: Carlos Esteves Attn: Carlos Esteves
</TABLE>
By Facsimile:
(212) 638-7380 or (212) 638-7381
Confirm by Telephone:
(212) 638-0828
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 191
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Packaging will be restating its certificate of incorporation prior before
the spin-off to provide that a director of Packaging will not be liable to
Packaging or its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent that an exemption from liability or
limitation of liability is not permitted under the Delaware General Corporation
Law ("DGCL"). Based on the DGCL as presently in effect, a director of Packaging
will not be personally liable to Packaging or its stockholders for monetary
damages for breach of fiduciary duty as a director, except: (1) for any breach
of the director's duty of loyalty to Packaging or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the DGCL; which concerns
unlawful payments of dividends, stock purchases or redemptions; or (4) for any
transactions from which the director derived an improper personal benefit.
While these provisions give directors protection from awards for monetary
damages for breaches of their duty of care, they do not eliminate the duty.
Accordingly, Packaging's certificate of incorporation will have no effect on the
availability of equitable remedies such as injunction or rescission based on a
director's breach of his or her duty of care. The provisions of Packaging's
certificate of incorporation 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. They do not apply to officers of Packaging who are not
directors.
The by-laws of Packaging currently provide that Packaging shall indemnify,
to the fullest extent permitted by the DGCL, as may be amended from time to
time, each person who is or was a director or officer, or who serves or may have
served at Packaging's request as a director or officer of another corporation,
and who is or was a party or is threatened to be made a party to any pending or
completed claim, action, suit or proceeding. Packaging will provide
indemnification against any expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by the
person in his or her capacity or status as a director or officer. At the
discretion of Packaging's board of directors, Packaging may indemnify each
person who is or was an employee or agent of Packaging, or who served or may
have served at Packaging's request as an employee or agent of another
corporation, to the same extent as directors and officers.
Before the spin-off, Packaging will amend and restate its by-laws. After
the amendment and restatement, Packaging's by-laws will include the following
provisions:
"Section 14. (1) The corporation shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or
may hereafter be amended, any person (an "Indemnitee") who was or is made
or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (a "proceeding"), by reason of the fact
that he, or a person for whom he is the legal representative, is or was a
director or officer of the corporation or, while a director or officer of
the corporation, is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such Indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in paragraph (3) of this Section 14,
the corporation shall be required to indemnify an Indemnitee in connection
with a proceeding (or part thereof) commenced by such Indemnitee only if
the commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its
final disposition, provided, however, that, to the extent required by law,
such payment of expenses in advance of the final disposition of the
II-1
<PAGE> 192
proceeding shall be made only upon receipt of an undertaking by the
Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim
therefor by the Indemnitee has been received by the corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 14 shall
not be exclusive of any other rights which such Indemnitee may have or
hereafter acquire under any statute, provision of the Restated Certificate
of Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by
any amount such Indemnitee may collect as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit enterprise.
(6) Any repeal or modification of the foregoing provisions of this
Section 14 shall not adversely affect any right or protection hereunder of
any Indemnitee in respect of any act or omission occurring prior to the
time of such repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to
the extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action."
Packaging has purchased insurance which purports to insure Packaging
against some of the costs of indemnification which may be incurred under the
by-law section discussed above. The insurance also purports to insure the
officers and directors of Packaging and its subsidiaries against some
liabilities incurred by them in the discharge of their duties as officers and
directors, except for liabilities resulting from their own malfeasance.
In addition, in the distribution agreement Tenneco will agree to indemnify
the directors and officers of Packaging against some liabilities for any
violations or alleged violations of securities or other laws arising out of some
of the documents related to the spin-off. See "Item 22, Undertakings" for a
description of the Commission's position regarding such indemnification
provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 None.
2 Form of Distribution Agreement by and between Tenneco Inc.
and Tenneco Packaging Inc.*
3.1 Certificate of Incorporation of Tenneco Packaging Inc., as
amended, as currently in effect (incorporated herein by
reference to Exhibit 3.1 to Tenneco Packaging Inc.'s
Registration Statement on Form 10, File No. 1-15157).
3.2 Form of Restated Certificate of Incorporation of Tenneco
Packaging Inc., to be adopted prior to the spin-off
(incorporated herein by reference to Exhibit 3.2 to Tenneco
Packaging Inc.'s Registration Statement on Form 10, File No.
1-15157).
</TABLE>
II-2
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.3 Amended By-laws of Tenneco Packaging Inc., as currently in
effect (incorporated herein by reference to Exhibit 3.3 to
Tenneco Packaging Inc.'s Registration Statement on Form 10,
File No. 1-15157).
3.4 Form of Amended and Restated By-laws of Tenneco Packaging
Inc., to be adopted prior to the spin-off (incorporated
herein by reference to Exhibit 3.4 to Tenneco Packaging
Inc.'s Registration Statement on Form 10, File No. 1-15157).
4.1 Form of Indenture by and between Tenneco Packaging Inc. and
The Chase Manhattan Bank, as Trustee.
4.2 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 (incorporated herein by reference to Exhibit 4.4 to
Tenneco Packaging Inc.'s Registration Statement on Form 10,
File No. 1-15157).
5 Opinion of Jenner & Block.*
8 Opinion of Jenner & Block regarding tax matters.*
9 None.
10.1 Form of Human Resources Agreement by and between Tenneco
Inc. and Tenneco Packaging Inc. (incorporated herein by
reference to Exhibit 10.1 to Tenneco Packaging Inc.'s
Registration Statement on Form 10, File No. 1-15147).
10.2 Form of Tax Sharing Agreement by and between Tenneco Inc.
and Tenneco Packaging Inc. (incorporated herein by reference
to Exhibit 10.2 to Tenneco Packaging Inc.'s Registration
Statement on Form 10, File No. 1-15157).
10.3 Form of Transition Services Agreement by and between Tenneco
Inc. and Tenneco Packaging Inc.*
10.4 Indenture (the "original indenture"), dated November 1,
1996, between Tenneco Inc. (formerly known as New Tenneco
Inc.) and The Chase Manhattan Bank, as trustee (incorporated
herein by reference to New Tenneco Inc.'s Registration
Statement on Form S-4, Registration No. 333-14003).
10.5 Form of Eleventh Supplemental Indenture to the original
indenture, to be entered into between Tenneco Inc. and The
Chase Manhattan Bank, as Trustee, providing for the proposed
amendments.
10.6 Form of Trademark Transition License Agreement by and
between Tenneco Inc. and Tenneco Packaging Inc.
(incorporated herein by reference to Exhibit 10.4 to Tenneco
Packaging Inc.'s Registration Statement on Form 10, File No.
1-15157).
10.8 Form of Tenneco Packaging Inc. Executive Incentive
Compensation Plan, to be adopted in connection with the
spin-off (incorporated herein by reference to Exhibit 10.6
to Tenneco Packaging Inc.'s Registration Statement on Form
10, File No. 1-15157).
10.9 Form of Tenneco Packaging Inc. Supplemental Executive
Retirement Plan, to be adopted in connection with the
spin-off (incorporated herein by reference to Exhibit 10.7
to Tenneco Packaging Inc.'s Registration Statement on Form
10, File No. 1-15157).
10.10 Form of Tenneco Packaging Inc. Change in Control Severance
Benefit Plan for Key Executives, to be adopted in connection
with the spin-off (incorporated herein by reference to
Exhibit 10.8 to Tenneco Packaging Inc.'s Registration
Statement on Form 10, File No. 1-15157).
10.11 Form of Tenneco Packaging Inc. Rabbi Trust II, to be adopted
in connection with the spin-off.*
</TABLE>
II-3
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.12 Form of Tenneco Packaging Inc. Stock Ownership Plan, to be
adopted in connection with the spin-off (incorporated herein
by reference to Exhibit 10.10 to Tenneco Packaging Inc.'s
Registration Statement on Form 10, File No. 1-15157).
10.13 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).
10.14 Form of Tenneco Packaging Inc. Rabbi Trust, to be adopted in
connection with the spin-off (incorporated herein by
reference to Exhibit 10.12 to Tenneco Packaging Inc.'s
Registration Statement on Form 10, File No. 1-15157).
10.15 Form of Tenneco Packaging Inc. Deferred Compensation Plan,
to be adopted in connection with the spin-off (incorporated
herein by reference to Exhibit 10.9 to Tenneco Packaging
Inc.'s Registration Statement on Form 10, File No. 1-15157).
10.16(a) Contribution Agreement, dated as of January 25, 1999, by and
among Tenneco Packaging Inc., PCA Holdings LLC and Packaging
Corporation of America (the "Contribution Agreement")
(incorporated herein by reference from Exhibit 10.30 of
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
10.16(b) Letter Agreement, dated as of April 12, 1999, by and among
Tenneco Packaging Inc., PCA Holdings LLC and Packaging
Corporation of America, amending the Contribution Agreement
(incorporated herein by reference from Exhibit 10.31 of
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
10.17 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 from Exhibit 10.32 of Tenneco Inc.'s Current
Report on Form 8-K dated April 12, 1999, File No. 1-12387).
10.18 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 from Exhibit 10.33 of Tenneco Inc.'s
Current Report on Form 8-K dated April 12, 1999, File No.
1-12387).
10.19 Form of Insurance Agreement by and between Tenneco Inc. and
Tenneco Packaging Inc.*
11 None.
12.1 Statement of Ratio of Earnings to Fixed Charges (Tenneco
Packaging Inc.).
12.2 Statement of Ratio of Earnings to Fixed Charges (Tenneco
Inc.) (incorporated herein by reference from Exhibit 12.2 of
Tenneco Inc.'s Current Report on Form 8-K dated August 20,
1999, File No. 1-12387).
13 None.
15 None.
16 None.
21 List of Subsidiaries of Tenneco Packaging Inc. (incorporated
herein by reference from Exhibit 21 to Tenneco Packaging
Inc.'s Registration Statement on Form 10, File No. 1-15157).
23.1 Consent of Jenner & Block (included in Exhibit 5 and Exhibit
8).
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney of Richard L. Wambold.**
25 Statement of Eligibility of Trustee.
26 None.
27.1 Financial Data Schedule, December 31, 1998.**
</TABLE>
II-4
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
27.2 Financial Data Schedule, June 30, 1999.
99.1 Form of Letter of Consent/Transmittal.
99.2 Form of Letter to DTC Participants, including Brokers,
Dealers and Other Nominees.
99.3 Form of Letter to Beneficial Holders.
99.4 Form of Letter to Holders of Physical Securities.
99.5 Consents to be named as directors of Tenneco Packaging Inc.
for: Mark Andrews, Larry D. Brady, Roger B. Porter and Paul
T. Stecko.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
(c) Not Applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
c. To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. That, for the purpose of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
II-5
<PAGE> 196
securities offered herein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
5. To respond to requests for information that is incorporated by
reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
6. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-6
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lake Forest, State of Illinois, as of the 10th day of September, 1999.
TENNECO PACKAGING INC.
By: /s/ DANA G. MEAD
--------------------------------------
Dana G. Mead
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on September 10, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DANA G. MEAD Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- and Director
Dana G. Mead (principal executive officer)
/s/ ROBERT T. BLAKELY Chief Financial Officer and Director
- --------------------------------------------------- (principal financial and accounting officer)
Robert T. Blakely
* Director
- ---------------------------------------------------
Richard L. Wambold
*By: /s/ THEODORE R. TETZLAFF
---------------------------------------------
Theodore R. Tetzlaff
Attorney-in-fact
</TABLE>
II-7
<PAGE> 1
EXHIBIT 4.1
================================================================================
-------------------------
TENNECO PACKAGING INC. (to be renamed ____________)
and
THE CHASE MANHATTAN BANK,
Trustee
------------------
INDENTURE
Dated as of ______________, 1999
------------------
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET(1)
------------------
BETWEEN
Provisions of Trust Indenture Act of 1939 and the Indenture dated as of
______________, 1999 between Tenneco Packaging Inc. (to be renamed ___________)
and THE CHASE MANHATTAN BANK, Trustee.
<TABLE>
<CAPTION>
SECTION OF THE ACT SECTION OF INDENTURE
- ------------------ --------------------
<S> <C>
310(a)(1), (2) and (5)............................. 6.9
310(a)(3) and (4).................................. Inapplicable
310(b)............................................. 6.9 and 6.10(a), (b) and (d)
310(c)............................................. Inapplicable
311(a)............................................. 6.13
311(b)............................................. 6.13
311(c)............................................. Inapplicable
312(a)............................................. 4.1 and 4.2
312(b)............................................. 4.2
312(c)............................................. 4.2
313(a)............................................. 4.4
313(b)(1).......................................... Inapplicable
313(b)(2).......................................... Inapplicable
313(c)............................................. 4.4
313(d)............................................. 4.4
314(a)............................................. 4.3
314(b)............................................. Inapplicable
314(c)(1) and (2).................................. 11.5
314(c)(3).......................................... Inapplicable
314(d)............................................. Inapplicable
314(e)............................................. 11.5
314(f)............................................. Inapplicable
315(a), (c) and (d)................................ 6.1
315(b)............................................. 5.11
315(e)............................................. 5.12
316(a)(1).......................................... 5.9
316(a)(2).......................................... Not required
316(a) (last sentence)............................. 7.4
316(b)............................................. 5.7
316(c)............................................. 7.2
317(a)............................................. 5.2
317(b)............................................. 3.4(a) and (b)
318(a)............................................. 11.7
</TABLE>
- --------
(1) This Cross Reference Sheet is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
-------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES..................................................................... 1
RECITALS.................................................................... 1
Authorization of Indenture................................................ 1
Compliance with Legal Requirements........................................ 1
Purpose of and Consideration for Indenture................................ 1
ARTICLE ONE
DEFINITIONS............................................................... 1
SECTION 1.1 Certain Terms Defined...................................... 1
ARTICLE TWO
SECURITIES................................................................ 8
SECTION 2.1 Forms Generally............................................ 8
SECTION 2.2 Form of Trustee's Certificate of Authentication............ 8
SECTION 2.3 Amounts Unlimited; Issuable in Series...................... 9
SECTION 2.4 Authentication and Delivery of Securities.................. 11
SECTION 2.5 Execution of Securities.................................... 14
SECTION 2.6 Certificate of Authentication.............................. 14
SECTION 2.7 Denomination and Date of Securities; Payments of Interest.. 14
SECTION 2.8 Registration, Transfer and Exchange........................ 15
SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.. 18
SECTION 2.10 Cancellation of Securities; Destruction Thereof............ 19
SECTION 2.11 Temporary Securities....................................... 19
ARTICLE THREE
COVENANTS OF THE ISSUER................................................... 20
SECTION 3.1 Payment of Principal and Interest.......................... 20
SECTION 3.2 Offices for Payments, etc.................................. 20
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee......... 21
SECTION 3.4 Paying Agents.............................................. 22
SECTION 3.5 Written Statement to Trustee............................... 22
SECTION 3.6 Negative Pledge: Limitation on Sale and Leaseback
Transactions............................................... 23
SECTION 3.7 Luxembourg Publications.................................... 25
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE........... 26
</TABLE>
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<TABLE>
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SECTION 4.1 Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders............................... 26
SECTION 4.2 Preservation and Disclosure of Securityholders Lists....... 26
SECTION 4.3 Reports by the Issuer...................................... 26
SECTION 4.4 Reports by the Trustee..................................... 26
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT........... 26
SECTION 5.1 Event of Default Defined; Acceleration of Maturity;
Waiver of Default.......................................... 26
SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt....................................................... 29
SECTION 5.3 Application of Proceeds.................................... 31
SECTION 5.4 Suits for Enforcement...................................... 31
SECTION 5.5 Restoration of Rights on Abandonment of Proceedings........ 32
SECTION 5.6 Limitations on Suits by Securityholders.................... 32
SECTION 5.7 Unconditional Right of Securityholders to Institute
Certain Suits.............................................. 32
SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default.......................................... 33
SECTION 5.9 Control by Holders of Securities........................... 33
SECTION 5.10 Waiver of Past Defaults.................................... 33
SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances...................................... 34
SECTION 5.12 Right of Court to Require Filing of Undertaking to Pay
Costs...................................................... 34
ARTICLE SIX
CONCERNING THE TRUSTEE.................................................... 35
SECTION 6.1 Duties and Responsibilities of the Trustee; During
Default; Prior to Default.................................. 35
SECTION 6.2 Certain Rights of the Trustee.............................. 36
SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof.............. 37
SECTION 6.4 Trustee and Agents May Hold Securities or Coupons;
Collections, etc. ......................................... 37
SECTION 6.5 Moneys Held by Trustee..................................... 37
SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior
Claim...................................................... 37
SECTION 6.7 Right of Trustee to Rely on Officer's Certificate, etc..... 38
SECTION 6.8 ........................................................... 38
SECTION 6.9 Persons Eligible for Appointment as Trustee................ 38
SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.. 39
SECTION 6.11 Acceptance of Appointment by Successor Trustee............. 40
</TABLE>
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<TABLE>
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SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business of Trustee........................................ 41
SECTION 6.13 Preferential Collection of Claims Against the Issuer....... 41
SECTION 6.14 Appointment of Authenticating Agent........................ 41
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS............................................. 42
SECTION 7.1 Evidence of Action Taken by Securityholders................. 42
SECTION 7.2 Proof of Execution of Instruments and of Holding of
Securities.................................................. 42
SECTION 7.3 Holders to Be Treated as Owners............................. 43
SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding........... 44
SECTION 7.5 Right of Revocation of Action Taken......................... 44
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES.................................................... 45
SECTION 8.1 Supplemental Indentures Without Consent of Securityholders.. 45
SECTION 8.2 Supplemental Indentures With Consent of Securityholders..... 46
SECTION 8.3 Effect of Supplemental Indenture............................ 47
SECTION 8.4 Documents to Be Given to Trustee............................ 47
SECTION 8.5 Notation on Securities in Respect of Supplemental
Indentures.................................................. 47
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE.................................. 48
SECTION 9.1 Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions.................... 48
SECTION 9.2 Successor Corporation Substituted........................... 48
SECTION 9.3 Opinion of Counsel Delivered to Trustee..................... 49
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS.................. 49
SECTION 10.1 Satisfaction and Discharge of Indenture..................... 49
SECTION 10.2 Application by Trustee of Funds Deposited for Payment of
Securities.................................................. 52
SECTION 10.3 Repayment of Moneys Held by Paying Agent.................... 52
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years..................................... 52
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ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS................................................... 53
SECTION 11.1 Incorporators, Stockholders, Officers and Directors of
Issuer Exempt from Individual Liability.................... 53
SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties
and Holders of Securities and Coupons...................... 53
SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture........ 53
SECTION 11.4 Notices and Demands on Issuer, Trustee and Holders of
Securities and Coupons..................................... 53
SECTION 11.5 Officer's Certificates and Opinions of Counsel;
Statements to Be Contained Therein......................... 54
SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays............ 55
SECTION 11.7 Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939...................................... 55
SECTION 11.8 New York Law to Govern..................................... 55
SECTION 11.9 Counterparts............................................... 55
SECTION 11.10 Effect of Headings......................................... 55
SECTION 11.11 Securities in a Foreign Currency or in EURO................ 55
SECTION 11.12 Judgment Currency.......................................... 56
ARTICLE TWELVE
REDEMPTION OF SECURITIES AND SINKING FUNDS................................. 56
SECTION 12.1 Applicability of Article................................... 57
SECTION 12.2 Notice of Redemption; Partial Redemptions.................. 57
SECTION 12.3 Payment of Securities Called for Redemption................ 58
SECTION 12.4 Exclusion of Certain Securities from Eligibility for
Selection for Redemption................................... 59
SECTION 12.5 Mandatory and Optional Sinking Funds....................... 59
</TABLE>
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<PAGE> 7
THIS INDENTURE, dated as of __________, 1999 between Tenneco Packaging
Inc. (to be renamed _________), a Delaware corporation (the "Issuer"), and THE
CHASE MANHATTAN BANK, a New York banking corporation, as trustee (the
"Trustee"),
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the issue from time to time of its
unsecured debentures, notes or other evidences of indebtedness to be issued in
one or more series (the "Securities") up to such principal amount or amounts as
may from time to time be authorized in accordance with the terms of this
Indenture;
WHEREAS, the Issuer has duly authorized the execution and delivery of this
Indenture to provide, among other things, for the authentication, delivery and
administration of the Securities; and
WHEREAS, all things necessary to make this Indenture a valid indenture and
agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Securities by the
holders thereof, the Issuer and the Trustee mutually covenant and agree for the
equal and proportionate benefit of the respective holders from time to time of
the Securities and of the coupons, if any, appertaining thereto as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms (except as otherwise
expressly provided herein, in any indenture supplemental hereto or, as to any
Security, in such Security or unless the context otherwise clearly requires) for
all purposes of this Indenture and of any indenture supplemental hereto shall
have the respective meanings specified in this Section. All other terms used in
this Indenture that are defined in the Trust Indenture Act of 1939 or the
definitions of which in the Securities Act of 1933 are referred to in the Trust
Indenture Act of 1939, including terms defined therein by reference to the
Securities Act of 1933 (except as herein otherwise expressly provided or unless
the context otherwise requires), shall have the meanings assigned to such terms
in said Trust Indenture Act and in said Securities Act as in force at the date
of this Indenture. All accounting terms used herein and not expressly defined
shall have the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "generally accepted accounting
principles" means such accounting principles as are generally accepted in the
United States at the time of any computation. The words "herein," "hereof,"
"hereto" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the
singular.
"Attributable Debt" means, as to any particular lease under which any
Person is at the time liable, at any date as of which the amount thereof is to
be determined, the total net amount of rent
<PAGE> 8
required to be paid by such Person under such lease during the remaining term
thereof, discounted from the respective due dates thereof to such date at the
Composite Rate. The net amount of rent required to be paid under any such lease
for any such period shall be the aggregate amount of the rent payable by the
lessee with respect to such period after excluding amounts required to be paid
on account of maintenance and repairs, financing services, insurance, taxes,
assessments, water or electrical rates, contingent rents (such as those based on
sales) and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Authenticating Agent" shall have the meaning set forth in Section 6.14.
"Authorized Newspaper" means a newspaper (which, in the case of The City of
New York, will, if practicable, be The Wall Street Journal (Eastern Edition), in
the case of the United Kingdom will, if practicable, be the Financial Times
(London Edition) and, in the case of Luxembourg, will, if practicable, be the
Luxemburger Wort) published in an official language of the country of
publication customarily published at least once a day for at less five days in
each calendar week and of general circulation in the City of New York, the
United Kingdom or in Luxembourg, as applicable. If it shall be impractical in
the opinion of the Trustee to make any publication of any notice required hereby
in an Authorized Newspaper, any publication or other notice in lieu thereof
which is made or given with the approval of the Trustee shall constitute a
sufficient publication of such notice.
"Board of Directors" means either the Board of Directors of the Issuer or
any committee or other designees of such Board duly authorized to act on its
behalf.
"Board Resolution" means a copy of one or more resolutions, certified by
the secretary or an assistant secretary of the Issuer to have been duly adopted
or consented to by the Board of Directors and to be in full force and effect,
and delivered to the Trustee.
"Business Day" means, with respect to any Security, a day that in the city
(or in any of the cities, if more than one) in which amounts are payable, as
specified in the form of such Security, is not a day on which banking
institutions are authorized or required by law or regulation to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution and delivery of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act of 1939, then the body performing such duties on such date.
"Composite Rate" means, at any time, the rate of interest, per annum,
compounded semiannually, equal to the sum of the products obtained by
multiplying the rate of interest borne by the Securities of each series (as
specified on the face of the Securities of each series, provided, that, in the
case of the Securities with variable rates of interest, the interest rate to be
used in calculating the Composite Rate shall be the interest rate applicable to
such Securities at the beginning of the year
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<PAGE> 9
in which the Composite Rate is being determined and, provided, further, that, in
the case of Original Issue Discount Securities, the interest rate to be used in
calculating the Composite Rate shall be a rate equal to the yield to maturity on
such Securities, calculated at the time of issuance of such Securities) by the
percentage of the aggregate principal amount of the Securities of all series
Outstanding represented by the Outstanding Securities of such series. For the
purposes of this calculation, the aggregate principal amount of Outstanding
Securities that are denominated in a foreign currency shall be calculated in the
manner set forth in Section 11.11, and the aggregate principal amount of
Original Issue Discount Securities shall be the aggregate amount then payable
upon the declaration of acceleration of the maturity thereof pursuant to Section
5.1.
"Consolidated Net Tangible Assets" shall mean, at any date, the total
assets appearing on the consolidated balance sheet of the Issuer and its
consolidated Subsidiaries for the Issuer's most recently completed fiscal
quarter, prepared in accordance with generally accepted accounting principles,
less (a) all current liabilities shown on such balance sheet and (b) Intangible
Assets. "Intangible Assets" means the value (net of applicable reserves), as
shown on or reflected in such balance sheet of: (i) all trade names, trademarks,
licenses, patents, copyrights and goodwill; (ii) organizational or development
costs; (iii) deferred charges (other than prepaid items such as insurance,
taxes, interest, commissions, rents and similar items and tangible assets being
amortized); and (iv) unamortized debt discount and expense, less premium.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall at any particular time, be
principally administered, which office is, at the date as of which this
Indenture is dated, located in 450 West 33rd Street, 15th Floor, New York, New
York, Attention: Global Trust Services.
"Coupon" means any interest coupon appertaining to a Security.
"covenant defeasance" shall have the meaning set forth in Section 10.1(C).
"Debt" of any Person shall mean any debt for money borrowed which is
issued, assumed, incurred or guaranteed in any manner by such Person.
"Depositary" means, with respect to the Securities of any series issuable
or issued in the form of one or more Registered Global Securities, the Person
designated as Depositary by the Issuer pursuant to Section 2.3 until a successor
Depositary shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Depositary" shall mean or include each Person who is
then a Depositary hereunder, and if at any time there is more than one such
Person, "Depositary" as used with respect to the Securities of any such series
shall mean the Depositary with respect to the Registered Global Securities of
that series.
"Dollar" means the coin or currency of the United States of America as at
the time of payment is legal tender for the payment of public and private debts.
"EURO" means the single currency of the participating member states of the
European union.
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<PAGE> 10
"Event of Default" means any event or condition specified as such in
Section 5.1.
"Exempted Debt" shall mean the sum of (a) Debt of the Issuer and its
Subsidiaries incurred after the date as of which this Indenture is dated and
secured by liens created, assumed or permitted to exist pursuant to Section
3.6(b) and (b) Attributable Debt of the Issuer and its Subsidiaries in respect
of all sale and leaseback transactions entered into pursuant to Section 3.6(d).
"Foreign Currency" means a currency issued by the government of a country
other than the United States.
"Holder," "Holder of Securities," "Securityholder" or other similar terms
mean (a) in the case of any Registered Security, the person in whose name such
Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any
Unregistered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.
"Indenture" means this instrument as originally executed and delivered or,
if amended or supplemented as herein provided, as so amended or supplemented or
both, and shall include the forms and terms of particular series of Securities
established as contemplated hereunder.
"Interest" means, when used with respect to non-interest bearing
Securities, interest payable after maturity.
"Issuer" means Tenneco Packaging Inc. (to be renamed ___________), a
Delaware corporation and, subject to Article Nine, its successors and assigns.
"Issuer Order" means a written statement, request or order of the Issuer
signed in its name by the chairman of the Board of Directors, the chief
executive officer, the president, any vice president, the chief financial
officer, the treasurer, the controller or any other officer designated by the
Board of Directors or any of the foregoing officers of the Issuer.
"Judgment Currency" shall have the meaning set forth in Section 11.12.
"Mortgage" shall have the meaning set forth in Section 3.6(a).
"Net Rental Payments" under any lease for any period shall mean the sum of
monies and other payments required to be paid by the lessee under such lease as
rent thereunder, not including amounts payable by the lessee for maintenance and
repairs, financing services, water or electrical rates, insurance, taxes,
assessments, contingent rents (such as those based on sales) and similar
charges.
"Officer's Certificate" means a certificate signed by the chairman of the
Board of Directors, the chief executive officer, the president, the chief
financial officer, any vice president, the treasurer, the controller or any
other officer designated by the Board of Directors or any of the foregoing
officers
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<PAGE> 11
of the Issuer and delivered to the Trustee. Each such certificate shall comply
with Section 314 of the Trust Indenture Act of 1939 and include the statements
provided for in Section 11.5.
"Opinion of Counsel" means an opinion in writing signed by the General
Counsel of the Issuer or by such other legal counsel who may be an employee of
or counsel to the Issuer and who shall be satisfactory to the Trustee. Each such
opinion shall comply with Section 314 of the Trust Indenture Act of 1939 and
include the statements provided for in Section 11.5.
"original issue date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Original Issue Discount Security" means any Security that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.
"Outstanding," when used with reference to Securities, shall, subject to
the provisions of Section 7.4, mean, as of any particular time, all Securities
authenticated and delivered by the Trustee under this Indenture, except
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys or U.S. Government Obligations (as provided for in Section
10.1) in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Issuer) or shall have been
set aside, segregated and held in trust by the Issuer for the Holders of
such Securities (if the Issuer shall act as its own paying agent), provided
that if such Securities, or portions thereof, are to be redeemed prior to
the maturity thereof, notice of such redemption shall have been given as
herein provided, or provision satisfactory to the Trustee shall have been
made for giving such notice; and
(c) Securities which shall have been paid or in substitution for which
other Securities shall have been authenticated and delivered pursuant to
the terms of Section 2.9 (except with respect to any such Security as to
which proof satisfactory to the Trustee is presented that such Security is
held by a person in whose hands such Security is a legal, valid and binding
obligation of the Issuer).
In determining whether the Holders of the requisite principal amount of
Outstanding Securities of any or all series have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the maturity thereof pursuant to Section 5.1.
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<PAGE> 12
"Periodic Offering" means an offering of Securities of a series from time
to time, the specific terms of which Securities, including, without limitation,
the rate or rates of interest, if any, thereon, the stated maturity or
maturities thereof and the redemption provisions, if any, with respect thereto,
are to be determined by the Issuer or its agents upon the issuance of such
Securities.
"Permitted Mortgage" means:
(i) any governmental, mechanics', materialmen's, carriers' or similar
lien created in the ordinary course of business which is not yet due or
which is being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction;
(ii) any right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to designate
a purchaser of, any property;
(iii) any lien of taxes and assessments which is (A) for the current
year, or (B) not at the time delinquent or (C) delinquent but the validity
of which is being contested at the time by the Issuer or any Subsidiary in
good faith;
(iv) any lien arising from or in connection with a conveyance by the
Issuer or any Subsidiary of any production payment with respect to oil,
gas, natural gas, carbon dioxide, sulphur, helium, coal, metals, minerals,
steam, timber or other natural resources;
(v) any lien to secure obligations imposed by statute or governmental
regulations; or
(vi) any lien of, or to secure performance of, leases (other than
leases relating to a sale and leaseback transaction).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"principal," whenever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "and premium, if any."
"Principal Manufacturing Property" shall mean any manufacturing plant or
any testing or research and development facility of the Issuer or a Subsidiary
located in the United States of America (other than its territories and
possessions) unless, in the opinion of the Board of Directors, the
manufacturing, testing, research and development operations performed at such
plant or facility is not of material importance to the total business conducted
by the Issuer and its consolidated Subsidiaries. Principal Manufacturing
Property shall include, without limitation, additions, improvements,
replacements, repairs, fixtures, appurtenances or component parts of any such
plant or facility attaching to or required to be attached to property or assets
pursuant to the terms of any Mortgage (including, without limitation, pursuant
to any "after-acquired property" clause or similar term thereof).
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"Record Date" shall have the meaning set forth in Section 2.7.
"Registered Global Security" means a Security evidencing all or a part of a
series of Registered Securities, issued to the Depositary for such series in
accordance with Section 2.4, and bearing the legend prescribed in Section 2.4.
"Registered Security" means any Security registered on the Security
register of the Issuer.
"Required Currency" shall have the meaning set forth in Section 11.12.
"Responsible Officer," when used with respect to the Trustee means the
chairman of the board of directors, any vice chairman of the board of directors,
the chairman of the trust committee, the chairman of the executive committee,
any vice chairman of the executive committee, the president, any vice president
(whether or not designated by numbers or words added before or after the title
"vice president"), the cashier, the secretary, the treasurer, any trust officer,
any assistant trust officer, any assistant vice president, any assistant
cashier, any assistant secretary, any assistant treasurer, or any other officer
or assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" shall mean any Subsidiary that owns or is the
lessee of any Principal Manufacturing Property; provided, however, that the term
"Restricted Subsidiary" does not include any Subsidiary acquired or organized
for the purpose of acquiring the stock or business or assets of any Person other
than the Issuer or any Restricted Subsidiary, whether by merger, consolidation,
acquisition of stock or assets or similar transaction, so long as such
Subsidiary does not acquire all or any substantial part of the business or
assets of the Issuer or any other Restricted Subsidiary.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture, or, as the case may be, Securities that have been authenticated
and delivered under this Indenture.
"Subsidiary" means any corporation, partnership or other entity of which at
the time of determination the Issuer owns or controls directly or indirectly
more than 50% of the shares of voting stock or equivalent interest.
"Trust Indenture Act of 1939" (except as otherwise required by applicable
law or as provided in Sections 8.1 and 8.2) means the Trust Indenture Act of
1939 as in force at the date as of which this Indenture was originally executed.
"Trustee" means the Person identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article Six, shall also include any
successor trustee. "Trustee" shall also mean or include each Person who is then
a trustee hereunder and if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities of any series shall mean the
trustee with respect to the Securities of such series.
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<PAGE> 14
"Unregistered Security" means any Security other than a Registered
Security.
"U.S. Government Obligations" shall have the meaning set forth in Section
10.1(A).
"Yield to Maturity" means the yield to maturity on a series of Securities,
calculated at the time of issuance of such series, or, if applicable, at the
most recent redetermination of interest on such series, and calculated in
accordance with accepted financial practice.
ARTICLE TWO
SECURITIES
SECTION 2.1 Forms Generally. The Securities of each series and the Coupons,
if any, to be attached thereto shall be substantially in such form (not
inconsistent with this Indenture) as shall be established by or pursuant to one
or more Board Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than set forth in a Board Resolution, an
Officer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or regulations
pursuant thereto, or with any rules of any securities exchange or to conform to
general usage, all as may be determined by the officers executing such
Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.
The definitive Securities and Coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities and
Coupons, if any, as evidenced by their execution of such Securities and Coupons,
if any.
SECTION 2.2 Form of Trustee's Certificate of Authentication. The Trustee's
certificate of authentication on all Securities shall be in substantially the
following form:
"This is one of the Securities referred to in the within-mentioned
Indenture.
----------------------------------,
as Trustee
By
--------------------------------
Authorized Officer"
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<PAGE> 15
If at any time there shall be an Authenticating Agent appointed with
respect to any series of Securities, then the Trustee's Certificate of
Authentication to be borne by the Securities of each such series shall be
substantially as follows:
"This is one of the Securities referred to in the within-mentioned
Indenture.
----------------------------------,
As Authenticating Agent
By
--------------------------------
Authorized Officer"
SECTION 2.3 Amounts Unlimited; Issuable in Series. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is unlimited.
The Securities may be issued in one or more series and each such series
shall rank equally and pari passu with all other unsecured and unsubordinated
debt of the Issuer. There shall be established in or pursuant to one or more
Board Resolutions (and to the extent established pursuant to rather than set
forth in a Board Resolution, in an Officer's Certificate detailing such
establishment) or established in one or more indentures supplemental hereto,
prior to the initial issuance of Securities of a series,
(1) the designation of the Securities of the series, which shall
distinguish the Securities of the series from the Securities of all other
series;
(2) any limit upon the aggregate principal amount of the Securities of
the series that may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 2.8, 2.9, 2.11, 8.5 or 12.3);
(3) if other than Dollars, the coin or currency in which the
Securities of that series are denominated (including, but not limited to,
any Foreign Currency or EURO);
(4) the date or dates on which the principal of the Securities of the
series is payable;
(5) the rate or rates at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall accrue,
on which such interest shall be payable and (in the case of Registered
Securities) on which a record shall be taken for the determination of
Holders to whom interest is payable and/or the method by which such rate or
rates or date or dates shall be determined;
(6) the place or places where the principal of and any interest on
Securities of the series shall be payable (if other than as provided in
Section 3.2);
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<PAGE> 16
(7) the right, if any, of the Issuer to redeem Securities of the
series, in whole or in part, at its option and the period or periods within
which, the price or prices at which and any terms and conditions upon which
Securities of the series may be so redeemed, pursuant to any sinking fund
or otherwise;
(8) the obligation, if any, of the Issuer to redeem, purchase or repay
Securities of the series pursuant to any mandatory redemption, sinking fund
or analogous provisions or at the option of a Holder thereof and the price
or prices at which and the period or periods within which and any terms and
conditions upon which Securities of the series shall be redeemed, purchased
or repaid, in whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof in the case of Registered Securities, or $1,000 and $5,000 in the
case of Unregistered Securities, the denominations in which Securities of
the series shall be issuable;
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the Securities of
that series are denominated, the coin or currency in which payment of the
principal of or interest on the Securities of such series shall be payable;
(12) if the principal of or interest on the Securities of such series
are to be payable, at the election of the Issuer or a Holder thereof, in a
coin or currency other than that in which the Securities are denominated,
the period or periods within which, and the terms and conditions upon
which, such election may be made;
(13) if the amount of payments of principal of and interest on the
Securities of the series may be determined with reference to an index based
on a coin or currency other than that in which the Securities of the series
are denominated, the manner in which such amounts shall be determined;
(14) whether the Securities of the series will be issuable as
Registered Securities (and if so, whether such Securities will be issuable
as Registered Global Securities) or Unregistered Securities (with or
without Coupons), or any combination of the foregoing, any restrictions
applicable to the offer, sale or delivery of Unregistered Securities or the
payment of interest thereon and, if other than as provided in Section 2.8,
the terms upon which Unregistered Securities of any series may be exchanged
for Registered Securities of such series and vice versa;
(15) whether and under what circumstances the Issuer will pay
additional amounts on the Securities of the series held by a person who is
not a U.S. person in respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether the Issuer will have the option to
redeem such Securities rather than pay such additional amounts;
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(16) if the Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, the form and terms of such
certificates, documents or conditions;
(17) any trustees, depositaries, authenticating or paying agents,
transfer agents or registrars or any other agents with respect to the
Securities of such series;
(18) any other events of default or covenants with respect to the
Securities of such series;
(19) whether the Securities of the series shall be issued in the form
of one or more Registered Global Securities and, in such case, the
Depositary for such Registered Global Security or Securities; and
(20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and Coupon, if any appertaining thereto,
shall be substantially identical, except in the case of Registered Securities,
as to denomination and except as may otherwise be provided by or pursuant to the
Board Resolution or Officer's Certificate referred to above or as set forth in
any such indenture supplemental hereto. All Securities of any one series need
not be issued at the same time and may be issued from time to time, consistent
with the terms of this Indenture, if so provided by or pursuant to such Board
Resolution, such Officer's Certificate or in any such indenture supplemental
hereto.
SECTION 2.4 Authentication and Delivery of Securities. The Issuer may
deliver Securities of any series having attached thereto appropriate Coupons, if
any, executed by the Issuer to the Trustee for authentication together with the
applicable documents referred to below in this Section, and the Trustee shall
thereupon authenticate and deliver such Securities to or upon the order of the
Issuer (contained in the Issuer Order referred to below in this Section) or
pursuant to such procedures acceptable to the Trustee and to such recipients as
may be specified from time to time by an Issuer Order. The maturity date,
original issue date, interest rate and any other terms of the Securities of such
series and Coupons, if any, appertaining thereto shall be determined by or
pursuant to such Issuer Order and procedures. If provided for in such
procedures, such Issuer Order may authorize authentication and delivery pursuant
to oral instructions from the Issuer or its duly authorized agent, which
instructions shall be promptly confirmed in writing. In authenticating such
Securities and accepting the additional responsibilities under this Indenture in
relation to such Securities, the Trustee shall be entitled to receive (in the
case of subparagraphs 2, 3 and 4 below only at or before the time of the first
request of the Issuer to the Trustee to authenticate Securities of such series)
and (subject to Section 6.1) shall be fully protected in relying upon, unless
and until such documents have been superseded or revoked:
(1) an Issuer Order requesting such authentication and setting forth
delivery instructions if the Securities and Coupons, if any, are not to be
delivered to the Issuer, provided that, with respect to Securities of a
series subject to a Periodic Offering, (a) such Issuer Order may be
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delivered by the Issuer to the Trustee prior to the delivery to the Trustee
of such Securities for authentication and delivery, (b) the Trustee shall
authenticate and deliver Securities of such series for original issue from
time to time, in an aggregate principal amount not exceeding the aggregate
principal amount established for such series, pursuant to an Issuer Order
or pursuant to procedures acceptable to the Trustee as may be specified
from time to time by an Issuer Order, (c) the maturity date or dates,
original issue date or dates, interest rate or rates and any other terms of
Securities of such series shall be determined by an Issuer Order or
pursuant to such procedures and (d) if provided for in such procedures,
such Issuer Order may authorize authentication and delivery pursuant to
oral or electronic instructions from the Issuer or its duly authorized
agent or agents, which oral instructions shall be promptly confirmed in
writing;
(2) any Board Resolution, Officer's Certificate and/or executed
supplemental indenture referred to in Sections 2.1 and 2.3 by or pursuant
to which the forms and terms of the Securities and Coupons, if any, were
established;
(3) an Officer's Certificate setting forth the form or forms and terms
of the Securities and Coupons, if any, stating that the form or forms and
terms of the Securities and Coupons, if any, have been established pursuant
to Sections 2.1 and 2.3 and comply with this Indenture, and covering such
other matters as the Trustee may reasonably request; and
(4) At the option of the Issuer, either Opinions of Counsel, or
letters addressed to the Trustee permitting it to rely on Options of
Counsel, substantially to the effect that:
(a) the forms of the Securities and Coupons, if any, have been
duly authorized and established in conformity with the provisions of
this Indenture;
(b) in the case of an underwritten offering, the terms of the
Securities have been duly authorized and established in conformity
with the provisions of this Indenture, and, in the case of an offering
that is not underwritten, certain terms of the Securities have been
established pursuant to a Board Resolution, an Officer's Certificate
or a supplemental indenture in accordance with this Indenture, and
when such other terms as are to be established pursuant to procedures
set forth in an Issuer Order shall have been established, all such
terms will have been duly authorized by the Issuer and will have been
established in conformity with the provisions of this Indenture;
(c) when the Securities and Coupons, if any, have been executed
by the Issuer and authenticated by the Trustee in accordance with the
provisions of this Indenture and delivered to and duly paid for by the
purchasers thereof, they will have been duly issued under this
Indenture and will be valid and legally binding obligations of the
Issuer, enforceable in accordance with their respective terms, and
will be entitled to the benefits of this Indenture; and
(d) the execution and delivery by the Issuer of, and the
performance by the Issuer of its obligations under, the Securities and
Coupons, if any, will not contravene any provision of applicable law
or the certificate of incorporation or by-laws of the Issuer or, to
the best of
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such counsel's knowledge, any agreement or other instrument binding
upon the Issuer or any of its Subsidiaries that is material to the
Issuer and its Subsidiaries, considered as one enterprise, or, to the
best of such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Issuer
or any Subsidiary, and no consent, approval or authorization of any
governmental body or agency is required for the performance by the
Issuer of its obligations under the Securities and Coupons, if any,
except such as are specified and have been obtained and such as may be
required by the securities or blue sky laws of the various states in
connection with the offer and sale of the Securities and Coupons, if
any.
In rendering such opinions, such counsel may qualify any opinions as to
enforceability by stating that such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium, fraudulent conveyance and
other similar laws affecting the rights and remedies of creditors and is subject
to general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Such counsel may rely upon
opinions of other counsel (copies of which shall be delivered to the Trustee),
who shall be counsel reasonably satisfactory to the Trustee, in which case the
opinion shall state that such counsel believes such counsel and the Trustee are
entitled so to rely. Such counsel may also state that, insofar as such opinion
involves factual matters, such counsel has relied, to the extent such counsel
deems proper, upon certificates of officers of the Issuer and its Subsidiaries
and certificates of public officials.
The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken by the Issuer or if the
Trustee in good faith by its board of directors or board of trustees, executive
committee, or a trust committee of directors or trustees or Responsible Officers
shall determine that such action would expose the Trustee to personal liability
to existing Holders or would affect the Trustee's own rights, duties or
immunities under the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that the Securities
of a series are to be issued in the form of one or more Registered Global
Securities, then the Issuer shall execute and the Trustee shall, in accordance
with this Section and the Issuer Order with respect to such series, authenticate
and deliver one or more Registered Global Securities that (i) shall represent
and shall be denominated in an amount equal to the aggregate principal amount of
all of the Securities of such series to be represented by such Registered Global
Security or Securities, (ii) shall be registered in the name of such Depositary
for such Registered Global Security or Securities or the nominee of such
Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions and (iv) shall bear a legend
substantially to the following effect: "Unless this certificate is presented by
an authorized representative of a Depositary to the Issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of the nominee of such Depositary or such other name as
requested by an authorized representative of such Depositary and any payment is
made to the nominee of such Depositary, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered
owner hereof, the nominee, has an interest herein."
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<PAGE> 20
Each Depositary designated pursuant to Section 2.3 must, at the time of its
designation and at all times while it serves as Depositary, be a clearing agency
registered under the Securities Exchange Act of 1934 and any other applicable
statute or regulation.
SECTION 2.5 Execution of Securities. The Securities and, if applicable,
each Coupon appertaining thereto shall be signed on behalf of the Issuer by any
two of the chairman of its Board of Directors or its chief executive officer or
its president or any vice president or its chief financial officer or its
treasurer or its controller or any other officer designated by the Board of
Directors, under its corporate seal (except in the case of Coupons), which may,
but need not, be attested. Such signatures may be the manual or facsimile
signatures of the present or any future such officers. The seal of the Issuer
may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Securities. Typographical and other
minor errors or defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any Security that
has been duly authenticated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of the
Securities or Coupons, if any, shall cease to be such officer before the
Security or Coupon so signed (or the Security to which the Coupon so signed
appertains) shall be authenticated and delivered by the Trustee or disposed of
by the Issuer, such Security or Coupon nevertheless may be authenticated and
delivered or disposed of as though the person who signed such Security or Coupon
had not ceased to be such officer of the Issuer; and any Security or Coupon may
be signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon, shall be the proper officers of the
Issuer, although at the date of the execution and delivery of this Indenture any
such person was not such an officer.
SECTION 2.6 Certificate of Authentication. Only such Securities as shall
bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by the manual signature of one of
its authorized officers, shall be entitled to the benefits of this Indenture or
shall be valid or obligatory for any purpose. No Coupon shall be entitled to the
benefits of this Indenture or shall be valid and obligatory for any purpose
until the certificate of authentication on the Security to which such Coupon
appertains shall have been duly executed by the Trustee. The execution of such
certificate by the Trustee upon any Security executed by the Issuer shall be
conclusive evidence that the Security so authenticated has been duty
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture.
SECTION 2.7 Denomination and Date of Securities; Payments of Interest. The
Securities of each series shall be issuable as Registered Securities or
Unregistered Securities in denominations established as contemplated by Section
2.3 or, with respect to the Registered Securities of any series, if not so
established, in denominations of $1,000 and any integral multiple thereof. If
denominations of Unregistered Securities of any series are not so established,
such Securities shall be issuable in denominations of $1,000 and $5,000. The
Securities of each series shall be numbered, lettered or otherwise distinguished
in such manner or in accordance with such plan as the officers of the Issuer
executing the same may determine with the approval of the Trustee, as evidenced
by the execution and authentication thereof.
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Each Registered Security shall be dated the date of its authentication.
Each Unregistered Security shall be dated as provided in the resolution or
resolutions of the Board of Directors of the Issuer referred to in Section 2.3.
The Securities of each series shall bear interest, if any, from the date, and
such interest shall be payable on the dates, established as contemplated by
Section 2.3.
Unless otherwise provided in the Registered Securities of any series, the
person in whose name any Registered Security of any series is registered at the
close of business on any record date applicable to a particular series with
respect to any interest payment date for such series shall be entitled to
receive the interest, if any, payable on such interest payment date
notwithstanding any transfer or exchange of such Registered Security subsequent
to the record date and prior to such interest payment date, except if and to the
extent the Issuer shall default in the payment of the interest due on such
interest payment date for such series, in which case such defaulted interest
shall be paid to the persons in whose names Outstanding Registered Securities
for such series are registered at the close of business on a subsequent record
date (which shall be not less than five Business Days prior to the date of
payment of such defaulted interest) established by notice given by mail by or on
behalf of the Issuer to the Holders of Registered Securities not less than 15
days preceding such subsequent record date. The term "record date" as used with
respect to any interest payment date (except a date for payment of defaulted
interest) for the Securities of any series shall mean the date specified as such
in the terms of the Registered Securities of such series established as
contemplated by Section 2.3, or, if no such date is so established, if such
interest payment date is the first day of a calendar month, the fifteenth day of
the next preceding calendar month or, if such interest payment date is the
fifteenth day of a calendar month, the first day of such calendar month, whether
or not such record date is a Business Day.
SECTION 2.8 Registration, Transfer and Exchange. The Issuer will keep at
each office or agency to be maintained for the purpose as provided in Section
3.2 for each series of Securities a register or registers in which, subject to
such reasonable regulations as it may prescribe, it will provide for the
registration of Registered Securities of such series and the registration of
transfer of Registered Securities of such series. Such register shall be in
written form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable times such
register or registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Registered
Security of any series at any such office or agency to be maintained for the
purpose as provided in Section 3.2, the Issuer shall execute and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Registered Security or Registered Securities of the same series, maturity
date, interest rate and original issue date in authorized denominations for a
like aggregate principal amount.
Unregistered Securities (except for any temporary global Unregistered
Securities) and Coupons (except for Coupons attached to any temporary global
Unregistered Securities) shall be transferable by delivery.
At the option of the Holder thereof, Registered Securities of any series
(other than a Registered Global Security, except as set forth below) may be
exchanged for a Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal amount,
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upon surrender of such Registered Securities to be exchanged at the agency of
the Issuer that shall be maintained for such purpose in accordance with Section
3.2 and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. If the Securities of any series are issued in both registered and
unregistered form, except as otherwise specified pursuant to Section 2.3, at the
option of the Holder thereof, Unregistered Securities of any series may be
exchanged for Registered Securities of such series having other authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the case
of Unregistered Securities that have Coupons attached, all unmatured Coupons and
all matured Coupons in default thereto appertaining, and upon payment, if the
Issuer shall so require, of the charges hereinafter provided. At the option of
the Holder thereof, if Unregistered Securities of any series, maturity date,
interest rate and original issue date are issued in more than one authorized
denomination, except as otherwise specified pursuant to Section 2.3, such
Unregistered Securities may be exchanged for Unregistered Securities of such
series having authorized denominations and an equal aggregate principal amount,
upon surrender of such Unregistered Securities to be exchanged at the agency of
the Issuer that shall be maintained for such purpose in accordance with Section
3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered
Securities that have Coupons attached, all unmatured Coupons and all matured
Coupons in default thereto appertaining, and upon payment, if the Issuer shall
so require, of the charges hereinafter provided. Unless otherwise specified
pursuant to Section 2.3, Registered Securities of any series may not be
exchanged for Unregistered Securities of such series. Whenever any Securities
are so surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive. All Securities and Coupons surrendered upon any exchange or
transfer provided for in this Indenture shall be promptly canceled and disposed
of by the Trustee and the Trustee will deliver a certificate of disposition
thereof to the Issuer.
All registered Securities presented for registration of transfer, exchange,
redemption or payment shall (if so required by the Issuer or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities.
No service charge shall be made for any such transaction.
The Issuer shall not be required to exchange or register a transfer of (a)
any Securities of any series for a period of 15 days next preceding the first
mailing of notice of redemption of Securities of such series to be redeemed or
(b) any Securities selected, called or being called for redemption, in whole or
in part, except, in the case of any Security to be redeemed in part, the portion
thereof not so to be redeemed.
Notwithstanding any other provision of this Section 2.8, unless and until
it is exchanged in whole or in part for Securities in definitive registered
form, a Registered Global Security representing all or a portion of the
Securities of a series may not be transferred except as a whole by the
Depositary
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for such series to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor Depositary for such series or a
nominee of such successor Depositary.
If at any time the Depositary for any Registered Securities of a series
represented by one or more Registered Global Securities notifies the Issuer that
it is unwilling or unable to continue as Depositary for such Registered
Securities or if at any time the Depositary for such Registered Securities shall
no longer be eligible under Section 2.4, the Issuer shall appoint a successor
Depositary eligible under Section 2.4 with respect to such Registered
Securities. If a successor Depositary eligible under Section 2.4 for such
Registered Securities is not appointed by the Issuer within 90 days after the
Issuer received such notice or becomes aware of such ineligibility, the Issuer's
election pursuant to Section 2.3 that such Registered Securities be represented
by one or more Registered Global Securities shall no longer be effective and the
Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate
for the authentication and delivery of definitive Securities of such series,
will authenticate and deliver, Securities of such series in definitive
registered form without coupons, in any authorized denominations, in an
aggregate principal amount equal to the principal amount of the Registered
Global Security or Securities representing such Registered Securities in
exchange for such Registered Global Security or Securities.
The Issuer may at any time and in its sole discretion determine that the
Registered Securities of any series issued in the form of one or more Registered
Global Securities shall no longer be represented by a Registered Global Security
or Securities. In such event the Issuer will execute, and the Trustee, upon
receipt of an Officer's Certificate for the authentication and delivery of
definitive Securities of such series, will authenticate and deliver, Securities
of such series in definitive registered form without coupons, in any authorized
denominations, in an aggregate principal amount equal to the principal amount of
the Registered Global Security or Securities representing such Registered
Securities, in exchange for such Registered Global Security or Securities.
If specified by the Issuer pursuant to Section 2.3 with respect to
Securities represented by a Registered Global Security, the Depositary for such
Registered Global Security may surrender such Registered Global Security in
exchange in whole or in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon, the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge,
(i) to the Person specified by such Depositary a new Registered Global
Security or Securities of the same series, of any authorized denominations
as requested by such Person, in an aggregate principal amount equal to and
in exchange for such Person's beneficial interest in the Registered Global
Security; and
(ii) to such Depositary a new Registered Global Security in a
denomination equal to the difference, if any, between the principal amount
of the surrendered Registered Global Security and the aggregate principal
amount of Registered Securities authenticated and delivered pursuant to
clause (i) above.
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Upon the exchange of a Registered Global Security for Securities in a
definitive registered form without Coupons, in authorized denominations, such
Registered Global Security shall be canceled by the Trustee or an agent of the
Issuer or the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Registered Global Security pursuant to this Section 2.8
shall be registered in such names and in such authorized denominations as the
Depositary for such Registered Global Security, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee or
an agent of the Issuer or the Trustee. The Trustee or such agent shall deliver
such Securities to or as directed by the Persons in whose names such Securities
are so registered.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Issuer, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Notwithstanding anything herein or in the terms of any series of Securities
to the contrary, none of the Issuer, the Trustee or any agent of the Issuer or
the Trustee (any of which, other than the Issuer, shall rely on an Officer's
Certificate and an Opinion of Counsel) shall be required to exchange any
Unregistered Security for a Registered Security if such exchange would result in
adverse Federal income tax consequences to the Issuer (such as, for example, the
inability of the Issuer to deduct from its income, as computed for Federal
income tax purposes, the interest payable on the Unregistered Securities) under
then applicable United States Federal income tax laws.
SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security or any Coupon appertaining to any
Security shall become mutilated, defaced or be destroyed, lost or stolen, the
Issuer in its discretion may execute, and, upon the written request of any
officer of the Issuer, the Trustee shall authenticate and deliver, a new
Security of the same series, maturity date, interest rate and original issue
date, bearing a number or other distinguishing symbol not contemporaneously
outstanding, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and in substitution for the Security so destroyed, lost or stolen,
with Coupons corresponding to the Coupons appertaining to the Securities so
mutilated, defaced, destroyed, lost or stolen, or in exchange or substitution
for the Security to which such mutilated, defaced, destroyed, lost or stolen
Coupon appertained, with Coupons appertaining thereto corresponding to the
Coupons so mutilated, defaced, destroyed, lost or stolen. In every case the
applicant for a substitute Security or Coupon shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the Trustee such security or
indemnity as may be required by them to indemnify and defend and to save each of
them harmless and, in every case of destruction, loss or theft, evidence to
their satisfaction of the destruction, loss or theft of such Security or Coupon
and of the ownership thereof and in the case of mutilation or defacement shall
surrender the Security and related Coupons to the Trustee or such agent.
Upon the issuance of any substitute Security or Coupon, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) or its agent connected therewith. In case
any Security or Coupon which has mature or is about to mature or has been called
for redemption in full shall become mutilated or defaced or be destroyed, lost
or stolen,
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the Issuer may instead of issuing a substitute Security, pay or authorize the
payment of the same or the relevant Coupon (without surrender thereof except in
the case of a mutilated or defaced Security or Coupon), if the applicant for
such payment shall furnish to the Issuer and to the Trustee and any agent of the
Issuer or the Trustee such security or indemnity as any of them may require to
save each of them harmless, and, in every case of destruction, loss or theft,
the applicant shall also furnish to the Issuer and the Trustee and any agent of
the Issuer or the Trustee evidence to their satisfaction of the destruction,
loss or theft of such Security or Coupon and of the ownership thereof.
Every substitute Security or Coupon of any series issued pursuant to the
provisions of this Section by virtue of the fact that any such Security or
Coupon is destroyed, lost or stolen shall constitute an additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Security
or Coupon shall be at any time enforceable by anyone and shall be entitled to
all the benefits of (but shall be subject to all the limitations of rights set
forth in) this Indenture equally and proportionately with any and all Securities
or Coupons of such series duly authenticated and delivered hereunder. All
Securities and Coupons shall be held and owned upon the express condition that,
to the extent permitted by law, the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, defaced or destroyed, lost
or stolen Securities and Coupons and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment of negotiable instruments or
other securities without their surrender.
SECTION 2.10 Cancellation of Securities; Destruction Thereof. All
Securities and Coupons surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any payment in respect of a sinking
or analogous fund, if surrendered to the Issuer or any agent of the Issuer or
the Trustee or any agent of the Trustee, shall be delivered to the Trustee or
its agent for cancellation or, if surrendered to the Trustee, shall be canceled
by it; and no Securities or Coupons shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee or
its agent shall dispose of canceled Securities and Coupons held by it and
deliver a certificate of disposition to the Issuer. If the Issuer or its agent
shall acquire any of the Securities or Coupons, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Securities or Coupons unless and until the same are delivered to the Trustee or
its agent for cancellation.
SECTION 2.11 Temporary Securities. Pending the preparation of definitive
Securities for any series, the Issuer may execute and the Trustee shall
authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series shall be
issuable as Registered Securities without Coupons, or as Unregistered Securities
with or without Coupons attached thereto, of any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Securities. Without
unreasonable delay the
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Issuer shall execute and shall furnish definitive Securities of such series and
thereupon temporary Registered Securities of such series may be surrendered in
exchange therefor without charge at each office or agency to be maintained by
the Issuer for that purpose pursuant to Section 3.2 and, in the case of
Unregistered Securities, at any agency maintained by the Issuer for such purpose
as specified pursuant to Section 2.3, and the Trustee shall authenticate and
deliver in exchange for such temporary Securities of such series an equal
aggregate principal amount of definitive Securities of the same series having
authorized denominations and, in the case of Unregistered Securities, having
attached thereto any appropriate Coupons. Until so exchanged, the temporary
Securities of any series shall be entitled to the same benefits under this
Indenture as definitive Securities of such series, unless otherwise established
pursuant to Section 2.3. The provisions of this Section are subject to any
restrictions or limitations on the issue and delivery of temporary Unregistered
Securities of any series that may be established pursuant to Section 2.3
(including any provision that Unregistered Securities of such series initially
be issued in the form of a single global Unregistered Security to be delivered
to a depositary or agency located outside the United States and the procedures
pursuant to which definitive or global Unregistered Securities of such series
would be issued in exchange for such temporary global Unregistered Security).
ARTICLE THREE
COVENANTS OF THE ISSUER
SECTION 3.1 Payment of Principal and Interest. The Issuer covenants and
agrees for the benefit of each series of Securities that it will duly and
punctually pay or cause to be paid the principal of, and interest on, each of
the Securities of such series (together with any additional amounts payable
pursuant to the terms of such Securities) at the place or places, at the
respective times and in the manner provided in such Securities and in the
Coupons, if any, appertaining thereto and in this Indenture. The interest on
Securities with Coupons attached (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only upon
presentation and surrender of the several Coupons for such interest installments
as are evidenced thereby as they severally mature. If any temporary Unregistered
Security provides that interest thereon may be paid while such Security is in
temporary form, the interest on any such temporary Unregistered Security
(together with any additional amounts payable pursuant to the terms of such
Security) shall be paid, as to the installments of interest evidenced by Coupons
attached thereto, if any, only upon presentation and surrender thereof, and, as
to the other installments of interest, if any, only upon presentation of such
Securities for notation thereon of the payment of such interest, in each case
subject to any restrictions that may be established pursuant to Section 2.3. The
interest on Registered Securities (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only to or upon the
written order of the Holders thereof and, at the option of the Issuer, may be
paid by wire transfer or by mailing checks for such interest payable to or upon
the written order of such Holders at their last addresses as they appear on the
registry books of the Issuer, unless otherwise provided in such Securities.
SECTION 3.2 Offices for Payments, etc. So long as any Registered Securities
are authorized for issuance pursuant to this Indenture or are outstanding
hereunder, the Issuer will maintain in the Borough of Manhattan, The City of New
York, an office or agency where the Registered Securities
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of each series may be presented for payment, where the Securities of each series
may be presented for exchange as is provided in this Indenture and, if
applicable, pursuant to Section 2.3 and where the Registered Securities of each
series may be presented for registration of transfer as in this Indenture
provided.
The Issuer will maintain one or more offices or agencies in a city or
cities located outside the United States (including any city in which such an
agency is required to be maintained under the rules of any stock exchange on
which the Securities of such series are listed) where the Unregistered
Securities, if any, of each series and Coupons, if any, appertaining thereto may
be presented for payment. No payment on any Unregistered Security or Coupon will
be made upon presentation of such Unregistered Security or Coupon at an agency
of the Issuer within the United States nor will any payment be made by transfer
to an account in, or by mail to an address in, the United States unless pursuant
to applicable United States laws and regulations then in effect such payment can
be made without adverse tax consequences to the Issuer. Notwithstanding the
foregoing, payments in Dollars of Unregistered Securities of any series and
Coupons appertaining thereto which are payable in Dollars may be made at an
agency of the Issuer maintained in the Borough of Manhattan, The City of New
York if such payment in Dollars at each agency maintained by the Issuer outside
the United States for payment on such Unregistered Securities is illegal or
effectively precluded by exchange controls or other similar restrictions.
The Issuer will maintain in the Borough of Manhattan, The City of New York,
an office or agency where notices and demands to or upon the Issuer in respect
of the Securities of any series, the Coupons appertaining thereto or this
Indenture may be served.
The Issuer will give to the Trustee written notice of the location of each
such office or agency and of any change of location thereof. In case the Issuer
shall fail to maintain any agency required by this Section to be located in the
Borough of Manhattan, The City of New York, or shall fail to give such notice of
the location or of any change in the location of any of the above agencies,
presentations and demands may be made and notices may be served at the Corporate
Trust Office of the Trustee.
The Issuer may from time to time designate one or more additional offices
or agencies where the Securities of a series and any Coupons appertaining
thereto may be presented for payment, where the Securities of that series may be
presented for exchange as provided in this Indenture and pursuant to Section 2.3
and where the Registered Securities of that series may be presented for
registration of transfer as in this Indenture provided, and the Issuer may from
time to time rescind any such designation, as the Issuer may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Issuer of its obligation to maintain the agencies
provided for in this Section. The Issuer will give to the Trustee prompt written
notice of any such designation or rescission thereof.
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The Issuer,
whenever necessary to avoid or fill a vacancy in the office of Trustee, will
appoint, in the manner provided in Section 6.10, a Trustee, so that there shall
at all times be a Trustee with respect to each series of Securities hereunder.
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SECTION 3.4 Paying Agents. Whenever the Issuer shall appoint a paying agent
other than the Trustee with respect to the Securities of any series, it will
cause such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of this
Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities of such series
(whether such sums have been paid to it by the Issuer or by any other
obligor on the Securities of such series) in trust for the benefit of the
Holders of the Securities of such series, or Coupons appertaining thereto,
if any, or of the Trustee,
(b) that it will give the Trustee notice of any failure by the Issuer
(or by any other obligor on the Securities of such series) to make any
payment of the principal of or interest on the Securities of such series
when the same shall be due and payable, and
(c) that it will pay any such sums so held in trust by it to the
Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of the principal of or
interest on the Securities of such series, deposit with the paying agent a sum
sufficient to pay such principal or interest so becoming due, and (unless such
paying agent is the Trustee) the Issuer will promptly notify the Trustee of any
failure to take such action.
If the Issuer shall act as its own paying agent with respect to the
Securities of any series, it will, on or before each due date of the principal
of or interest on the Securities of such series, set aside, segregate and hold
in trust for the benefit of the Holders of the Securities of such series or the
Coupons appertaining thereto a sum sufficient to pay such principal or interest
so becoming due. The Issuer will promptly notify the Trustee of any failure to
take such action.
Anything in this Section to the contrary notwithstanding, but subject to
Section 10.1, the Issuer may at any time, for the purpose of obtaining a
satisfaction and discharge with respect to one or more or all series of
Securities hereunder, or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust for any such series by the Issuer or any paying
agent hereunder, as required by this Section, such sums to be held by the
Trustee upon the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section is subject to the provisions of
Sections 10.3 and 10.4.
SECTION 3.5 Written Statement to Trustee. The Issuer will furnish to the
Trustee on or before April 30 in each year (beginning with April 30, 2000) a
brief certificate (which need not comply with Section 11.5) from the principal
executive, financial or accounting officer of the Issuer stating that in the
course of the performance by the signer of his duties as an officer of the
Issuer he would normally have knowledge of any default or non-compliance by the
Issuer in the performance of any covenants or conditions contained in this
Indenture, stating whether or not he has knowledge of any such default or
non-compliance and, if so, specifying each such default or non-compliance of
which the signer has knowledge and the nature thereof.
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SECTION 3.6 Negative Pledge: Limitation on Sale and Leaseback Transactions.
(a) The Issuer will not issue, assume, incur or guarantee, and will not
permit any Restricted Subsidiary to issue, assume, incur or guarantee, any Debt
secured by any mortgage, pledge, lien or other encumbrance (any such mortgage,
pledge, lien and other encumbrance being hereinafter called a "Mortgage") upon
any Principal Manufacturing Property of the Issuer or any Restricted Subsidiary,
or upon shares of capital stock or Debt of any Restricted Subsidiary (whether
such Principal Manufacturing Property or shares of stock are now owned or
hereafter acquired or such Debt is now existing or hereafter incurred or
assumed), without in any such case effectively providing, concurrently with the
issuance or assumption of such Debt, that the Securities (together with, if the
Issuer shall so determine, any other Debt of the Issuer or such Restricted
Subsidiary ranking equally with the Securities and then existing or thereafter
created) shall be secured equally and ratably with such Debt; provided, however,
that the foregoing restrictions shall not apply to:
(i) the creation of Mortgages on any Principal Manufacturing Property
(including any improvements on an existing property, as to which the
Mortgage may include such underlying real property as the Issuer may deem
necessary for the improvement and unnecessary for the operation of any
theretofore existing Principal Manufacturing Property on the same or
adjoining real property) hereafter acquired by the Issuer or a Restricted
Subsidiary prior to, at the time of, or within 180 days after the latest of
the acquisition, completion of construction or commencement of commercial
operation of such property, to secure or provide for the payment of
financing of all or any part of the purchase price thereof or construction
of fixed improvements thereon, or, in addition to assumptions in
transactions contemplated by subparagraph (ii) below, the assumption of any
Mortgage upon any Principal Manufacturing Property hereafter acquired
existing at the time of such acquisitions, or the acquisition of any
Principal Manufacturing Property subject to any Mortgage without the
assumption thereof; provided that the aggregate principal amount of Debt
secured by any such Mortgage so issued, assumed or existing shall not
exceed 100% of the cost of such Principal Manufacturing Property to the
corporation acquiring the same or of the fair value thereof (as determined
by resolution adopted by the Board of Directors) at the time of such
acquisition, whichever is less, and, provided further, that in the case of
any such acquisition, construction or improvement the Mortgage shall not
apply to any property theretofore owned by the Issuer or a Restricted
Subsidiary, other than, in the case of any such construction or
improvement, any theretofore unimproved real property on which the property
so constructed, or the improvement, is located (which unimproved real
property may at the option of the Issuer be segregated by legal description
from other real property of the Issuer appurtenant to such Principal
Manufacturing Property and subjected to the Mortgage related to such
construction or improvement);
(ii) any Mortgages on any Principal Manufacturing Property of a
corporation which is merged into or consolidated with the Issuer or a
Restricted Subsidiary or substantially all of the assets of which are
acquired by the Issuer or a Restricted Subsidiary (whether or not the
obligations secured by any such Mortgage are assumed by the Issuer or a
Restricted Subsidiary); provided that such Mortgages were not created in
contemplation of such merger, consolidation or acquisition;
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(iii) Mortgages on any Principal Manufacturing Property of the Issuer
or a Restricted Subsidiary in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in
favor of any other country, or any political subdivision thereof, to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any Debt incurred or guaranteed for the purpose of
financing all or any part of the cost of acquiring, constructing or
improving the property subject to such Mortgages (including Mortgages
incurred in connection with financings of the type contemplated by Section
103 of the Internal Revenue Code, maritime financings under Title XI of the
United States Code or similar financings);
(iv) Mortgages on particular property (or any proceeds of the sale
thereof) to secure all or any part of the cost of exploration, drilling,
mining, development, operation or maintenance thereof (including, without
limitation, construction of facilities for field processing) intended to
obtain or increase the production and sale or other disposition of oil,
gas, coal, natural gas, carbon dioxide, sulphur, helium, metals, minerals,
steam, timber or other natural resources, or any Debt created, issued,
assumed or guaranteed to provide funds for any or all such purposes;
(v) Mortgages securing Debt of a Restricted Subsidiary owing to the
Issuer and/or another Restricted Subsidiary;
(vi) Mortgages on any Principal Manufacturing Property of the Issuer or
a Restricted Subsidiary which Mortgages were in existence on the date of
this Indenture; provided, however, that each such Mortgage shall be limited
to all or a part of the property which secured such Mortgage at such date
(plus improvements and construction on such Property);
(vii) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part, of any Mortgage referred to
in the foregoing clauses (i) through (vi); provided, however, that the
principal amount of Debt so secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or
replacement, and that such extension, renewal or replacement shall be
limited to all or a part of the property which secured the Mortgage so
extended, renewed or replaced (plus improvements and construction on such
property); and
(viii) Permitted Mortgages.
(b) Notwithstanding the provisions of subsection (a) of this Section, the
Issuer or any one or more Restricted Subsidiaries may issue or assume Debt
secured by a Mortgage on a Principal Manufacturing Property in addition to those
permitted by subsection (a) of this Section and renew, extend or replace such
Mortgages; provided that at the time of such creation, assumption, renewal,
extension or replacement, and after giving effect thereto, Exempted Debt does
not exceed 15% of Consolidated Net Tangible Assets.
(c) The Issuer will not, nor will it permit any Restricted Subsidiary to,
enter into any arrangement with any Person providing for the leasing by the
Issuer or any Restricted Subsidiary of any Principal Manufacturing Property,
whether such Principal Manufacturing Property is now owned
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or hereafter acquired (except for temporary leases for a term, including
renewals at the option of the lessee, of not more than three years and except
for leases between the Issuer and a Restricted Subsidiary or between Restricted
Subsidiaries), which property has been or is to be sold or transferred by the
Issuer or such Restricted Subsidiary to such Person with the intention of taking
back a lease on such property (a "sale and leaseback transaction") unless the
net proceeds of such sale or transfer shall be at least equal to the fair value
of such property as determined by resolution adopted by the Board of Directors
and either:
(i) the Issuer or such Restricted Subsidiary would be entitled,
pursuant to the provisions of subsection (a) of this Section, to issue or
assume Debt secured by a Mortgage on such property at least equal in amount
to the Attributable Debt in respect of such sale and leaseback transaction
without equally and ratable securing the Securities; or
(ii) since the date hereof and within a period commencing twelve months
prior to the consummation of such sale and leaseback transaction and ending
twelve months after the consummation of such sale and leaseback transaction
the Issuer or such Restricted Subsidiary, as the case may be, has expended
or will expend, or a combination of both, for facilities comprising all or
a part of a Principal Manufacturing Property an amount equal to (A) the net
proceeds of such sale and leaseback transaction and the Issuer elects to
designate such amount as a credit against such sale and leaseback
transaction or (B) a part of the net proceeds of such sale and leaseback
transaction and the Issuer elects to designate such amount as a credit
against such sale and leaseback transaction and applies an amount equal to
the remainder of the net proceeds as provided in clause (iii) hereof; or
(iii) such sale and leaseback transactions do not come within the
exceptions provided in clause (i) hereof and the Issuer does not make the
election permitted by clause (ii) hereof or makes such election only as to
part of such net proceeds, in either which event the Issuer will, within
180 days after such sale and leaseback transaction, apply an amount equal
to the Attributable Debt in respect of such sale and leaseback transaction
(less an amount equal to the amount, if any, elected under clause (ii)
hereof) to the retirement (other than any mandatory retirement or by way of
payment at maturity) of Debt with a maturity of greater than one year of
the Issuer or any Restricted Subsidiary (other than Debt of the Issuer to
any Restricted Subsidiary or of any Restricted Subsidiary to the Issuer or
another Restricted Subsidiary).
(d) Notwithstanding the provisions of paragraph (c) of this section, the
Issuer and any Restricted Subsidiary may enter into sale and leaseback
transactions in addition to those permitted by paragraph (c) of this Section and
without any obligation to make expenditures for facilities comprising a part or
all of a Principal Manufacturing Property or to retire any Debt, provided that
at the time of entering into such sale and leaseback transaction and after
giving effect thereto, Exempted Debt does not exceed 15% of Consolidated Net
Tangible Assets.
SECTION 3.7 Luxembourg Publications. In the event of the publication of any
notice pursuant to Section 5.11, 6.10 (a), 6.11, 8.2, 10.4, 12.2 or 12.5, the
party making such publication in the Borough of Manhattan, The City of New York
and London shall also, to the extent that notice is required to be given to
Holders of Securities of any series by applicable Luxembourg law or stock
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exchange regulation, as evidenced by an Officer's Certificate delivered to such
party, make a similar publication in Luxembourg.
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE
SECTION 4.1 Issuer to Furnish Trustee Information as to Names and Addresses
of Securityholders. If and so long as the Trustee shall not be the Security
registrar for the Securities of any series, the Issuer and any other obligor on
the Securities will furnish or cause to be furnished to the Trustee a list in
such form as the Trustee may reasonably require of the names and addresses of
the Holders of the Registered Securities of such series pursuant to Section 312
of the Trust Indenture Act of 1939 (a) semi-annually not more than 15 days after
each record date for the payment of interest on such Registered Securities, as
hereinabove specified, as of such record date and on dates to be determined
pursuant to Section 2.3 for non-interest bearing Registered Securities in each
year, and (b) at such other times as the Trustee may request in writing, within
30 days after receipt by the Issuer of any such request as of a date not more
than 15 days prior to the time such information is furnished.
SECTION 4.2 Preservation and Disclosure of Securityholders Lists. Holders
may communicate pursuant to the Trust Indenture Act of 1939 Section 312(b) with
other Holders with respect to their rights under this Indenture. The Issuer and
the Trustee and anyone else shall have the protection of the Trust Indenture Act
of 1939 Section 312(c).
SECTION 4.3 Reports by the Issuer. The Issuer covenants to file with the
Trustee, within 30 days after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information, documents, and
other reports that the Issuer may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
or pursuant to Section 314 of the Trust Indenture Act of 1939.
SECTION 4.4 Reports by the Trustee. Any Trustee's report required under
Section 313(a) of the Trust Indenture Act of 1939 shall be transmitted on or
before January 15 in each year beginning January 15, 2000, as provided in
Section 313(c) of the Trust Indenture Act of 1939, so long as any Securities are
Outstanding hereunder, and shall be dated as of a date convenient to the Trustee
no more than 60 days prior thereto.
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of
Default. "Event of Default," with respect to Securities of any series wherever
used herein, means each one of the following events which shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
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pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon any of the
Securities of such series as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal of any of
the Securities of such series as and when the same shall become due and payable
either at maturity, upon any redemption, by declaration or otherwise; or
(c) failure on the part of the Issuer duly to observe or perform any other
of the covenants or agreements on the part of the Issuer in the Securities of
such series (other than a covenant or warranty in respect of the Securities of
such series a default in the performance or breach of which is elsewhere in this
Section specifically dealt with) or in this Indenture contained for a period of
60 days after the date on which written notice specifying such failure, stating
that such notice is a "Notice of Default" hereunder and demanding that the
Issuer remedy the same, shall have been given by registered or certified mail,
return receipt requested, to the Issuer by the Trustee, or to the Issuer and the
Trustee by the holders of at least 25% in aggregate principal amount of the
Outstanding Securities of all series affected thereby; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Issuer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or for any substantial part of
its property or ordering the winding up or liquidation of its affairs, and such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(e) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Issuer or for any substantial part of its property, or make any general
assignment for the benefit of creditors; or
(f) any other Event of Default provided in the supplemental indenture under
which such series of Securities is issued or in the form of Security for such
series.
If an Event of Default described in clauses (a), (b), (c) or (f) (if the
Event of Default under clause (c) or (f), as the case may be, is with respect to
less than all series of Securities then Outstanding) occurs and is continuing,
then, and in each and every such case, except for any series of Securities the
principal of which shall have already become due and payable, either the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
Securities of each such affected series then Outstanding hereunder (voting as a
single class) by notice in writing to the Issuer (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the Securities of any
such affected series are Original Issue Discount Securities, such portion of the
principal amount as may
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be specified in the terms of such series) of all Securities of all such affected
series, and the interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable. If an Event of Default described in clause (c) or (f) (if the Event
of Default under clause (c) or (f), as the case may be, is with respect to all
series of Securities then Outstanding), (d) or (e) occurs and is continuing,
then and in each and every such case, unless the principal of all the Securities
shall have already become due and payable, either the Trustee or the Holders of
not less than 25% in aggregate principal amount of all the Securities then
Outstanding hereunder (treated as one class), by notice in writing to the Issuer
(and to the Trustee if given by Securityholders), may declare the entire
principal (or, if any Securities are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms thereof) of all
the Securities then Outstanding, and interest accrued thereon, if any, to be due
and payable immediately, and upon any such declaration the same shall become
immediately due and payable.
The foregoing provisions, however, are subject to the condition that if, at
any time after the principal (or, if the Securities are Original Issue Discount
Securities, such portion of the principal as may be specified in the terms
thereof) of the Securities of any series (or of all the Securities, as the case
may be) shall have been so declared due and payable, and before any judgment or
decree for the payment of the moneys due shall have been obtained or entered as
hereinafter provided, the Issuer shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all the
Securities of such series (or of all the Securities, as the case may be) and the
principal of any and all Securities of each such series (or of all the
Securities, as the case may be) which shall have become due otherwise than by
acceleration (with interest upon such principal and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest or Yield to Maturity (in the
case of Original Issue Discount Securities) specified in the Securities of each
such series (or at the respective rates of interest or Yields to Maturity of all
the Securities, as the case may be) to the date of such payment or deposit) and
such amount as shall be sufficient to cover reasonable compensation to the
Trustee and each predecessor Trustee, its agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith, and
if any and all Events of Default under the Indenture, other than the non-payment
of the principal of Securities which shall have become due by acceleration,
shall have been cured, waived or otherwise remedied as provided herein --- then
and in every such case the Holders of a majority in aggregate principal amount
of all the Securities of each such series, or of all the Securities, as the case
may be, in each case voting as a single class, then Outstanding, by written
notice to the Issuer and to the Trustee, may waive all defaults with respect to
each such series (or with respect to all the Securities, as the case may be) and
rescind and annul such declaration and its consequences, but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default
or shall impair any right consequent thereon.
For all purposes under this Indenture, if a portion of the principal of any
Original Issue Discount Securities shall have been accelerated and declared due
and payable pursuant to the provisions hereof, then, from and after such
declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed, for
all purposes hereunder, to be such portion of the principal thereof as shall be
due and payable as a result of such acceleration, and payment of such portion of
the principal thereof as shall be due and payable
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as a result of such acceleration, together with interest, if any, thereon and
all other amounts owing thereunder, shall constitute payment in full of such
Original Issue Discount Securities.
SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt.
The Issuer covenants that (a) in case default shall be made in the payment of
any installment of interest on any of the Securities of any series when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all of any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise --- then upon demand of the Trustee, the Issuer will pay to the
Trustee for the benefit of the Holders of the Securities of such series the
whole amount that then shall have become due and payable on all Securities of
such series, and such Coupons, for principal or interest, as the case may be
(with interest to the date of such payment upon the overdue principal and, to
the extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) specified
in the Securities of such series); and in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and any expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may pay the principal
of and interest on the Securities of any series to the Holders thereof, whether
or not the Securities of such Series be overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Issuer or other obligor upon the Securities
and collect in the manner provided by law out of the property of the Issuer or
other obligor upon the Securities, wherever situated the moneys adjudged or
decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or any
other obligor upon the Securities under Title 11 of the United States Code or
any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor, or in case
of any other comparable judicial proceedings relative to the Issuer or other
obligor upon the Securities, or to the creditors or property of the Issuer or
such other obligor, the Trustee, irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
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(a) to file and prove a claim or claims for the whole amount of principal
and interest (or, if the Securities of any series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of such series) owing and unpaid in respect of the Securities of any
series, and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
reasonable compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee, except as a result of negligence or bad faith) and of the
Securityholders allowed in any judicial proceedings relative to the Issuer or
other obligor upon the Securities, or to the creditors or property of the Issuer
or such other obligor,
(b) unless prohibited by applicable law and regulations, to vote on behalf
of the holders of the Securities of any series in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation or other bankruptcy
or insolvency proceedings or person performing similar functions in comparable
proceedings, and
(c) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the Securityholders and of the Trustee on their behalf;
and any trustee, receiver, or liquidator, custodian or other similar official is
hereby authorized by each of the Securityholders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to the Securityholders, to pay to the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities of any series or the rights of any Holders
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture, or under
any of the Securities of any series or Coupons appertaining to such Securities,
may be enforced by the Trustee without the possession of any of the Securities
of such series or Coupons appertaining to such Securities or the production
thereof on any trial or other proceedings relative thereto, and any such action
or proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Securities or Coupons appertaining to such
Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the Holders
of the Securities or Coupons appertaining to such Securities in respect to
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which such action was taken, and it shall not be necessary to make any Holders
of such Securities or Coupons appertaining to such Securities parties to any
such proceedings.
SECTION 5.3 Application of Proceeds. Any moneys collected by the Trustee
pursuant to this Article in respect of any series shall be applied in the
following order at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal or interest, upon
presentation of the several Securities and Coupons appertaining to such
Securities in respect of which monies have been collected and stamping (or
otherwise noting) thereon the payment, or issuing Securities of such series in
reduced principal amounts in exchange for the presented Securities of like
series if only partially paid, or upon surrender thereof if fully paid:
First: To the payment of costs and expenses applicable to such series
in respect of which monies have been collected, including reasonable
compensation to the Trustee and each predecessor Trustee and their respective
agents and attorneys and of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith;
Second: In case the principal of the Securities of such series in
respect of which moneys have been collected shall not have become and be then
due and payable, to the payment of interest on the Securities of such series in
default in the order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the Trustee)
upon the overdue installments of interest at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in such Securities, such payments to be made ratably to
the persons entitled thereto, without discrimination or preference;
Third: In case the principal of the Securities of such series in
respect of which moneys have been collected shall have become and shall be then
due and payable, to the payment of the whole amount then owing and unpaid upon
all the Securities of such series for principal and interest, with interest upon
the overdue principal, and (to the extent that such interest has been collected
by the Trustee) upon overdue installments of interest at the same rate as the
rate of interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of such series; and in case such moneys
shall be insufficient to pay in full the whole amount so due and unpaid upon the
Securities of such series, then to the payment of such principal and interest or
Yield to Maturity, without preference or priority of principal over interest or
Yield to Maturity, or of interest or Yield to Maturity over principal, or of any
installment of interest over any other installment of interest, or of any
Security of such series over any other Security of such series, ratably to the
aggregate of such principal and accrued and unpaid interest or Yield to
Maturity; and
Fourth: To the payment of the remainder, if any, to the Issuer or any
other person lawfully entitled thereto.
SECTION 5.4 Suits for Enforcement. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or
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otherwise, whether for the specific enforcement of any covenant or agreement
contained in this Indenture or in aid of the exercise of any power granted in
this Indenture or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
SECTION 5.5 Restoration of Rights on Abandonment of Proceedings. In case
the Trustee shall have proceeded to enforce any right under this Indenture and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then and in every such case
the Issuer and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the
Issuer, the Trustee and the Securityholders shall continue as though no such
proceedings had been taken.
SECTION 5.6 Limitations on Suits by Securityholders. No Holder of any
Security of any series or of any Coupon appertaining thereto shall have any
right by virtue or by availing of any provision of this Indenture to institute
any action or proceeding at law or in equity or in bankruptcy or otherwise upon
or under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such Holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of not less than 25% in aggregate
principal amount of the Securities of each affected series then Outstanding
(treated as a single class) shall have made written request upon the Trustee to
institute such action or proceedings in its own name as trustee hereunder and
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby
and the Trustee for 60 days after its receipt of such notice, request and offer
of indemnity shall have failed to institute any such action or proceeding and no
direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 5.9; it being understood and intended, and being
expressly covenanted by the taker and Holder of every Security or Coupon with
every other taker and Holder and the Trustee, that no one or more Holders of
Securities of any series or Coupons appertaining to such Securities shall have
any right in any manner whatever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other such
Holder of Securities or Coupons appertaining to such Securities, or to obtain or
seek to obtain priority over or preference to any other such Holder or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all Holders of Securities of the
applicable series and Coupons appertaining to such Securities. For the
protection and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION 5.7 Unconditional Right of Securityholders to Institute Certain
Suits. Notwithstanding any other provision in this Indenture and any provision
of any Security, the right of any Holder of any Security or Coupon to receive
payment of the principal of and interest on such Security or Coupon on or after
the respective due dates expressed in such Security or Coupon or any date fixed
for redemption of such Security or Coupon, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
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SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default. Except as provided in Section 5.6, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders of Securities or Coupons is
intended to be exclusive of any right or remedy, and every right and remedy
shall, to the extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of Securities or
Coupons to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default or an
acquiescence therein; and, subject to Section 5.6, every power and remedy given
by this Indenture or by law to the Trustee or to the Holders of Securities or
Coupons may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Holders of Securities or Coupons.
SECTION 5.9 Control by Holders of Securities. The Holders of a majority in
aggregate principal amount of the Securities of each series affected (with all
such series voting as a single class) at the time Outstanding shall have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee with respect to the Securities of such series by this Indenture;
provided that such direction shall not be otherwise than in accordance with law
and the provisions of this Indenture and provided further that (subject to the
provisions of Section 6.1) the Trustee shall have the right to decline to follow
any such direction if the Trustee, being advised by counsel, shall determine
that the action or proceeding so directed may not lawfully be taken or if the
Trustee in good faith by its board of directors, the executive committee, or a
trust committee of directors or Responsible Officers of the Trustee shall
determine that the action or proceedings so directed would involve the Trustee
in personal liability or if the Trustee in good faith shall so determine that
the actions or forebearances specified in or pursuant to such direction would be
unduly prejudicial to the interests of Holders of the Securities of all series
so affected not joining in the giving of said direction, it being understood
that (subject to Section 6.1) the Trustee shall have no duty to ascertain
whether or not such actions or forebearances are unduly prejudicial to such
Holders.
Nothing in this Indenture shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Securityholders.
SECTION 5.10 Waiver of Past Defaults. Prior to the acceleration of the
maturity of any Securities as provided in Section 5.1, the Holders of a majority
in aggregate principal amount of the Securities of all series at the time
Outstanding with respect to which an Event of Default shall have occurred and be
continuing (voting as a single class) may on behalf of the Holders of all such
Securities waive any past default or Event of Default described in Section 5.1
and its consequences, except a default in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the Holder of
each Security affected. In the case of any such waiver, the Issuer, the Trustee
and the Holders of all such Securities shall be restored to their former
positions
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and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in Certain
Circumstances. The Trustee shall, within 90 days after the occurrence of a
default with respect to the Securities of any series, give notice of all
defaults with respect to that series known to the Trustee (i) if any
Unregistered Securities of that series are then Outstanding, to the Holders
thereof, by publication at least once in an Authorized Newspaper in the Borough
of Manhattan, The City of New York, and at least once in an Authorized Newspaper
in London (and, if required by Section 3.7, at least once in an Authorized
Newspaper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided herein unless in each case such defaults
shall have been cured before the mailing or publication of such notice (the term
"defaults" for the purpose of this Section being hereby defined to mean any
event or condition which is, or with notice or lapse of time or both would
become, an Event of Default); provided that, except in the case of default in
the payment of the principal of or interest on any of the Securities of such
series, or in the payment of any sinking fund installment on such series, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or trustees and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders
of such series.
SECTION 5.12 Right of Court to Require Filing of Undertaking to Pay Costs.
All parties to this Indenture agree, and each Holder of any Security or Coupon
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder or group of
Securityholders of any series holding in the aggregate more than 10% in
aggregate principal amount of the Securities of such series, or, in the case of
any suit relating to or arising under clause (c) or (f) of Section 5.1 (if the
suite relates to Securities of more than one but less than all series), 10% in
aggregate principal amount of Securities then Outstanding and affected thereby,
or in the case of any suit relating to or arising under clause (c) or (f) (if
the suit under clause (c) or (f) relates to all the Securities then
Outstanding), (d) or (e) of Section 5.1, 10% in aggregate principal amount of
all Securities then Outstanding, or to any suit instituted by any Securityholder
for the enforcement of the payment of the principal of or interest on any
Security on or after the due date expressed in such Security or any date fixed
for redemption.
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ARTICLE SIX
CONCERNING THE TRUSTEE
SECTION 6.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default. With respect to the Holders of any series of Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiving
of all Events of Default which may have occurred with respect to such series,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default with respect to the
Securities of a series has occurred (which has not been cured or waived) the
Trustee shall exercise with respect to such series of Securities such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that:
(a) prior to the occurrence of an Event of Default with respect to the
Securities of any series and after the curing or waiving of all such Events of
Default with respect to such series which may have occurred:
(i) the duties and obligations of the Trustee with respect to the
Securities of any series shall be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable except
for the performance of such duties and obligations as are specifically set
forth in this Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
Holders pursuant to Section 5.9 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or
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in the exercise of any of its rights or powers if there shall be reasonable
ground for believing that the repayment of such funds or adequate indemnity
against such liability is not reasonably assured to it.
The provisions of this Section 6.1 are in furtherance of and subject to
Section 315 of the Trust Indenture Act of 1939.
SECTION 6.2 Certain Rights of the Trustee. In furtherance of and subject to
the Trust Indenture Act of 1939, and subject to Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon, security or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned herein
shall be sufficiently evidenced by an Officer's Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Issuer;
(c) the Trustee may consult with counsel and any written advice or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in reliance thereon in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions of this Indenture, unless
such Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the
curing or waiving of all Events of Default, the Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note, coupon, security, or other
paper or document unless requested in writing so to do by the Holders of a
majority in aggregate principal amount of the Securities of all series affected
then Outstanding; provided that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses
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of every such investigation shall be paid by the Issuer or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Issuer upon demand;
and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of Securities
or Application of Proceeds Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of authentication, shall be taken
as the statements of the Issuer, and the Trustee assumes no responsibility for
the correctness of the same. The Trustee makes no representation as to the
validity or sufficiency of this Indenture or of the Securities or Coupons. The
Trustee shall not be accountable for the use or application by the Issuer of any
of the Securities or of the proceeds thereof.
SECTION 6.4 Trustee and Agents May Hold Securities or Coupons; Collections,
etc. The Trustee or any agent of the Issuer or the Trustee, in its individual or
any other capacity, may become the owner or pledgee of Securities or Coupons
with the same rights it would have if it were not the Trustee or such agent and
may otherwise deal with the Issuer and receive, collect, hold and retain
collections from the Issuer with the same rights it would have if it were not
the Trustee or such agent.
SECTION 6.5 Moneys Held by Trustee. Subject to the provisions of Section
10.4 hereof, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Neither the Trustee nor any agent of the Issuer or
the Trustee shall be under any liability for interest on any moneys received by
it hereunder.
SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) and the Issuer covenants and agrees to pay or reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad faith.
Any such payments and reimbursements not made in a timely fashion shall be made
with interest at the Trustee's corporate base rate. The Issuer also covenants to
indemnify the Trustee and each predecessor Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder and its duties
hereunder, including the costs and expenses of defending itself against or
investigating any claim of liability in the premises. The obligations of the
Issuer under this Section to compensate and indemnify the Trustee and each
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predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of this
Indenture. Such additional indebtedness shall be a senior claim to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the Holders of particular
Securities or Coupons, and the Securities are hereby subordinated to such senior
claim.
SECTION 6.7 Right of Trustee to Rely on Officer's Certificate, etc. Subject
to Section 6.1 and 6.2, whenever in the administration of the trusts of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 6.8
This Section intentionally left blank.
SECTION 6.9 Persons Eligible for Appointment as Trustee. The Trustee for
each series of Securities hereunder shall at all times be a corporation
organized and doing business under the laws of the United States of America or
of any State or the District of Columbia having a combined capital and surplus
of at least $5,000,000, and which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then, for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 6.10.
The provisions of this Section 6.9 are in furtherance of and subject to
Section 310(a) of the Trust Indenture Act of 1939.
This Indenture shall always have a Trustee who satisfies the requirements
of the Trust Indenture Act of 1939 Sections 310(a)(1), (2) and (5). The Trustee
is subject to the Trust Indenture Act of 1939 Section 310(b); provided, however,
that there shall be excluded from the operation of the Trust Indenture Act of
1939 Section 310(b)(1) any indenture or indentures under which any other
securities, or certificates of interest or participation in any other securities
of the Issuer are outstanding, if the requirements for such exclusion set forth
in the Trust Indenture Act of 1939 Section 310(b)(1) are met.
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SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee. (a)
The Trustee, or any trustee or trustees hereafter appointed, may at any time
resign and be discharged of the trusts hereby created by giving written notice
or resignation to the Issuer and (i) if any Unregistered Securities are then
Outstanding, by giving notice of such resignation to the Holders thereof, by
publication at least once in an Authorized Newspaper in the Borough of
Manhattan. The City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an Authorized
Newspaper in Luxembourg), (ii) if any Unregistered Securities are then
outstanding, by mailing notice of such resignation to the Holders thereof who
have filed their names and addresses with the Trustee at such addresses as were
so furnished to the Trustee and (iii) by mailing notice of such resignation to
the Holders of then Outstanding Registered Securities at their addresses as they
shall appear on the registry books. Upon receiving such notice of resignation,
the Issuer shall promptly appoint a successor trustee or trustees by written
instrument in duplicate, executed by authority of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee or trustees. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the mailing
of such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide Holder of a Security or Securities for
at least six months may, subject to the provisions of Section 5.12, on behalf of
himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act of 1939 after written request therefor by
the Issuer or by any Securityholder who has been a bona fide Holder of a
Security or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provision of Section 6.9 and Section 3.10(a) of the Trust Indenture Act of
1939 and shall fail to resign after written request therefor by the Issuer
or by any Securityholder; or
(iii) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver or liquidator of the Trustee or of
its property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Issuer, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 315(e) of the Trust Indenture Act of 1939,
any Securityholder who has been a bona fide Holder of a Security or Securities
for at least six months may on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon,
after
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such notice, if any, as it may deem proper and described, remove the Trustee and
appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the
Securities of all series at the time outstanding may at any time remove the
Trustee and appoint a successor trustee by delivering to the Trustee so removed,
to the successor trustee so appointed and to the Issuer the evidence provided
for in Section 7.1 of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
SECTION 6.11 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 6.10 shall execute and deliver to the
Issuer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee hereunder, but, nevertheless, on the written request of the
Issuer or of the successor trustee, upon payment of its charges then unpaid, the
trustee ceasing to act shall, subject to Section 10.4, pay over to the successor
trustee all moneys at the time held by it hereunder and shall execute and
deliver an instrument transferring to such successor trustee all such rights,
powers, duties and obligations. Upon request of any such successor trustee, the
Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers. Any trustee ceasing to act shall, nevertheless, retain a prior claim
upon all property or funds held or collected by such trustee to secure any
amounts then due it pursuant to the provisions of Section 6.6.
No successor trustee shall accept appointment as provided in this Section
6.11 unless at the time of such acceptance such successor trustee shall be
qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible
under the provisions of Section 6.9.
Upon acceptance of appointment by any successor trustee as provided in this
Section 6.11, the Issuer shall give notice thereof (a) if any Unregistered
Securities are then Outstanding, to the Holders thereof, by publication of such
notice at least once in an Authorized Newspaper in the Borough of Manhattan, the
City of New York and at lease once in an Authorized Newspaper in London (and, if
required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), (b) if any Unregistered Securities are then Outstanding, to the
Holders thereof who have filed their names and addresses with the trustee, by
mailing such notice to such Holders at such addresses as were so furnished to
the Trustee (and the Trustee shall make such information available to the Issuer
for such purpose) and (c) to the Holders of Registered Securities, by mailing
such notice to such Holders at their addresses as they shall appear on the
registry books. If the acceptance of appointment is substantially
contemporaneous with the registration, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 6.10.
If the Issuer fails to give such
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notice within ten days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be given at the expense of the
Issuer.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible
under the provisions of Section 6.9, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities of any series shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities of any series shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Securities of
such series or in this Indenture provided that the certificate of the Trustee
shall have; provided, that the right to adopt the certificate of authentication
of any predecessor Trustee or to authenticate Securities of any series in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
SECTION 6.13 Preferential Collection of Claims Against the Issuer. The
Trustee is subject to the Trust Indenture Act of 1939 Section 311(a), excluding
any creditor relationship listed in the Trust Indenture Act of 1939 Section
311(b). A Trustee who has resigned or been removed shall be subject to the Trust
Indenture Act of 1939 Section 311(a) to the extent indicated therein.
SECTION 6.14 Appointment of Authenticating Agent. As long as any Securities
of a series remain Outstanding, the Trustee may, by an instrument in writing,
appoint with the approval of the Issuer an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee to authenticate Securities, including Securities issued upon exchange,
registration of transfer, partial redemption or pursuant to Section 2.9.
Securities of each such series authenticated by such Authenticating Agent shall
be entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee. Whenever reference is made
in this Indenture to the authentication and delivery of Securities of any series
by the Trustee or to the Trustee's Certificate of Authentication, such reference
shall be deemed to include authentication and delivery on behalf of the Trustee
by an Authenticating Agent for such series and a Certificate of Authentication
executed on behalf of the Trustee by such Authenticating Agent. Such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States of America or of any State,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $5,000,000 (determined as provided in Section
6.9 with respect to the Trustee) and subject to supervision or examination by
Federal or State authority.
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Any corporation into which any Authenticating Agent may be merged or
converted, or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of any Authenticating Agent, shall continue to be the Authenticating Agent with
respect to all series of Securities for which it served as Authenticating Agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such Authenticating Agent. Any Authenticating Agent may at any
time, and if it shall cease to be eligible shall, resign by giving written
notice of resignation to the Trustee and to the Issuer.
Upon receiving such a notice of resignation or upon such a termination, or
in case at any time any Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 6.14 with respect to one or more
series of Securities, the Trustee shall upon receipt of an Issuer Order appoint
a successor Authenticating Agent and the Issuer shall provide notice of such
appointment to all Holders of Securities of such series in the manner and to the
extent provided in Section 11.4. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent. The Issuer agrees to pay
to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.
Sections 6.2, 6.3, 6.4, 6.6, 6.9 and 7.3 shall be applicable to any
Authenticating Agent.
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
SECTION 7.1 Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by a specified percentage in
principal amount of the Securityholders of any or all series may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
(either physically or by means of an electronic transmission) by such specified
percentage of Securityholders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered (either physically
or by means of an electronic transmission) to the Trustee. Proof of execution of
any instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Sections 6.1 and 6.2) conclusive
in favor of the Trustee and the Issuer, if made in the manner provided in this
Article.
SECTION 7.2 Proof of Execution of Instruments and of Holding of Securities.
Subject to Sections 6.1 and 6.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in the following manner:
(a) The fact and date of the execution by any Holder of any instrument may
be proved by the certificate of any notary public or other officer of any
jurisdiction authorized to take
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acknowledgments of deeds or administer oaths that the person executing such
instruments acknowledged to him the execution thereof, or by an affidavit of a
witness to such execution sworn to before any such notary or other such officer.
Where such execution is by or on behalf of any legal entity other than an
individual, such certificate or affidavit shall also constitute sufficient proof
of the authority of the person executing the same. The fact of the holding by
any Holder of an Unregistered Security of any series, and the identifying number
of such Security and the date of his holding the same, may be proved by the
production of such Security or by a certificate executed by any trust company,
bank, banker or recognized securities dealer wherever situated satisfactory to
the Trustee, if such certificate shall be deemed by the Trustee to be
satisfactory. Each such certificate shall be dated and shall state that on the
date thereof a Security of such series bearing a specified identifying number
was deposited with or exhibited to such trust company, bank, banker or
recognized securities dealer by the person named in such certificate. Any such
certificate may be issued in respect of one or more Unregistered Securities of
one or more series specified therein. The holding by the person named in any
such certificate of any Unregistered Securities of any series specified therein
shall be presumed to continue for a period of one year from the date of such
certificate unless at the time of any determination of such holding (1) another
certificate bearing a later date issued in respect of the same Securities shall
be produced, or (2) the Security of such series specified in such certificate
shall be produced by some other person, or (3) the Security of such series
specified in such certificate shall have ceased to be Outstanding. Subject to
Sections 6.1 and 6.2, the fact and date of the execution of any such instrument
and the amount and numbers of Securities of any series held by the person so
executing such instrument and the amount and numbers of any Security or
Securities for such series may also be proven in accordance with such reasonable
rules and regulations as may be prescribed by the Trustee for such series or in
any other manner which the Trustee for such series may deem sufficient.
(b) In the case of Registered Securities, the ownership of such Securities
shall be proved by the Security register or by a certificate of the Security
register.
The Issuer may set a record date for purposes of determining the identity
of Holders of Registered Securities of any series entitled to vote or consent to
any action referred to in Section 7.1, which record date may be set at any time
or from time to time by notice to the Trustee, for any date or dates (in the
case of any adjournment or reconsideration) not more than 60 days nor less than
five days prior to the proposed date of such vote or consent, and thereafter,
notwithstanding any other provisions hereof, with respect to Registered
Securities of any series, only Holders of Registered Securities of such series
of record on such record date shall be entitled to so vote or give such consent
or revoke such vote or consent.
SECTION 7.3 Holders to Be Treated as Owners. The Issuer, the Trustee and
any agent of the Issuer or the Trustee may deem and treat the person in whose
name any Security shall be registered upon the Security register for such series
as the absolute owner of such Security (whether or not such Security shall be
overdue and notwithstanding any notation of ownership or other writing thereon)
for the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on such Security and for
all other purposes; and neither the Issuer nor the Trustee nor any agent of the
Issuer or the Trustee shall be affected by any notice to the contrary. The
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Holder
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of any Unregistered Security and the Holder of any Coupon as the absolute owner
of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes and neither the Issuer,
the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any
notice to the contrary. All such payments so made to any such person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Security or Coupon.
SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities of any or all series have concurred in any direction,
consent or waiver under this Indenture, Securities which are owned by the Issuer
or any other obligor on the Securities with respect to which such determination
is being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other
obligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance with such advice. Upon
request of the Trustee, the Issuer shall furnish to the Trustee promptly an
Officer's Certificate listing and identifying all Securities, if any, known by
the Issuer to be owned or held by or for the account of any of the
above-described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall
be entitled to accept such Officer's Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
SECTION 7.5 Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 7.1, of the
taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified in
this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the serial
numbers of the Securities the Holders of which have consented to such action
may, by filing written notice at the Corporate Trust Office and upon proof of
holding as provided in this Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the Holder of any
Security shall be conclusive and binding upon such Holder and upon all future
Holders and owners of such Security and of any Securities issued in exchange or
substitution therefor or on registration of transfer thereof, irrespective of
whether or not any notation in regard thereto is made upon any such Security.
Any action taken by the Holders of the percentage in aggregate principal amount
of the Securities of any or all series, as the case may be, specified in this
Indenture in connection with such action shall be conclusively binding upon the
Issuer, the Trustee and the Holders of all the Securities affected by such
action.
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ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures Without Consent of Securityholders. The
Issuer, when authorized by a resolution of its Board of Directors (which
resolution may provide general terms or parameters for such action and may
provide that the specific terms of such action may be determined in accordance
with or pursuant to an Issuer Order) and the Trustee may from time to time and
at any time enter into an indenture or indentures supplemental hereto for one or
more of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the Securities of one or more series any property or assets;
(b) to evidence the succession of another corporation to the Issuer, or
successive successions, and the assumption by the successor corporation of the
covenants, agreements and obligations of the Issuer pursuant to Article Nine;
(c) to add to the covenants of the Issuer such further covenants,
restrictions, conditions or provisions as the Issuer and the Trustee shall
consider to be for the protection of the Holders of Securities or Coupons, and
to make the occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restrictions, conditions or provisions an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in respect of any
such additional covenant, restriction, condition or provision such supplemental
indenture may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of other defaults)
or may provide for an immediate enforcement upon such an Event of Default or may
limit the remedies available to the Trustee upon such an Event of Default or may
limit the right of the Holders of a majority in aggregate principal amount of
the Securities of such series to waive such an Event of Default;
(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make any other provisions as the Issuer may deem necessary or
desirable, provided that no such action shall adversely affect the interests of
the Holders of the Securities or Coupons;
(e) to establish the forms or terms of Securities of any series or of the
Coupons appertaining to such Securities as permitted by Sections 2.1 and 2.3;
and
(f) to evidence and provide for the acceptance of appointment hereunder by
a successor trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one trustee, pursuant to the requirements of Section 6.11.
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The Trustee is hereby authorized to join with the Issuer in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section may
be executed without the consent of the Holders of any of the Securities at the
time outstanding, notwithstanding any of the provisions of Section 8.2.
SECTION 8.2 Supplemental Indentures With Consent of Securityholders. With
the consent (evidenced as provided in Article Seven) of the Holders of a
majority in aggregate principal amount of the Securities at the time Outstanding
of all series affected by such supplemental indenture (voting as one class), the
Issuer, when authorized by a resolution of its Board of Directors (which
resolution may provide general terms or parameters for such action and may
provide that the specific terms of such action may be determined in accordance
with or pursuant to an Issuer Order), and the Trustee may, from time to time and
at any time, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of each such
series or of the Coupons appertaining to such Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity of any Security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any amount payable on redemption thereof,
of make the principal thereof (including any amount in respect of original issue
discount), or interest thereon, payable in any coin or currency other than that
provided in the Securities and Coupons or in accordance with the terms thereof,
or reduce the amount of the principal of an Original Issue Discount Security
that would be due and payable upon an acceleration of the maturity thereof
pursuant to Section 5.1 or the amount thereof provable in bankruptcy pursuant to
Section 5.2, or alter the provisions of Section 11.11 or 11.12 or impair or
affect the right of any Securityholder to institute suit for the payment thereof
or, if the Securities provide therefor, any right of repayment or repurchase at
the option of the Securityholder, in each case without the consent of the Holder
of each Security so affected, or (b) reduce the aforesaid percentage of
Securities of any series, the consent of the Holders of which is required for
any such supplemental indenture, without the consent of the Holders of each
Security so affected.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of Holders of Securities of such series, or of Coupons appertaining to
such Securities, with respect to such covenant or provision, shall be deemed not
to affect the rights under the Indenture of the Holders of Securities of any
other series or of the Coupons appertaining to such Securities.
Upon the request of the Issuer, accompanied by a copy of a resolution of
the Board of Directors (which resolution may provide general terms or parameters
for such action and may provide that the
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specific terms of such action may be determined in accordance with or pursuant
to an Issuer Order) certified by the secretary or an assistant secretary of the
Issuer authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of the Holders of the
Securities as aforesaid and other documents, if any, required by Section 7.1,
the Trustee shall join with the Issuer in the execution of such supplemental
indenture unless such supplemental indenture affects the Trustee's own rights,
duties or immunities under the Indenture or otherwise, in which case the Trustee
may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall give notice thereof (i) to the Holders of then Outstanding Registered
Securities of each series affected thereby, by mailing a notice thereof by
first-class mail to such Holders at their addresses as they shall appear on the
Security register, (ii) if any Unregistered Securities of a series affected
thereby are then Outstanding, to the Holders thereof who have filed their names
and addresses with the Trustee, by mailing a notice thereof by first-class mail
to such Holders at such addresses as were so furnished to the Trustee and (iii)
if any Unregistered Securities of a series affected thereby are then
Outstanding, to all Holders thereof, by publication of a notice thereof at least
once in an Authorized Newspaper in the Borough of Manhattan, The City of New
York and at least once in an Authorized Newspaper in London (and, if required by
Section 3.7, at least once in an Authorized Newspaper in Luxembourg), and in
each case such notice shall set forth in general terms the substance of such
supplemental indenture. Any failure of the Issuer to give such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
SECTION 8.3 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Issuer and the Holders of Securities of
each series affected thereby shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
SECTION 8.4 Documents to Be Given to Trustee. The Trustee, subject to the
provisions of Sections 6.1 and 6.2, may receive an Officer's Certificate and an
Opinion of counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article Eight complies with the applicable provisions
of this Indenture.
SECTION 8.5 Notation on Securities in Respect of Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee for such series as to
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any matter provided for by such supplemental indenture or as to any action taken
by Securityholders. If the Issuer or the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities of
such series then Outstanding.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property
Except Under Certain Conditions. The Issuer covenants that it will not merge or
consolidate with any other Person or sell, lease or convey all or substantially
all of its assets to any other Person, unless (i) either the Issuer shall be the
continuing corporation, or the successor corporation or the Person which
acquires by sale, lease or conveyance substantially all the assets of the Issuer
(if other than the Issuer) shall be a corporation organized under the laws of
the United States of America or any State thereof or the District of Columbia
and shall expressly assume the due and punctual payment of the principal of and
interest on all the Securities and Coupons, if any, according to their tenor,
and the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed or observed by the Issuer, by
supplemental indenture satisfactory to the Trustee, executed and delivered to
the Trustee by such corporation, and (ii) the Issuer, such Person or such
successor corporation, as the case may be, shall not, immediately after such
merger or consolidation, or such sale, lease or conveyance, be in default in the
performance of any such covenant or condition.
SECTION 9.2 Successor Corporation Substituted. In case of any such
consolidation, merger, sale, lease or conveyance, and following such an
assumption by the successor corporation, such successor corporation shall
succeed to and be substituted for the Issuer, with the same effect as if it had
been named herein. Such successor corporation may cause to be signed, and may
issue either in its own name or in the name of the Issuer prior to such
succession any or all of the Securities issuable hereunder which together with
any Coupons appertaining thereto theretofore shall not have been signed by the
Issuer and delivered to the Trustee; and, upon the order of such successor
corporation, instead of the Issuer, and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities together with any Coupons appertaining thereto
which previously shall have been signed and delivered by the officers of the
Issuer to the Trustee for authentication, and any Securities which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All of the Securities so issued together with any
Coupons appertaining thereto shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phrasing and form (but not in substance) may be made in the
Securities and Coupons thereafter to be issued as may be appropriate.
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In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Issuer or any successor corporation which shall theretofore have
become such in the manner described in this Article shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
liquidated and dissolved.
SECTION 9.3 Opinion of Counsel Delivered to Trustee. The Trustee, subject
to the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, sale, lease or
conveyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Indenture.
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
SECTION 10.1 Satisfaction and Discharge of Indenture. (A) If at any time
(a) the Issuer shall have paid or caused to be paid the principal of and
interest on all the Securities of any series Outstanding hereunder and all
unmatured Coupons appertaining thereto (other than Securities of such series and
Coupons appertaining thereto which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.9) as and when the same
shall have become due and payable, or (b) the Issuer shall have delivered to the
Trustee for cancellation all Securities of any series theretofore authenticated
and all unmatured Coupons appertaining thereto (other than Securities of such
series and Coupons appertaining thereto which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Section 2.9) or
(c) in the case of any series of Securities where the exact amount (including
the currency of payment) of principal of and interest due on which can be
determined at the time of making the deposit referred to in clause (ii) below,
(i) all the Securities of such series and all unmatured Coupons appertaining
thereto not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and (ii) the
Issuer shall have irrevocably deposited or caused to be deposited with the
Trustee as trust funds the entire amount in cash (other than moneys repaid by
the Trustee or any paying agent to the Issuer in accordance with Section 10.4)
or, in the case of any series of Securities the payments on which may only be
made in Dollars, obligations issued or guaranteed as to principal and interest
by the United States or by a Person controlled or supervised by and acting as an
instrumentality of the government of the United States pursuant to authority
granted by the Congress of the United States ("U.S. Government Obligations"),
maturing as to principal and interest at such times and in such amounts as will
insure the availability of cash, or a combination thereof, sufficient in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
(A) the principal and interest on all Securities of such series and Coupons
appertaining thereto on each date that such principal or interest is due and
payable and (B) any mandatory sinking fund payments on the dates on which such
payments are due and payable in accordance with the terms of the Indenture and
the Securities of such series; and if, in any such case, the Issuer shall also
pay or cause to be paid all other sums payable hereunder by the Issuer, then
this Indenture shall cease to be of further effect (except as to (i) rights of
registration of transfer and exchange of Securities of such series and of
Coupons appertaining thereto and the Issuer's right of
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optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities or Coupons, (iii) rights of holders of Securities and
Coupons appertaining thereto to receive payments of principal thereof and
interest thereon, upon the original stated due dates therefor or on the
specified redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v) the
rights of the Holders of Securities of such series and Coupons appertaining
thereto as beneficiaries hereof with respect to the property so deposited with
the Trustee payable to all or any of them, and (vi) the obligations of the
Issuer under Section 3.2) and the Trustee, on demand of the Issuer accompanied
by an Officer's Certificate and an Opinion of Counsel and at the cost and
expense of the Issuer, shall execute proper instruments acknowledging such
satisfaction of and discharging this Indenture; provided, that the rights of
Holders of the Securities and Coupons to receive amounts in respect of principal
of and interest on the Securities and Coupons held by them shall not be delayed
longer than required by then-applicable mandatory rules or policies of any
securities exchange upon which the Securities are listed.
(B) The following provisions shall apply to the Securities of each series
unless specifically otherwise provided in a Board Resolution, Officer's
Certificate or indenture supplemental hereto provided pursuant to Section 2.3.
In addition to discharge of the Indenture pursuant to the next preceding
paragraph, in the case of any series of Securities the exact amounts (including
the currency of payment) of principal of and interest due on which can be
determined at the time of making the deposit referred to in clause (a) below,
the Issuer shall be deemed to have paid and discharged the entire indebtedness
on all the Securities of such a series and the Coupons appertaining thereto on
the 91st day after the date of the deposit referred to in subparagraph (a)
below, and the provisions of this Indenture with respect to the Securities of
such series and Coupons appertaining thereto shall no longer be in effect
(except as to (i) rights of registration of transfer and exchange of Securities
of such series and of Coupons appertaining thereto and the Issuer's right of
optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities or Coupons, (iii) rights of Holders of Securities and
Coupons appertaining thereto to receive payments of principal thereof and
interest thereon, upon the original stated due dates therefor or on the
specified redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v) the
rights of the Holders of Securities of such series and Coupons appertaining
thereto as beneficiaries hereof with respect to the property so deposited with
the Trustee payable to all or any of them, and (vi) the obligations of the
Issuer under Section 3.2) and the Trustee, at the expense of the Issuer, shall
at the Issuer's request, execute proper instruments acknowledging the same, if
(a) with reference to this provision the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as trust
funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of the Securities of such series and Coupons
appertaining thereto (i) cash in an amount, or (ii) in the case of any
series of Securities the payments on which may only be made in Dollars,
U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash, or (iii)
a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons
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appertaining thereto on each date that such principal or interest is due
and payable and (B) any mandatory sinking fund payments on the dates on
which such payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series;
(b) the Issuer has delivered to the Trustee an Opinion of Counsel based
on the fact that (x) the Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling or (y) since the date
hereof, there has been a change in the applicable Federal income tax law,
in either case to the effect that, and such opinion shall confirm that, the
Holders of the Securities of such series and Coupons appertaining thereto
will not recognize income, gain or loss for Federal income tax purposes as
a result of such deposit, defeasance and discharge and will be subject to
Federal income tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit, defeasance and
discharge had not occurred; and
(c) the Issuer has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the defeasance contemplated by this provision have
been complied with.
(C) The Issuer shall be released from its obligations under Sections 3.6
and 9.1 with respect to the Securities of any Series, and any Coupons
appertaining thereto, Outstanding on and after the date the conditions set forth
below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such
covenant defeasance means that, with respect to the Outstanding Securities of
any Series, the Issuer may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in such Section, whether
directly or indirectly by reason of any reference elsewhere herein to such
Section or by reason of any reference in such Section to any other provision
herein or in any other document and such omission to comply shall not constitute
an Event of Default under Section 5.1, but the remainder of this Indenture and
such Securities and Coupons shall be unaffected thereby. The following shall be
the conditions to application of this subsection C of this Section 10.1:
(a) The Issuer has irrevocably deposited or caused to be deposited with
the Trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to,
the benefit of the holders of the Securities of such series and coupons
appertaining thereto, (i) cash in an amount, or (ii) in the case of any
series of Securities the payments on which may only be made in Dollars,
U.S. Government Obligations maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash, or (iii)
a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons appertaining
thereto and (B) any mandatory sinking fund payments on the day on which
such payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series.
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(b) The Issuer shall have delivered to the Trustee an Officer's
Certificate stating that all conditions precedent provided for relating to
the covenant defeasance contemplated by this provision have been complied
with.
SECTION 10.2 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to Section 10.4, all moneys or U.S. Government Obligations
deposited with the Trustee (or other trustee) pursuant to Section 10.1 (and all
funds earned on such moneys or U.S. Government Obligations) shall be held in
trust and applied by it to the payment, either directly or through any paying
agent (including the Issuer acting as its own paying agent), to the Holders of
the particular Securities of such series and of Coupons appertaining thereto for
the payment or redemption of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon for principal and interest;
but such money need not be segregated from other funds except to the extent
required by law. Subject to Section 10.1, the Trustee promptly shall pay to the
Issuer upon request any excess moneys held by it at any time.
SECTION 10.3 Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to Securities of
any series, all moneys then held by any paying agent under the provisions of
this Indenture with respect to such series of Securities shall, upon demand of
the Issuer, be repaid to it or paid to the Trustee and thereupon such paying
agent shall be released from all further liability with respect to such moneys.
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed
for Two Years. Any moneys deposited with or paid to the Trustee or any paying
agent for the payment of the principal of or interest on any Security of any
series or Coupons attached thereto and not applied but remaining unclaimed for
two years after the date upon which such principal or interest shall have become
due and payable, shall, upon the written request of the Issuer and unless
otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property law, be repaid to the Issuer by the Trustee for such series
or such paying agent, and the Holder of the Securities of such series and of any
Coupons appertaining thereto shall, unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property laws,
thereafter look only to the Issuer for any payment which such Holder may be
entitled to collect, and all liability of the Trustee or any paying agent with
respect to such moneys shall thereupon cease; provided, however, that the
Trustee or such paying agent, before being required to make any such repayment
with respect to moneys deposited with it for any payment (a) in respect of
Registered Securities of any series, shall at the expense of the Issuer, mail by
first-class mail to Holders of such Securities at their addresses as they shall
appear on the Security register, and (b) in respect of Unregistered Securities
of any series, shall at the expense of the Issuer cause to be published once, in
an Authorized Newspaper in the Borough of Manhattan, The City of New York and
once in an Authorized Newspaper in London (and if required by Section 3.7, once
in an Authorized Newspaper in Luxembourg), notice, that such moneys remain and
that, after a date specified therein, which shall not be less than thirty days
from the date of such mailing or publication, any unclaimed balance of such
money then remaining will be repaid to the Issuer.
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ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
SECTION 11.1 Incorporators, Stockholders, Officers and Directors of Issuer
Exempt from Individual Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any Security, or
because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such, or against any past, present or future stockholder,
officer or director, as such, of the Issuer or of any successor, either directly
or through the Issuer or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities and the Coupons appertaining
thereto by the Holders thereof and as part of the consideration for the issue of
the Securities and the Coupons appertaining thereto.
SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties and
Holders of Securities and Coupons. Nothing in this Indenture, in the Securities
or in the Coupons appertaining thereto, expressed or implied, shall give or be
construed to give to any person, firm or corporation, other than the parties
thereto and their successors and the Holders of the Securities or Coupons, if
any, any legal or equitable right, remedy or claim under this Indenture or under
any covenant or provision herein contained, all such covenants and provisions
being for the sole benefit of the parties hereto and their successors and of the
Holders of the Securities or Coupons, if any.
SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture. All the
covenants, stipulations, promises and agreements in this Indenture contained by
or in behalf of the Issuer shall bind its successors and assigns, whether so
expressed or not.
SECTION 11.4 Notices and Demands on Issuer, Trustee and Holders of
Securities and Coupons. Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or by
the Holders of Securities or Coupons to or on the Issuer may be given or served
by being deposited postage prepaid, first-class mail (except as otherwise
specifically provided herein) addressed (until another address of the Issuer is
filed by the Issuer with the Trustee) to TENNECO PACKAGING INC., 1900 West Field
Court, Lake Forest, Illinois 60045, Attention: Chief Financial Officer. Any
notice, direction, request or demand by the Issuer or any Holder of Securities
or Coupons to or upon the Trustee shall be deemed to have been sufficiently
given or served by being deposited postage prepaid, first-class mail (except as
otherwise specifically provided herein) addressed (until another address of the
Trustee is filed by the Trustee with the Issuer) to 450 West 33rd Street, 15th
Floor, New York, New York 10001-2697, Attention: Global Trust Services.
Where this Indenture provides for notice to Holders of Registered
Securities, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder entitled thereto, at his last address as it appears in the Security
register. In any case where notice to such Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice
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by Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Issuer when such notice
is required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be reasonably satisfactory to the Trustee
shall be deemed to be a sufficient giving of such notice.
SECTION 11.5 Officer's Certificates and Opinions of Counsel; Statements to
Be Contained Therein. Upon any application or demand by the Issuer to the
Trustee to take any action under the provisions of this Indenture, the Issuer
shall furnish to the Trustee an Officer's Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificates or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (a) a statement that the person making such
certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Issuer may be
based insofar as it relates to legal matters, upon a certificate or opinion of
or representations by counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters, information with respect to which is in the possession of
the Issuer, upon the certificate, statement or opinion of or representations by
an officer or officers of the Issuer, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.
Any certificate, statement or opinion of an officer of the Issuer or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting
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matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with and directed to the Trustee shall contain a statement that such firm
is independent. The firm of public accountants shall be selected or approved by
the Trustee.
SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays. If the date
of maturity of interest on or principal of the Securities of any series or any
Coupons appertaining thereto or the date fixed for redemption or repayment of
any such Security or Coupon shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period after such date.
SECTION 11.7 Conflict of Any Provision of Indenture with Trust Indenture
Act of 1939. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by, or with another provision (an
"incorporated provision") included in this Indenture by operation of, Sections
310 to 318, inclusive, of the Trust Indenture Act of 1939, such imposed duties
or incorporated provision shall control.
SECTION 11.8 New York Law to Govern. This Indenture and each Security and
Coupon shall be deemed to be a contract under the laws of the State of New York,
and for all purposes shall be construed in accordance with the laws of such
State, except as may otherwise be required by mandatory provisions of law.
SECTION 11.9 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 11.10 Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 11.11 Securities in a Foreign Currency or in EURO. Unless otherwise
specified in an Officer's Certificate delivered pursuant to Section 2.3 of this
Indenture with respect to a particular series of Securities, whenever for the
purposes of this Indenture any action may be taken by the Holders of a specified
percentage in aggregate principal amount of Securities of all series or all
series affected by a particular action at the time Outstanding and, at such
time, there are Outstanding Securities of any series which are denominated in a
coin or currency other than Dollars (including EUROs), then the principal amount
of Securities of such series which shall be deemed to be Outstanding for the
purpose of taking such action shall be that amount of Dollars that could be
obtained for such amount at the Market Exchange Rate. For purposes of this
Section 11.11, Market Exchange Rate shall mean the noon Dollar buying rate in
New York City for cable transfers of that currency as published by the Federal
Reserve Bank of New York; provided, however, in the case of EUROs, Market
Exchange Rate shall mean the rate of exchange determined by the Commission of
the European Communities (or any successor thereto) as published in the Official
Journal of the
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European Communities (such publication or any successor publication, the
"Journal"). If such Market Exchange Rate is not available for any reason with
respect to such currency, the Trustee shall use, in its sole discretion and
without liability on its part, such quotation of the Federal Reserve Bank of New
York or, in the case of EUROs, the rate of exchange as published in the Journal,
as of the most recent available date, or quotations or, in the case of EUROs,
rates of exchange from one or more major banks in The City of New York or in the
country of issue of the currency in question, which for purposes of the EURO
shall be Brussels, Belgium, or such other quotations or, in the case of EURO,
rates of exchange as the Trustee shall deem appropriate. The provisions of this
paragraph shall apply in determining the equivalent principal amount in respect
of Securities of a series denominated in a currency other than Dollars in
connection with any action taken by Holders of Securities pursuant to the terms
of this Indenture.
All decisions and determinations of the Trustee regarding the Market
Exchange Rate or any alternative determination provided for in the preceding
paragraph shall be in its sole discretion and shall, in the absence of manifest
error, be conclusive to the extent permitted by law for all purposes and
irrevocably binding upon the Issuer and all Holders.
SECTION 11.12 Judgment Currency. The Issuer agrees, to the fullest extent
that it may effectively do so under applicable law, that (a) if for the purpose
of obtaining judgment in any court it is necessary to convert the sum due in
respect of the principal of or interest on the Securities of any series (the
"Required Currency") into a currency in which a judgment will be rendered (the
"Judgment Currency"), the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the Trustee could purchase in The City
of New York the Required Currency with the Judgment Currency on the day on which
final unappealable judgment is entered, unless such day is not a New York
Banking Day, then, to the extent permitted by applicable law, the rate exchange
used shall be the rate at which in accordance with normal banking procedures the
Trustee could purchase in The City of New York the Required Currency with the
Judgement Currency on the New York Banking Day preceding the day on which final
unappealable judgment is entered and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not entered
in accordance with subsection (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt, by the payee, of the full amount of the Required Currency
expressed to be payable in respect of such payments, (ii) shall be enforceable
as an alternative or additional cause of action for the purpose of recovering in
the Required Currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the Required Currency so expressed to be
payable and (iii) shall not be affected by judgment being obtained for any other
sum due under this Indenture. For purposes of the foregoing, "New York Banking
Day" means any day except a Saturday, Sunday or a legal holiday in The City of
New York or a day on which banking institutions in The City of New York are
authorized or required by law or executive order to close.
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ARTICLE TWELVE
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 12.1 Applicability of Article. The provisions of this Article shall
be applicable to the Securities of any series which are redeemable before their
maturity or to any sinking fund for the retirement of Securities of a series
except as otherwise specified as contemplated by Section 2.3 for Securities of
such series.
SECTION 12.2 Notice of Redemption; Partial Redemptions. Notice of
redemption to the Holders of Registered Securities of any series to be redeemed
as a whole or in part at the option of the Issuer shall be given by mailing
notice of such redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered
Securities to be redeemed as whole or in part, who have filed their names and
addresses with the Trustee, shall be given by mailing notice of such redemption,
by first class mail, postage prepaid, at least 30 days and not more than 60
prior to the date fixed for redemption, to such Holders at such addresses as
were so furnished to the Trustee (and, in the case of any such notice given by
the Issuer, the Trustee shall make such information available to the Issuer for
such purpose). Notice of redemption to all other Holders of Unregistered
Securities shall be published in an Authorized Newspaper in the Borough of
Manhattan, The City of New York and in an Authorized Newspaper in London (and,
if required by Section 3.7, in an Authorized Newspaper in Luxembourg), in each
case, once in each of three successive calendar weeks, the first publication to
be not less than 30 nor more than 60 days prior to the date fixed for
redemption. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives the notice. Failure to give notice by mail, or any defect in the notice
to the Holder of any Security of a series designated for redemption as a whole
or in part shall not affect the validity of the proceedings for the redemption
of any other Security of such series.
The notice of redemption to each such Holder shall specify the principal
amount of each Security of such series held by such Holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of payment,
that payment will be made upon presentation and surrender of such Securities
and, in the case of Securities with Coupons attached thereto, of all Coupons
appertaining thereto maturing after the date fixed for redemption, that such
redemption is pursuant to the mandatory or optional sinking fund, or both, if
such be the case, that interest accrued to the date fixed for redemption will be
paid as specified in such notice and that on and after said date interest
thereon or on the portions thereof to be redeemed will cease to accrue. In case
any Security of a series is to be redeemed in part only the notice of redemption
shall state the portion of the principal amount thereof to be redeemed and shall
state that on and after the date fixed for redemption, upon surrender of such
Security, a new Security or Securities of such series in principal amount equal
to the unredeemed portion thereof will be issued.
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<PAGE> 64
The notice of redemption of Securities of any series to be redeemed at the
option of the Issuer shall be given by the Issuer or, at the Issuer's request,
by the Trustee in the name and at the expense of the Issuer.
On or before the redemption date specified in the notice of redemption
given as provided in this Section, the Issuer will deposit with the Trustee or
with one or more paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 3.4) an
amount of money sufficient to redeem on the redemption date all the Securities
of such series so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Issuer will
deliver to the Trustee at least 70 days prior to the date fixed for redemption
an Officer's Certificate stating the aggregate principal amount of Securities to
be redeemed. In case of a redemption at the election of the Issuer prior to the
expiration of any restriction on such redemption, the Issuer shall deliver to
the Trustee, prior to the giving of any notice of redemption to Holders pursuant
to this Section, an Officer's Certificate stating that such restriction has been
complied with.
If less than all the Securities of a series are to be redeemed, the Trustee
shall select, in such manner as it shall deem appropriate and fair, Securities
of such Series to be redeemed in whole or in part. Securities may be redeemed in
part in multiples equal to the minimum authorized denomination for Securities of
such series or any multiple thereof. The Trustee shall promptly notify the
Issuer in writing of the Securities of such series selected for redemption and,
in the case of any Securities of such series selected for partial redemption,
the principal amount thereof to be redeemed. For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to the redemption
of Securities of any series shall relate, in the case of any Security redeemed
or to be redeemed only in part, to the portion of the principal amount of such
Security which has been or is to be redeemed.
SECTION 12.3 Payment of Securities Called for Redemption. If notice of
redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Issuer shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue, and the unmatured Coupons, if any, appertaining thereto shall be void,
and, except as provided in Sections 6.5 and 10.4, such Securities shall cease
from and after the date fixed for redemption to be entitled to any benefit or
security under this Indenture, and the Holders thereof shall have no right in
respect of such Securities except the right to receive the redemption price
thereof and unpaid interest to the date fixed for redemption. On presentation
and surrender of such Securities at a place of payment specified in said notice,
together with all Coupons, if any, appertaining thereto maturing after the date
fixed for redemption, said Securities or the specified portions thereof shall be
paid and redeemed by the Issuer at the applicable redemption price, together
with interest accrued thereon to the date fixed for redemption; provided that
payment of interest becoming due on or prior to the date fixed for redemption
shall be payable in the case of Securities with Coupons attached thereto, to the
Holders of the Coupons for such interest upon surrender thereof, and in the case
of
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<PAGE> 65
Registered Securities, to the Holders of such Registered Securities registered
as such on the relevant record date subject to the terms and provisions of
Sections 2.3 and 2.7 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid or duly provided for,
bear interest from the date fixed for redemption at the rate of interest or
Yield to Maturity (in the case of an Original Issue Discount Security) borne by
such Security.
If any Security with Coupons attached thereto is surrendered for redemption
and is not accompanied by all appurtenant Coupons maturing after the date fixed
for redemption, the surrender of such missing Coupon or Coupons may be waived by
the Issuer and the Trustee, if there be furnished to each of them such security
or indemnity as they may require to save each of them harmless.
Upon presentation of any Security redeemed in part only, the Issuer shall
execute and the Trustee shall authenticate and deliver to or on the order of the
Holder thereof, at the expense of the Issuer, a new Security or Securities of
such series, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 12.4 Exclusion of Certain Securities from Eligibility for Selection
for Redemption. Securities shall be excluded from eligibility for selection for
redemption if they are identified by registration and certificate number in an
Officer's Certificate delivered to the Trustee at least 40 days prior to the
last date on which notice of redemption may be given as being owned of record
and beneficially by, and not pledged or hypothecated by either (a) the Issuer or
(b) an entity specifically identified in such written statement as directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Issuer.
SECTION 12.5 Mandatory and Optional Sinking Funds. The minimum amount of
any sinking fund payment provided for by the terms of the Securities of any
series is herein referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the terms of the
Securities of any series is herein referred to as an "optional sinking fund
payment." The date on which a sinking fund payment is to be made is herein
referred to as the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking fund payment
with respect to any series of Securities in cash, the Issuer may at its option
(a) deliver to the Trustee Securities of such series theretofore purchased or
otherwise acquired (except upon redemption pursuant to the mandatory sinking
fund) by the Issuer or receive credit for Securities of such series (not
previously so credited) theretofore purchased or otherwise acquired (except as
aforesaid) by the Issuer and delivered to the Trustee for cancellation pursuant
to Section 2.10, (b) receive credit for optional sinking fund payments (not
previously so credited) made pursuant to this Section, or (c) receive credit for
Securities of such series (not previously so credited) redeemed by the Issuer
through any optional redemption provision contained in the terms of such series.
Securities so delivered or credited shall be received or credited by the Trustee
at the sinking fund redemption price specified in such Securities.
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<PAGE> 66
On or before the 60th day next preceding each sinking fund payment date for
any series, the Issuer will deliver to the Trustee an Officer's Certificate
(which need not contain the statements required by Section 11.5) (a) specifying
the portion of the mandatory sinking fund payment to be satisfied by payment of
cash and the portion to be satisfied by credit of Securities of such series and
the basis for such credit, (b) stating that none of the Securities of such
series has theretofore been so credited, (c) stating that no defaults in the
payments of interest or Events of Default with respect to such series have
occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an
optional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking fund payment which the Issuer intends to pay
on or before the next succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to the Trustee in order
for the Issuer to be entitled to credit therefor as aforesaid which have not
theretofore been delivered to the Trustee shall be delivered for cancellation
pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or
reasonably promptly thereafter if acceptable to the Trustee). Such Officer's
Certificate shall be irrevocable and upon its receipt by the Trustee the Issuer
shall become unconditionally obligated to make all the cash payments or payments
therein referred to, if any, on or before the next succeeding sinking fund
payment date. Failure of the Issuer, on or before any such 60th day, to deliver
such Officer's Certificate and Securities specified in this paragraph, if any,
shall not constitute a default but shall constitute, on and as of such date, the
irrevocable election of the Issuer (i) that the mandatory sinking fund payment
for such series due on the next succeeding sinking fund payment date shall be
paid entirely in cash without the option to deliver or credit Securities of such
series in respect thereof and (ii) that the Issuer will make no optional sinking
fund payment with respect to such series as provided in this Section.
If the sinking fund payment or payments (mandatory or optional or both) to
be made in cash on the next succeeding sinking fund payment date plus any unused
balance of any preceding sinking fund payments made in cash shall exceed $50,000
(or the equivalent thereof in any Foreign Currency or EURO) or a lesser sum in
Dollars (or the equivalent thereof in any Foreign Currency or EURO) if the
Issuer shall so request with respect to the Securities of any particular series,
such cash shall be applied on the next succeeding sinking fund payment date to
the redemption of Securities of such series at the sinking fund redemption price
together with accrued interest to the date fixed for redemption. If such amount
shall be $50,000 (or the equivalent thereof in any Foreign Currency or EURO) or
less and the Issuer makes no such request then it shall be carried over until a
sum in excess of $50,000 (or the equivalent thereof in any Foreign Currency or
EURO) is available. The Trustee shall select, in the manner provided in Section
12.2, for redemption on such sinking fund payment date a sufficient principal
amount of Securities of such series to absorb said cash, as nearly as may be,
and shall (if requested in writing by the Issuer) inform the Issuer of the
serial numbers of the Securities of such series (or portions thereof) so
selected. Securities shall be excluded from eligibility for redemption under
this Section if they are identified by registration and certificate number in an
Officer's Certificate delivered to the Trustee at least 60 days prior to the
sinking fund payment date as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Issuer or (b) an entity specifically
identified in such Officer's Certificate as directly or indirectly controlling
or controlled by or under direct or indirect common control with the Issuer. The
Trustee, in the
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<PAGE> 67
name and at the expense of the Issuer (or the Issuer, if it shall so request the
Trustee in writing) shall cause notice of redemption of the Securities of such
series to be given in substantially the manner provided in Section 12.2 (and
with the effect provided in Section 12.3) for the redemption of Securities of
such series in part at the option of the Issuer. The amount of any sinking fund
payments not so applied or allocated to the redemption of Securities of such
series shall be added to the next cash sinking fund payment for such series and,
together with such payment, shall be applied in accordance with the provisions
of this Section. Any and all sinking fund moneys held on the stated maturity
date of the Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.
On or before each sinking fund payment date, the Issuer shall pay to the
Trustee in cash or shall otherwise provide for the payment of all interest
accrued to the date fixed for redemption on Securities to be redeemed on the
next following sinking payment date.
The Trustee shall not redeem or cause to be redeemed any Securities of a
series with sinking fund moneys or give any notice of redemption of Securities
for such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
except that, where the giving of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Issuer a sum
sufficient, for such redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default shall
occur, and any moneys thereafter paid into the sinking fund, shall, during the
continuance of such default or Event of Default, be deemed to have been
collected under Article Five and held for the payment of all such Securities. In
case such Event of Default shall have been waived as provided in Section 5.10 or
the default cured on or before the 60th day preceding the sinking fund payment
date in any year, such moneys shall thereafter be applied on the next succeeding
sinking fund payment date in accordance with this Section to the redemption of
such Securities.
IN WITNESS WHEREOF, the parties hereto to have cause this Indenture to be
duly executed all as of _________________, 1999.
TENNECO PACKAGING INC.
(to be renamed _____________________)
By:
-------------------------------------
Name:
Title:
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<PAGE> 68
Attest:
- ---------------------------------
Assistant Secretary
THE CHASE MANHATTAN BANK, TRUSTEE
By:
-------------------------------------
Name: Ronald J. Halleran
Title: Second Vice President
Attest:
- ---------------------------------
Assistant Secretary
-62-
<PAGE> 1
EXHIBIT 10.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
-----------------
ELEVENTH SUPPLEMENTAL INDENTURE
DATED AS OF __________, 1999
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
-----------------
PROVIDING FOR AMENDMENTS
TO THE INDENTURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ELEVENTH SUPPLEMENTAL INDENTURE dated as of ___________, 1999 between
TENNECO INC., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter "Tenneco"), and THE CHASE MANHATTAN BANK, a New
York banking corporation, as trustee (hereinafter called the "Trustee").
WHEREAS, Tenneco has heretofore executed and delivered to the Trustee
an indenture dated as of November 1, 1996 (as amended through the date hereof,
hereinafter called the "Original Indenture"), to provide for the issuance of an
unlimited amount of debentures, notes and/or other debt obligations of Tenneco
(hereinafter referred to as the "Securities"), the terms of which are to be
determined as set forth in Article 2 of the Original Indenture; and
WHEREAS, ss.8.2 of the Original Indenture provides that Tenneco and the
Trustee may enter into indentures supplemental to the Original Indenture for,
among other things, the purpose of amending the Indenture with the consent of
the holders of at least a majority in aggregate principal amount of the
Securities then outstanding; and
WHEREAS, the holders of at least a majority in aggregate principal
amount of the outstanding Securities have consented to the amendments to the
Original Indenture hereinafter set forth and the execution of this Eleventh
Supplemental Indenture; and
WHEREAS, Tenneco and the Trustee desire to enter into this Eleventh
Supplemental Indenture to effect the amendments to the Original Indenture;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and of the acceptance of this trust by the Trustee,
and of the sum of one dollar to Tenneco duly paid by the Trustee at the
execution and delivery of these presents, and of other valuable consideration of
the receipt whereof is hereby acknowledged,
IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the
parties hereto, for the benefit of holders of the Securities issued under the
Original Indenture, as follows:
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings set forth
below.
"Cash Tender Offers" means Tenneco's offers to purchase for cash
certain series of Securities issued under the Original Indenture pursuant to the
Offer to Purchase and Consent Solicitation of Tenneco dated ______________,
1999, as amended from time to time.
"Consent Solicitation" means Tenneco's solicitation of consents to
amendments to the Original Indenture and the execution of this Eleventh
Supplemental Indenture pursuant to the Exchange Offers and Cash Tender Offers.
<PAGE> 3
"Debt Realignment" means the realignment, prior to the Spin-off, of
Tenneco's debt through some combination of tender offers, exchange offers,
prepayments and other refinancings.
"Exchange Offers" means Tenneco's offers to exchange notes and
debentures issued by Tenneco Packaging Inc. for certain Securities issued under
the Original Indenture pursuant to the Prospectus and Consent Solicitation of
Packaging and Tenneco dated _________________, 1999, as amended from time to
time.
"Exchange Securities" means the series of Securities subject to the
Exchange Offers.
"Original Indenture" means the Indenture, dated November 1, 1996,
between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank,
as trustee, as amended.
"Packaging" means Tenneco Packaging Inc. (to be renamed), a Delaware
corporation.
"Spin-off" means the distribution of all Packaging common stock to the
holders of Tenneco common stock at a ratio of one share of Packaging common
stock for each share of Tenneco common stock.
"Tender Securities" means the series of Securities subject to the Cash
Tender Offers.
"Tenneco" means Tenneco Inc., a Delaware corporation.
"Trustee" means The Chase Manhattan Bank, as trustee under the Original
Indenture.
SECTION 2.
WAIVER
Subject to Section 3.2 of this Eleventh Supplemental Indenture, the
application of the covenants contained in Sections 3.6, 9.1, 9.2 and 9.3 of the
Original Indenture is hereby waived to the extent required to effect the
Spin-off, including, without limitation, to effect the Debt Realignment (the
"Waiver").
SECTION 3.
OPERATION OF AMENDMENTS AND WAIVER
SECTION 3.1. Upon the execution and delivery of this Eleventh
Supplemental Indenture by Tenneco and the Trustee, the Original Indenture shall
be amended and supplemented in accordance herewith, and this Eleventh
Supplemental Indenture shall form a part of the Original Indenture for all
purposes, and every holder of Securities heretofore or hereafter authenticated
and delivered under the Original Indenture shall be bound hereby, as hereby
amended and
-2-
<PAGE> 4
supplemented; provided, however, that the provisions of the Eleventh
Supplemental Indenture, except as described in Section 3.2 with respect to the
Waiver, shall not become operative until Tenneco has notified the Trustee that
it has accepted for exchange or payment the Exchange Securities and/or Tender
Securities, as the case may be, tendered pursuant to the Exchange Offers and/or
Tender Offers which represent at least a majority of all Securities outstanding
under the Original Indenture (and at such time the provisions of this Eleventh
Supplemental Indenture shall automatically become operative without the
requirement of any further action by or notice to Tenneco, the Trustee or any
holder of Exchange Securities or Tender Securities).
SECTION 3.2. The Waiver shall become operative immediately upon the
execution and delivery of this Eleventh Supplemental Indenture by Tenneco and
the Trustee. However, if Exchange Securities and/or Tender Securities which
represent at least a majority of all Securities outstanding under the Original
Indenture are not accepted for exchange or purchase, as the case may be, because
the related Exchange Offers, Cash Tender Offers or Consent Solicitation are
terminated or withdrawn, the Waiver will cease to be operative.
SECTION 4.
AMENDMENTS TO THE ORIGINAL INDENTURE
SECTION 4.1. Section 1.1 of the Original Indenture is hereby amended to
eliminate the following provisions:
"Attributable Debt" means, as to any particular lease under which any
Person is at the time liable, at any date as of which the amount thereof is to
be determined, the total net amount of rent required to be paid by such Person
under such lease during the remaining term thereof, discounted from the
respective due dates thereof to such date at the Composite Rate. The net amount
of rent required to be paid under any such lease for any such period shall be
the aggregate amount of the rent payable by the lessee with respect to such
period after excluding amounts required to be paid on account of maintenance and
repairs, financing services, insurance, taxes, assessments, water or electrical
rates, contingent rents (such as those based on sales) and similar charges. In
the case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
"Consolidated Net Tangible Assets" shall mean, at any date, the total
assets appearing on the consolidated balance sheet of the Issuer and its
consolidated Subsidiaries for the Issuer's most recently completed fiscal
quarter, prepared in accordance with generally accepted accounting principles,
less (a) all current liabilities shown on such balance sheet and (b) Intangible
Assets. "Intangible Assets" means the value (net of applicable reserves), as
shown on or reflected in such balance sheet, of: (i) all trade names,
trademarks, licenses, patents, copyrights and goodwill; (ii) organizational or
development costs; (iii) deferred charges (other
-3-
<PAGE> 5
than prepaid items such as insurance, taxes, interest, commissions, rents and
similar items and tangible assets being amortized); and (iv) unamortized debt
discount and expense, less premium.
"Debt" of any Person shall mean any debt for money borrowed which is
issued, assumed, incurred or guaranteed in any manner by such Person.
"Exempted Debt" shall mean the sum of (a) Debt of the Issuer and its
Subsidiaries incurred after the date as of which this Indenture is dated and
secured by liens created, assumed or permitted to exist pursuant to Section
3.6(b) and (b) Attributable Debt of the Issuer and its Subsidiaries in respect
of all sale and leaseback transactions entered into pursuant to Section 3.6(d).
"Mortgage" shall have the meaning set forth in Section 3.6(a).
"Principal Manufacturing Property" shall mean any manufacturing plant
or any testing or research and development facility of the Issuer or a
Subsidiary located in the United States of America (other than its territories
and possessions) unless, in the opinion of the Board of Directors, such plant or
facility is not of material importance to the total business conducted by the
Issuer and its consolidated Subsidiaries. Principal Manufacturing Property shall
include, without limitation, additions, improvements, replacements, repairs,
fixtures, appurtenances or component parts of any such plant or facility
attaching to or required to be attached to property or assets pursuant to the
terms of any Mortgage (including, without limitation, pursuant to any
"after-acquired property" clause or similar term thereof).
"Restricted Subsidiary" shall mean any Subsidiary that owns or is the
lessee of any Principal Manufacturing Property; provided, however, that the term
"Restricted Subsidiary" does not include any Subsidiary acquired or organized
for the purpose of acquiring the stock or business or assets of any Person other
than the Issuer or any Restricted Subsidiary, whether by merger, consolidation,
acquisition of stock or assets or similar transaction, so long as such
Subsidiary does not acquire all or any substantial part of the business or
assets of the Issuer or any other Restricted Subsidiary.
SECTION 4.2. Section 3.6 of the Original Indenture is hereby amended
and restated in its entirety to read as follows:
"SECTION 3.6. Negative Pledge; Limitation on Sale and Leaseback
Transactions.
Intentionally Deleted by Amendment."
SECTION 4.3. Section 9.1 of the Original Indenture is hereby amended
and restated in its entirety to read as follows:
"SECTION 9.1. Covenant Not to Merge Consolidate, Sell or Convey
Property Except Under Certain Conditions.
-4-
<PAGE> 6
Intentionally Deleted by Amendment."
SECTION 4.4. Section 9.2 of the Original Indenture is hereby amended
and restated in its entirety to read as follows:
"SECTION 9.2. Successor Corporation Substituted.
Intentionally Deleted by Amendment."
SECTION 4.5. Section 9.3 of the Original Indenture is hereby amended
and restated in its entirety to read as follows:
"SECTION 9.3. Opinion of Counsel Delivered to Trustee.
Intentionally Deleted by Amendment."
SECTION 5.
MISCELLANEOUS
SECTION 5.1. EXECUTION AS SUPPLEMENTAL INDENTURE. This Eleventh
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Original Indenture and, as provided in the Original
Indenture, this Eleventh Supplemental Indenture forms a part thereof. Except as
herein expressly otherwise defined, the use of the terms and expressions herein
is in accordance with the definitions, uses and constructions contained in the
Original Indenture.
SECTION 5.2. RESPONSIBILITY FOR RECITALS, ETC. The recitals herein
shall be taken as the statements of Tenneco, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representations
as to the validity or sufficiency of this Eleventh Supplemental Indenture.
SECTION 5.3. PROVISIONS BINDING ON TENNECO'S SUCCESSORS. All the
covenants, stipulations, promises and agreements contained in this Eleventh
Supplemental Indenture made by Tenneco shall bind its successors and assigns
whether so expressed or not.
SECTION 5.4. NEW YORK CONTRACT. This Eleventh Supplemental shall be
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of said State
without regard to principles of conflicts of laws.
SECTION 5.5. EXECUTION AND COUNTERPARTS. This Eleventh Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
an original but such counterparts shall together constitute but one and the same
instrument.
-5-
<PAGE> 7
IN WITNESS WHEREOF, said TENNECO INC. has caused this Eleventh
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board or its President or one of its Vice Presidents, and said THE CHASE
MANHATTAN BANK has caused this Eleventh Supplemental Indenture to be executed in
its corporate name by one of its Vice Presidents, as of ____________, 1999.
TENNECO INC.
By:
----------------------------------
-----------------
Vice President
THE CHASE MANHATTAN BANK
By:
----------------------------------
Ronald J. Halleran
Assistant Vice President
-6-
<PAGE> 1
EXHIBIT 12.1
THE BUSINESSES OF TENNECO PACKAGING
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------- ---------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1996 1995 1994 1999 1999 1998
----- ----- ----- ----- ---- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations......................... $ 69 $ 82 $ 106 $ 65 $(55) $ 18 $ 47 $ 52 $ 69
Add:
Interest........................... 160 133 124 102 91 48 80 68 67
Portion of rentals representative
of interest factor.............. 12 12 12 8 2 1 8 8 5
Preferred stock dividend
requirements of majority-owned
subsidiaries.................... 1 1 -- -- -- -- -- -- 1
Income tax expense (benefit) and
other taxes on income........... 58 67 75 67 (3) 19 20 24 37
Amortization of interest
capitalized..................... -- -- -- 1 1 -- -- -- --
Undistributed (earnings) losses of
affiliated companies in which
less than a 50% voting interest
is owned........................ -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ---- ----- ----- ----- -----
Earnings as defined........ $ 300 $ 295 $ 317 $ 243 $ 36 $ 86 $ 155 $ 152 $ 179
===== ===== ===== ===== ==== ===== ===== ===== =====
Interest............................. $ 160 $ 133 $ 124 $ 102 $ 91 $ 48 $ 80 $ 68 $ 67
Interest capitalized................. 1 1 1 3 2 1 -- -- --
Portion of rentals representative of
interest factor.................... 12 12 12 8 2 1 8 8 5
Preferred stock dividend requirements
of majority-owned subsidiaries on a
pre-tax basis...................... 2 2 -- -- -- -- -- -- 1
----- ----- ----- ----- ---- ----- ----- ----- -----
Fixed charges as defined... $ 175 $ 148 $ 137 $ 113 $ 95 $ 50 $ 88 $ 76 $ 73
===== ===== ===== ===== ==== ===== ===== ===== =====
Ratio of earnings to fixed charges... 1.71 1.99 2.31 2.15 NM 1.72 1.76 2.00 2.45
===== ===== ===== ===== ==== ===== ===== ===== =====
</TABLE>
In 1995 earnings were inadequate to cover fixed charges by $59 million.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated July 2, 1999 included in this registration statement and to the
incorporation by reference in this registration statement of our report dated
February 17, 1999 (except with respect to the matters discussed in Note 2, as to
which the date is August 20, 1999) included in the Tenneco Inc. Current Report
on Form 8-K dated August 20, 1999, and to all references to our Firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
September 10, 1999
<PAGE> 1
Exhibit 25
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
--------------------------------------------
TENNECO PACKAGING INC.
(Exact name of obligor as specified in its charter)
DELAWARE 36-2552989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices) (Zip Code)
--------------------------------------------
DEBT SECURITIES
(Title of the indenture securities)
--------------------------------------------
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany,
New York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-76439, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 30th day of July, 1999.
THE CHASE MANHATTAN BANK
By /s/ Ronald J. Halleran
----------------------------------
Ronald J. Halleran
Assistant Vice President
- 3 -
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO.2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1999, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS
ASSETS IN MILLIONS
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ......................................... $ 15,364
Interest-bearing balances ................................. 3,811
Securities: ...................................................
Held to maturity securities..................................... 1,084
Available for sale securities................................... 49,894
Federal funds sold and securities purchased under
agreements to resell ...................................... 27,638
Loans and lease financing receivables:
Loans and leases, net of unearned income $131,839
Less: Allowance for loan and lease losses 2,642
Less: Allocated transfer risk reserve ......... 0
--------
Loans and leases, net of unearned income,
allowance, and reserve .................................... 129,197
Trading Assets ................................................. 45,483
Premises and fixed assets (including capitalized
leases).................................................... 3,124
Other real estate owned ........................................ 242
Investments in unconsolidated subsidiaries and
associated companies....................................... 171
Customers' liability to this bank on acceptances
outstanding ............................................... 974
Intangible assets .............................................. 2,017
Other assets ................................................... 12,477
-----------
TOTAL ASSETS ................................................... $ 291,476
===========
- 4 -
<PAGE> 5
LIABILITIES
Deposits
In domestic offices ....................................... $ 102,273
Noninterest-bearing ........................... $ 39,135
Interest-bearing .............................. 63,138
In foreign offices, Edge and Agreement,
subsidiaries and IBF's .................................... 74,586
Noninterest-bearing............................ $ 4,221
Interest-bearing .............................. 70,365
Federal funds purchased and securities sold under agree-
ments to repurchase ............................................ 41,039
Demand notes issued to the U.S. Treasury ....................... 1,000
Trading liabilities ............................................ 32,929
Otherborrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less ............. 4,353
With a remaining maturity of more than one year.
through three years..................................... 14
With a remaining maturity of more than three years......... 92
Bank's liability on acceptances executed and outstanding........ 974
Subordinated notes and debentures .............................. 5,427
Other liabilities .............................................. 9,684
TOTAL LIABILITIES .............................................. 272,371
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................... 0
Common stock ................................................... 1,211
Surplus (exclude all surplus related to preferred stock)........ 11,016
Undivided profits and capital reserves ......................... 7,040
Net unrealized holding gains (losses)
on available-for-sale securities ............................... (179)
Accumulated net gains (losses) on cash flow hedges.............. 0
Cumulative foreign currency translation adjustments ............ 17
TOTAL EQUITY CAPITAL ........................................... 19,105
-----------
TOTAL LIABILITIES AND EQUITY CAPITAL ........................... $ 291,476
===========
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named
bank, do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness
of this Report of Condition and declare that it has been
examined by us, and to the best of our knowledge and
belief has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory
authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BUSINESSES TENNECO PACKAGING COMBINED. FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITE ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 320
<ALLOWANCES> 0
<INVENTORY> 447
<CURRENT-ASSETS> 912
<PP&E> 2,025
<DEPRECIATION> 530
<TOTAL-ASSETS> 4,486
<CURRENT-LIABILITIES> 1,060
<BONDS> 1,494
0
0
<COMMON> 0
<OTHER-SE> 1,340
<TOTAL-LIABILITY-AND-EQUITY> 4,486
<SALES> 1,404
<TOTAL-REVENUES> 1,404
<CGS> 942
<TOTAL-COSTS> 942
<OTHER-EXPENSES> 300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 76
<INCOME-TAX> 24
<INCOME-CONTINUING> 52
<DISCONTINUED> (163)
<EXTRAORDINARY> (7)
<CHANGES> (32)
<NET-INCOME> (150)
<EPS-BASIC> (.90)
<EPS-DILUTED> (.90)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
This Letter of Consent/Transmittal is being used with respect to the following
series of outstanding debt securities (the "Original Securities") of Tenneco
Inc., a Delaware corporation ("Tenneco"). Check only one*.
<TABLE>
<CAPTION>
CUSIP NO. TITLE OF SECURITY
--------- -----------------
<S> <C> <C>
</TABLE>
[ ]
[ ]
LETTER OF CONSENT/TRANSMITTAL
OF
TENNECO INC.
TO TENDER FOR EXCHANGE AND GIVE CONSENT
PURSUANT TO THE PROSPECTUS AND CONSENT SOLICITATION OF TENNECO AND
TENNECO PACKAGING INC. (TO BE RENAMED)
DATED ____________, 1999
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED. THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1999, UNLESS EXTENDED (THE "EARLY
EXCHANGE TIME") OR EARLIER TERMINATED. HOLDERS MUST TENDER BEFORE THE EARLY
EXCHANGE TIME TO BE ELIGIBLE TO RECEIVE THE EARLY EXCHANGE PREMIUM, AS DESCRIBED
BELOW.
TENDERED SECURITIES MAY BE WITHDRAWN AND CONSENTS MAY BE REVOKED AT ANY TIME
BEFORE THE EARLIER OF (1) THE EARLY EXCHANGE TIME AND (2) 5:00 P.M., NEW YORK
CITY TIME, ON THE DATE THAT TENNECO PUBLICLY ANNOUNCES IT HAS RECEIVED THE
REQUIRED CONSENTS, AS DESCRIBED BELOW ("THE WITHDRAWAL TIME").
If you desire to accept any of the Exchange Offers (as defined below), this
Letter of Consent/ Transmittal should be completed, signed, and submitted
to the Exchange Agent (as defined below):
THE CHASE MANHATTAN BANK
<TABLE>
<CAPTION>
By Registered Mail
By Hand: or Overnight Delivery: By Facsimile:
<S> <C> <C>
Corporate Trust Securities The Chase Manhattan Bank (212) 638-7380 or
Window Money Market Operations (212) 638-7381
55 Water Street 55 Water Street
Room 234 Room 234 Confirm by Telephone:
North Building North Building (212) 638-0828
New York, NY 10041 New York, NY 10041
Attn: Carlos Esteves Attn: Carlos Esteves
</TABLE>
DELIVERY OF THIS LETTER OF CONSENT/TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION
VIA FACSIMILE TO A TELEPHONE NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
- ---------------
* If more than one series of Original Securities is being tendered, it is
necessary to return a separate form in respect of each series. Please check
the appropriate box at the top of this page to indicate the series of Original
Securities to which this Letter of Consent/Transmittal relates.
<PAGE> 2
For any questions regarding this Letter of Consent/Transmittal or for any
additional information, you may contact the Information Agent:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
This Letter of Consent/Transmittal (the "Letter of Transmittal") is to be
used to accept an Exchange Offer pursuant to the Prospectus and Consent
Solicitation of Tenneco and Tenneco Packaging Inc. (to be renamed
), a Delaware corporation ("Packaging"), dated ,
1999 (the "Prospectus"). This Letter of Transmittal must be used to accept an
Exchange Offer if certificates representing Original Securities are to be
physically delivered to The Chase Manhattan Bank, as exchange agent (the
"Exchange Agent"). This Letter of Transmittal may be used to accept an Exchange
Offer if Original Securities are to be tendered by effecting a book-entry
transfer into the Exchange Agent's account at The Depository Trust Company
("DTC") and instructions are not being transmitted through DTC's Automated
Tender Offer Program ("ATOP").
Holders of Original Securities that are tendering by book-entry transfer to
the Exchange Agent's account at DTC can execute the tender through ATOP, for
which the Exchange Offers will be eligible. DTC participants that are accepting
the Exchange Offers may transmit their acceptance to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an "agent's message" (as described in the Prospectus) to
the Exchange Agent for its acceptance. Delivery of the agent's message by DTC
will satisfy the terms of the Exchange Offers as to execution and delivery of a
Letter of Transmittal by the participant identified in the agent's message.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
HOLDERS WHO DESIRE TO TENDER THEIR ORIGINAL SECURITIES PURSUANT TO AN
EXCHANGE OFFER ARE REQUIRED TO DELIVER THEIR CONSENT (AS DEFINED BELOW) TO
AMENDMENTS TO THE INDENTURE UNDER WHICH TENNECO ISSUED THE ORIGINAL SECURITIES.
THESE AMENDMENTS WOULD ELIMINATE THE RESTRICTIONS ON TENNECO'S OPERATIONS
CURRENTLY CONTAINED IN THAT INDENTURE. THE COMPLETION, EXECUTION AND DELIVERY OF
THIS LETTER OF TRANSMITTAL CONSTITUTES THE DELIVERY OF A CONSENT WITH RESPECT TO
THE ORIGINAL SECURITIES TENDERED. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT
TENDERING ORIGINAL SECURITIES.
ANY NEW SECURITIES (AS DEFINED BELOW) ISSUED IN EXCHANGE FOR ORIGINAL
SECURITIES WILL BE ISSUED ONLY IN BOOK-ENTRY FORM THROUGH DTC, WHICH MEANS THAT
NO EXCHANGING HOLDER WILL RECEIVE CERTIFICATES EVIDENCING ANY NEW SECURITIES.
Subject to the terms and conditions of each Exchange Offer and the Consent
Solicitation and applicable law, Tenneco will make payment for the Original
Securities accepted for exchange by depositing with the Exchange Agent: (1) New
Securities (in book-entry form); (2) cash for the payment of any applicable
early exchange premium as described in the Prospectus; and (3) cash for the
payment of any applicable accrued but unpaid interest on Original Securities.
This will occur on the first New York Stock Exchange trading day after Tenneco
accepts the related Original Securities for exchange. The Exchange Agent will
act as agent for the tendering holders for the purpose of receiving payments
and/or New Securities (in book-entry form) from Tenneco and then delivering
payments and/or New Securities (in book-entry form) to or at the direction of
those holders. The Exchange Agent will make this delivery on the same day
Tenneco deposits payment for the Original Securities, or as soon thereafter as
practicable.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offers and Consent Solicitation (as defined below).
2
<PAGE> 3
TENDER OF ORIGINAL SECURITIES
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF ORIGINAL SECURITIES ARE BEING DELIVERED WITH THIS LETTER OF
TRANSMITTAL.
[ ] CHECK HERE IF ORIGINAL SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
DTC AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN DTC MAY DELIVER
ORIGINAL SECURITIES BY BOOK-ENTRY TRANSFER):
NAME OF TENDERING INSTITUTION:
ACCOUNT NUMBER:
TRANSACTION CODE NUMBER:
Holders who wish to tender their Original Securities and deliver a Consent
must, at a minimum, complete columns (1) through (4) in the table below entitled
"Description of Original Securities Tendered and in Respect of Which Consent is
Given" and sign in the appropriate box below. IF ONLY THOSE COLUMNS ARE
COMPLETED, THE HOLDER WILL BE DEEMED TO HAVE DELIVERED A CONSENT IN RESPECT OF,
AND TO HAVE TENDERED, ALL ORIGINAL SECURITIES LISTED IN THE TABLE. If a holder
wishes to tender less than all of such Original Securities, column (5) must be
completed in full. See Instruction 2.
3
<PAGE> 4
List below the Original Securities to which this Letter of Transmittal
relates. If the space provided is inadequate, list the certificate number and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Original Securities will be accepted only
in principal amounts of $1,000 or integral multiples of $1,000.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL SECURITIES TENDERED
- ----------------------------------------------------------------------------------------------------------------------------------
AND IN RESPECT OF WHICH CONSENT IS GIVEN
AGGREGATE PRINCIPAL
AMOUNT TENDERED AND IN
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), AGGREGATE PRINCIPAL RESPECT OF WHICH
OR NAME OF DTC PARTICIPANT AND PARTICIPANT'S SERIES OF AMOUNT REPRESENTED CONSENT IS GIVEN (IF
DTC ACCOUNT NUMBER IN WHICH ORIGINAL SECURITIES ORIGINAL CERTIFICATE BY LESS
- ----------------------------------------------------------------------------------------------------------------------------------
ARE HELD (PLEASE FILL IN IF BLANK) SECURITIES* NUMBER(S)** CERTIFICATE(S) THAN ALL)***
(1) (2) (3) (4) (5)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT TENDERED
- ----------------------------------------------------------------------------------------------------------------------------------
* Indicate applicable series of Original Securities: , , .
** Need not be completed by persons tendering by book-entry transfer.
*** Unless otherwise indicated in this column, it will be assumed that the entire aggregate principal amount represented by the
Original Securities identified above is being tendered. A tendering holder is required to deliver a Consent with respect to
all Original Securities tendered by that holder. Completion of column (4) will constitute a Consent in respect of such
Original Securities, unless less than all such Original Securities are to be tendered as specified in column (5), in which
case Consents only with respect to such lesser amount of such Original Securities tendered shall be given. See Instruction
2.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The names and addresses of the registered holders should be printed, if not
already printed above, exactly as they appear on the Original Securities
tendered hereby. The series and the principal amount of Original Securities that
the undersigned wishes to tender should be indicated in the appropriate boxes.
4
<PAGE> 5
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby consents (the "Consent") to the proposed amendments
(the "Proposed Amendments") to the indenture dated as of November 1, 1996 (as
amended prior to the date hereof, the "Original Indenture") between Tenneco
(formerly known as New Tenneco Inc.) and The Chase Manhattan Bank, as trustee
(the "Trustee") as described in the Prospectus, with respect to, and hereby
tenders to Tenneco, the principal amount of Original Securities indicated in the
table above entitled "Description of Original Securities Tendered and in Respect
of Which Consent is Given," upon the terms and subject to the conditions set
forth in the Prospectus (receipt of which is hereby acknowledged) and in this
Letter of Transmittal. These terms and conditions together constitute (1)
Tenneco's offers to exchange (the "Exchange Offers") newly issued debt
securities of Packaging (the "New Securities") for the applicable series of
Original Securities, as described in the Prospectus, properly tendered and
accepted for exchange, and (2) Tenneco's solicitation of Consents to the
Proposed Amendments (the "Consent Solicitation"). The Proposed Amendments will
be effected through the execution and delivery by Tenneco and the Trustee of a
supplemental indenture, as described in the Prospectus (the "Supplemental
Indenture").
The undersigned hereby agrees and acknowledges that, by the execution and
delivery hereof, the undersigned delivers the written Consent to the Proposed
Amendments with respect to the principal amount of Original Securities indicated
in the table above entitled "Description of Original Securities Tendered and in
Respect of Which Consent is Given." The undersigned understands that the Consent
delivered hereby shall remain in full force and effect unless and until such
Consent is revoked in accordance with the procedures set forth in the Prospectus
and this Letter of Transmittal. The undersigned understands that after the
Withdrawal Time, no Consents may be revoked. To amend the Original Indenture,
Tenneco must receive Consents from the registered holders of at least a majority
in aggregate principal amount of all outstanding debt securities issued under
the Original Indenture, voting as a single class (the "Required Consents"). The
undersigned understands that the Proposed Amendments will not become operative
unless and until Tenneco accepts for exchange or purchase debt securities issued
under the Original Indenture that represent at least the Required Consents,
whether tendered in the Exchange Offers or Tenneco's concurrent cash tender
offers. The undersigned acknowledges that a limited waiver of some provisions of
the Original Indenture will apply between the time Tenneco executes the
Supplemental Indenture and the time it closes on the Exchange Offers and
concurrent cash tender offers. This waiver will terminate if the Proposed
Amendments do not take effect.
Tenneco's obligation to accept for payment, and to pay for, Original
Securities validly tendered pursuant to the Exchange Offers is conditioned upon,
among other things, satisfaction or Tenneco's waiver of the following
conditions: (1) receipt by Tenneco of the Required Consents; (2) any and all
conditions to Tenneco's concurrent cash tender offers (as described in the
Prospectus); and (3) any and all conditions to Tenneco's planned spin-off of
Packaging to its public stockholders (as described in the Prospectus).
Subject to, and effective upon, the acceptance for payment of, and payment
for, the principal amount of Original Securities tendered herewith in accordance
with the terms and subject to the conditions of the Exchange Offers, the
undersigned hereby sells, assigns and transfers to, or upon the order of,
Tenneco, all right, title and interest in and to all of the Original Securities
tendered hereby and also consents to the Proposed Amendments with respect to
such Original Securities. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of Tenneco) with respect to such Original Securities, with full powers of
substitution and revocation (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to: (i) present such Original
Securities and all evidences of transfer and authenticity to, or transfer
ownership of, such Original Securities on the account books maintained by DTC
to, or upon the order of, Tenneco; (ii) present such Original Securities for
transfer of ownership on the books of Tenneco; (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Original
Securities; and (iv) deliver to Tenneco and the Trustee this Letter of
Transmittal
5
<PAGE> 6
as evidence of the undersigned's Consent to the Proposed Amendments and as
certification that the Required Consents to the Proposed Amendments (duly
executed by holders) have been received, all in accordance with the terms and
conditions of the Exchange Offers and the Consent Solicitation as described in
the Prospectus.
If the undersigned is not the registered holder of the Original Securities
listed in the box above labeled "Description of Original Securities Tendered and
in Respect of Which Consent is Given," or such holder's legal representative or
attorney-in-fact, then in order to validly consent, the undersigned will have to
obtain a properly completed irrevocable proxy that authorizes the undersigned
(or the undersigned's legal representative or attorney-in-fact) to deliver
Consents in respect of such Original Securities on behalf of the holder thereof,
and such proxy will have to be delivered with this Letter of Transmittal.
The undersigned understands that tenders of Original Securities may be
withdrawn, and Consents may be revoked, at any time prior to the Withdrawal
Time. A valid withdrawal of tendered Original Securities prior to the Withdrawal
Time will constitute the concurrent valid revocation of such holder's related
Consents in respect of such Original Securities. In order for a holder to revoke
a Consent, such holder must withdraw the related tendered Original Securities.
In the event of a termination of the Exchange Offers, the Original Securities
tendered pursuant to the Exchange Offers will be returned to the tendering
holders promptly (or in the case of Original Securities tendered by book-entry
transfer, such Original Securities will be credited to the account maintained at
DTC from which such Original Securities were delivered). If Tenneco makes a
material change in the terms of the Exchange Offers or the Consent Solicitation
or the information concerning the Exchange Offers or the Consent Solicitation,
Tenneco will disseminate additional offer and solicitation materials and extend
the Exchange Offers or, if applicable, the Consent Solicitation, if and to the
extent required by law.
The undersigned understands that tenders of Original Securities pursuant to
any of the procedures described in the Prospectus and in the instructions hereto
and acceptance of such Original Securities by Tenneco will constitute a binding
agreement between the undersigned and Tenneco upon the terms and subject to the
conditions of the Exchange Offers and Consent Solicitation. For purposes of the
Exchange Offers, the undersigned understands that validly tendered Original
Securities (or defectively tendered Original Securities with respect to which
Tenneco has, or has caused to be, waived such defect) will be deemed to have
been accepted by Tenneco if, as and when Tenneco gives written or oral (followed
by written) notice thereof to the Exchange Agent. For purposes of the Consent
Solicitation, the undersigned understands that Consents received by the Exchange
Agent will be deemed to have been accepted when (1) Tenneco and the Trustee
under the Original Indenture execute the Supplemental Indenture containing the
Proposed Amendments, which is expected to occur promptly after the Withdrawal
Time, and (2) Tenneco has accepted the tendered Original Securities underlying
those Consents for exchange in the Exchange Offers.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original
Securities tendered hereby and to deliver the Consent contained herein, and that
when such tendered Original Securities are accepted for purchase and payment by
Tenneco, Tenneco will acquire good title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or by Tenneco to be necessary or
desirable to complete the sale, assignment and transfer of the Original
Securities tendered hereby, to perfect the undersigned's Consent to the Proposed
Amendments or to complete the execution of the Supplemental Indenture.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, trustees in bankruptcy,
personal and legal representatives, successors and assigns of the undersigned.
The undersigned understands that the delivery and surrender of any Original
Securities is not effective, and the risk of loss of the Original Securities
does not pass to the Exchange Agent, until receipt by the Exchange Agent of this
Letter of Transmittal (or a manually signed facsimile hereof), properly
completed and duly executed, together with all accompanying evidences of
authority and any other required documents in form satisfactory to Tenneco. All
questions as to the form of all documents and the validity (including time of
6
<PAGE> 7
receipt) and acceptance of tenders and withdrawals of Original Securities and
deliveries of related Consents will be determined by Tenneco, in its sole
discretion, which determination shall be final and binding.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the check for any applicable early exchange premium and/or accrued
interest (as described in the Prospectus) for any Original Securities purchased,
and any certificates for Original Securities not tendered or not purchased, in
the name(s) of the undersigned (and, in the case of Original Securities tendered
by book-entry transfer, by credit to the DTC account specified above).
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the applicable early exchange premium and/or any
accrued interest for any Original Securities purchased, and any certificates for
Original Securities not tendered or not purchased (and accompanying documents,
as appropriate), to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue a check for any
applicable Original Securities purchased in the name(s) of, and forward any
certificates for Original Securities not tendered or not purchased to, the
person(s) so indicated. The undersigned recognizes that Tenneco has no
obligation under the "Special Issuance Instructions" or the "Special Delivery
Instructions" provision of this Letter of Transmittal to effect the transfer of
any Original Securities from the name of the holder(s) thereof if Tenneco does
not accept for payment any of the principal amount of such Original Securities
so tendered.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 5)
To be completed ONLY if certificates for Original Securities in a principal
amount not tendered or not accepted for purchase are to be issued in the name
of, or checks for any applicable early exchange premium and/or accrued interest
are to be issued to the order of, someone other than the person or persons whose
signature(s) appears within this Letter of Transmittal.
Issue: [ ] Original Securities [ ] Checks
(check as applicable)
Name:
- -----------------------------------------------
(Please Print)
Address:
- ---------------------------------------------
- -------------------------------------------------------
(Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
(See Substitute Form W-9 herein)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 5)
To be completed ONLY if certificates for Original Securities in a principal
amount not tendered or not accepted for purchase or checks for any applicable
early exchange premium and/or accrued interest are to be sent to someone other
than the person or persons whose signature(s) appears within this Letter of
Transmittal or issued to an address different from that shown in the box titled
"Description of Original Securities Tendered and in Respect of Which Consent is
Given" within this Letter of Transmittal.
Issue: [ ] Original Securities [ ] Checks
(check as applicable)
Name:
- -----------------------------------------------
(Please Print)
Address:
- ---------------------------------------------
- -------------------------------------------------------
(Zip Code)
7
<PAGE> 8
DTC PARTICIPANT INFORMATION
(SEE INSTRUCTION 1)
TO BE COMPLETED BY ALL HOLDERS DELIVERING ORIGINAL SECURITIES. NEW SECURITIES
WILL BE DELIVERED ONLY IN BOOK-ENTRY FORM.
Name of DTC Participant:
- --------------------------------------------------------------------------------
DTC Participant Number:
- --------------------------------------------------------------------------------
Contact at DTC Participant:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Telephone No.:
- --------------------------------------------------------------------------------
8
<PAGE> 9
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING AND CONSENTING HOLDERS OF ORIGINAL SECURITIES
REGARDLESS OF WHETHER ORIGINAL SECURITIES ARE BEING PHYSICALLY DELIVERED
HEREWITH)
By completing, executing and delivering this Letter of Transmittal, the
undersigned hereby consents to the Proposed Amendments with respect to the
principal amount of the Original Securities listed in the box above labeled
"Description of Original Securities Tendered and in Respect of Which Consent is
Given."
This Letter of Transmittal must be signed by the registered holder(s)
exactly as the name of such holder appears on certificate(s) for Original
Securities or, if tendered by a participant in DTC, exactly as such
participant's name appears on a security position listing as owner of Original
Securities, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If the signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or another acting in a fiduciary or representative capacity, please
set forth the signatory's full title. See Instruction 3.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
(See guarantee requirement below)
Dated
- --------------------------------------------- , 1999
Name(s)
- --------------------------------------------------------------------------------
(Please Print)
Capacity
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
(Including Zip Code)
Area Code and Tel Number
- --------------------------------------------------------------------------------
Tax Identification or Social Security No
- ---------------------------------------------------------------------
(Complete Accompanying Substitute Form W-9)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 3)
Authorized Signature
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
[place seal here]
9
<PAGE> 10
INSTRUCTIONS TO LETTER OF CONSENT/TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFERS AND CONSENT
SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL SECURITIES. This
Letter of Transmittal is to be completed by holders if (i) certificates
representing Original Securities are to be physically delivered to the Exchange
Agent herewith by such holders, or (ii) tender of Original Securities is to be
made by book-entry transfer to the Exchange Agent's account at DTC, and, in each
case, instructions are not being transmitted through ATOP.
All physically delivered Original Securities, or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of all Original
Securities delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) or
properly transmitted agent's message, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address set
forth herein before the Early Exchange Time (if the holder wishes to be eligible
to receive the early exchange premium) or applicable Expiration Time (if the
holder wishes to be eligible to participate in the Exchange Offers but does not
wish to be eligible to receive the early exchange premium), as the case may be.
Any financial institution that is a participant in DTC may electronically
transmit its acceptance of the Exchange Offers by causing DTC to transfer
Original Securities to the Exchange Agent in accordance with DTC's ATOP
procedures for such transfer prior to the Early Exchange Time or Expiration
Time, as the case may be. The Exchange Agent will make available its general
participant account for the Original Securities at DTC for purposes of the
Exchange Offers. DELIVERY OF A LETTER OF TRANSMITTAL TO DTC WILL NOT CONSTITUTE
VALID DELIVERY TO THE EXCHANGE AGENT.
The method of delivery of this Letter of Transmittal, the Original
Securities and all other required documents, including delivery through DTC and
any acceptance or agent's message delivered through ATOP, is at the option and
risk of the tendering holder. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery.
No Letter of Transmittal or tendered Original Securities should be sent to
Tenneco, Packaging, the Information Agent, DTC, Morgan Stanley Dean Witter or
Credit Suisse First Boston. Neither Tenneco nor the Exchange Agent is under any
obligation to notify any tendering holder of Tenneco's acceptance of tendered
Original Securities prior to the closing of the Exchange Offers.
NEW SECURITIES WILL BE DELIVERED ONLY IN BOOK-ENTRY FORM THROUGH DTC AND
ONLY TO THE DTC ACCOUNT OF THE TENDERING HOLDER OR THE TENDERING HOLDER'S
CUSTODIAN. ACCORDINGLY, A HOLDER WHO TENDERS ORIGINAL SECURITIES MUST SPECIFY IN
THE BOX TITLED "DTC PARTICIPANT INFORMATION" THE DTC PARTICIPANT NAME, NUMBER
AND CONTACT INFORMATION TO WHICH ANY NEW SECURITIES SHOULD BE DELIVERED.
2. AMOUNT OF TENDERS. Tenders of Original Securities will be accepted only
in principal amounts of $1,000 or integral multiples of $1,000. If less than the
entire principal amount of Original Securities held by the holder is tendered,
the holder should fill in the principal amount tendered in column (5) labeled
"Aggregate Principal Amount Tendered and in Respect of Which Consent is Given
(If Less Than All)" of the box entitled "Description of Original Securities
Tendered And in Respect of Which Consent is Given" above. The entire principal
amount of Original Securities delivered to the Exchange Agent will be deemed to
have been tendered for exchange unless otherwise indicated. If the entire
principal amount of all Original Securities held by the holder is not tendered
for exchange, then new certificates representing the Original Securities for the
principal amount of Original Securities not tendered for exchange will be sent
to the holder at its registered address, unless a different address is provided
in the box entitled "Special Delivery Instructions" in this Letter of
Transmittal, as soon as practicable following the applicable Expiration Time.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. For purposes of this discussion, the term
"registered holder" means an owner of record as well as any DTC participant that
has Original Securities credited to its DTC account. Except as otherwise
provided
10
<PAGE> 11
below, all signatures on this Letter of Transmittal must be guaranteed by a
recognized participant in the Securities Transfer Agents Medallion Program, the
NYSE Medallion Signature Program or the Stock Exchange Medallion Program (each,
a "Medallion Signature Guarantor"). Signatures on the Letter of Transmittal need
not be guaranteed if:
- the Letter of Transmittal is signed by the registered physical holder(s)
of the Original Securities or by a participant in DTC whose name appears
on a security position listing as the owner of the Original Securities
and the holder(s) have not completed the portion entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal; or
- the Original Securities are tendered for the account of an "eligible
institution."
An "eligible institution" is one of the following firms or other entities
identified in Rule 17Ad-15 under the Securities Exchange Act of 1934 (as the
terms are defined in the Rule): (a) a bank; (b) a broker, dealer, municipal
securities dealer, municipal securities broker, government securities dealer or
government securities broker; (c) a credit union; (d) a national securities
exchange, registered securities association or clearing agency; or (e) a savings
institution.
If the Letter of Transmittal is signed by the registered holder(s) of
Original Securities tendered, the signature(s) must correspond with the name(s)
as written on the face of the Original Securities without alteration,
enlargement or any change whatsoever. If any of the Original Securities tendered
are held by two or more registered holders, all of the registered holders must
sign the Letter of Transmittal. If any of the Original Securities are registered
in different names on different Original Securities, the holders must complete,
sign and submit as many separate Letters of Transmittal as there are different
registrations of certificates.
In the following cases, the certificates for Original Securities that are
tendered must be endorsed or accompanied by an appropriate instrument of
transfer, signed exactly as the name of the registered owner appears on the
certificates, with the signatures on the certificates or instruments of transfer
guaranteed by a Medallion Signature Guarantor:
- if the New Securities issued in the Exchange Offers are to be registered
in the name of, or payments are to be made to, a person other than the
person whose signature is on the Letter of Transmittal;
- if Original Securities that are not exchanged are to be returned to a
person other than the registered owner; or
- if a Letter of Transmittal is signed by a person other than the
registered holder(s) of the Original Securities tendered.
In addition, a tender of Original Securities before the Early Exchange Time by
someone other than the registered holder must be accompanied by either a valid
proxy of, or a Consent signed by, the registered holder(s). This is because
Original Securities may not be tendered before the Early Exchange Time without
also delivering a Consent with respect to those Original Securities, and only
registered holders are entitled to deliver Consents. The signature on the proxy
or Consent must be guaranteed by a Medallion Signature Guarantor.
Tenneco will not accept any alternative, conditional, irregular or
contingent tenders. By executing the Letter of Transmittal (or facsimile
thereof) or transmitting an agent's message, you waive any right to receive any
notice of the acceptance of your Original Securities for exchange.
If this Letter of Transmittal or any tendered Original Securities or
instruments of transfer are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing and, unless waived by Tenneco, evidence satisfactory to Tenneco of their
authority to so act must be submitted with this Letter of Transmittal.
Beneficial owners whose tendered Original Securities are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee if
they desire to tender such Original Securities.
11
<PAGE> 12
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If a check and/or
certificates for unpurchased or untendered Original Securities are to be issued
in the name of a person other than the signer of this Letter of Transmittal, or
if a check is to be sent and/or such Original Securities are to be returned to
someone rather than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate "Special Issuance Instructions"
and/or "Special Delivery Instructions" boxes on this Letter of Transmittal
should be completed. All Original Securities tendered by book-entry transfer and
not accepted for payment will be returned by crediting the account at DTC
designated above as the account for which such Original Securities were
delivered.
5. TRANSFER TAXES. Tenneco will pay all transfer taxes, if any, applicable
to the transfer and sale of Original Securities to Tenneco in the Exchange
Offers. If transfer taxes are imposed for any other reason, the amount of those
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. Other reasons transfer taxes could be
imposed include: (a) if New Securities in book-entry form and/or substitute
Original Securities for Original Securities not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Original Securities tendered; or (b) if tendered
Original Securities are registered in the name of any person other than the
person signing the Letter of Transmittal. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with this Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
holder and/or withheld from any payments due with respect to the Original
Securities tendered by such holder. It will not be necessary for transfer tax
stamps to be affixed to the tendered Original Securities listed in this Letter
of Transmittal.
6. BACKUP U.S. FEDERAL INCOME TAX WITHHOLDING; TAX IDENTIFICATION NUMBER.
U.S. federal income tax law requires that the holder(s) of any Original
Securities which are accepted for exchange (or other payee) must provide the
Exchange Agent (as payer) with the holder's correct taxpayer identification
number ("TIN"), which, in the case of a holder who is an individual (other than
a resident alien), is his or her social security number. For holders other than
individuals, such holders' TIN is their employer identification number. If the
Exchange Agent is not provided with the correct TIN, the holder (or other payee)
may be subject to backup U.S. federal income tax withholding on payments made in
exchange for any Original Securities and a penalty may be imposed by the
Internal Revenue Service ("IRS"). Backup withholding is not an additional
federal income tax. Rather, the amount of tax withheld will be credited against
the federal income tax liability of persons subject to backup withholding. If
backup withholding results in an over-payment of taxes, a refund may be obtained
from the IRS. Exempt holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Each holder should consult with a tax advisor regarding
qualifications for exemption from backup withholding and the procedure for
obtaining such exemption. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each holder of tendered Original Securities
must provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
or other payee is awaiting a TIN), and that either: (1) the holder (or other
payee) has not been notified by the IRS that such holder (or other payee) is
subject to backup withholding as a result of failure to report all interest or
dividends; or (2) if previously so notified, the IRS has notified the holder (or
other payee) that such holder (or other payee) is no longer subject to backup
withholding. If the tendered Original Securities are registered in more than one
name or are not in the name of the actual owner, consult the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
information on which TIN to report.
Tenneco reserves the right in its sole discretion to take all necessary or
appropriate measures to comply with Tenneco's obligation regarding backup
withholding.
7. VALIDITY OF TENDERS. All questions concerning the validity, form,
eligibility (including time of receipt), acceptance, and withdrawal of tendered
Original Securities will be determined by Tenneco in its sole discretion, which
determination will be final and binding. Tenneco reserves the absolute right to
reject any and all Original Securities not validly tendered or any Original
Securities the acceptance of which would, in the
12
<PAGE> 13
opinion of its counsel, be unlawful. Tenneco also reserves the absolute right to
waive any defects or irregularities in tenders of Original Securities, whether
or not similar defects or irregularities are waived in the case of other
tendered securities. The interpretation of the terms and conditions of the
Exchange Offers and Consent Solicitation (including this Letter of Transmittal
and the instructions hereto) by Tenneco shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Securities must be cured within such time as Tenneco shall
determine. Neither Tenneco, the Exchange Agent, nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Original Securities, nor shall any of them incur any liability for
failure to give such notification. Tenders of Original Securities will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Original Securities received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the holders, unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the applicable Expiration Time.
8. WAIVER OF CONDITIONS. Tenneco reserves the absolute right to amend or
waive any of the conditions in the Exchange Offers and Consent Solicitation
concerning any Original Securities.
9. MUTILATED, LOST, STOLEN, OR DESTROYED SECURITIES. Any holder whose
tendered Original Securities have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Information Agent at the address
and telephone number indicated herein. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offers and Consent Solicitation.
11. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offers and Consent
Solicitation -- Withdrawal Rights."
13
<PAGE> 14
IMPORTANT TAX INFORMATION
Under U.S. federal income tax law, a holder who tenders Original Securities
for payment and who delivers Consent is required to provide the Exchange Agent
(as payer) with such holder's correct TIN on the Substitute Form W-9 below and
to certify that the TIN provided on the Substitute Form W-9 is correct (or that
such holder is awaiting a TIN) or otherwise establish a basis for exemption from
backup withholding. If such holder is an individual, the TIN is his or her
social security number. If a holder is a resident alien, such holder is not
eligible to obtain a social security number. Such holder must provide the payer
with an IRS individual taxpayer identification number (ITIN). If the Exchange
Agent is not provided with the correct TIN, a $50 penalty may be imposed by the
IRS, and payments made to such holder with respect to Original Securities
purchased pursuant to an Exchange Offer may be subject to backup withholding.
Certain holders (including, among others, certain foreign persons) are not
subject to these backup withholding and reporting requirements. Exempt holders
(other than certain foreign persons) should indicate their exempt status on
Substitute Form W-9. A foreign person may qualify as an exempt recipient by
submitting to the Exchange Agent a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. A Form W-8 can
be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
The box in Part 3 of the Substitute Form W-9 may be checked if the holder
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future. If the box in Part 3 is checked, the holder or other
payee must also complete the Certificate of Awaiting Taxpayer Identification
Number below in order to avoid backup withholding. Notwithstanding that the box
in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification
Number is completed, the Exchange Agent will withhold 31% of all payments made
pursuant to an Exchange Offer prior to the time a properly certified TIN is
provided to the Exchange Agent.
The holder is required to give the Exchange Agent the correct TIN (e.g.,
Social Security number or Employer Identification Number) of the record owner of
the Original Securities. If the Original Securities are registered in more than
one name or are not registered in the name of the actual owner, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report.
14
<PAGE> 15
<TABLE>
<S> <C> <C>
PAYER'S NAME: THE CHASE MANHATTAN BANK, AS EXCHANGE AGENT
NAME: (If joint names, list first and circle the name of the person or entity
whose number you enter in Part 1 below.) See instructions if your name is
SUBSTITUTE changed.
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR Address:
TAXPAYER IDENTIFICATION
NUMBER (TIN)
City, State and Zip Code:
PART 1: PLEASE PROVIDE YOUR TAXPAYER -----------------------------
IDENTIFICATION NUMBER IN THE BOX AT RIGHT Social Security Number
AND CERTIFY BY SIGNING AND DATING BELOW.
or ----------------------------
Taxpayer Identification Number
PART 2: Check the box if you are NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code because: (1)
you have not been notified that you are subject to backup withholding as a
result of failure to report all interest or dividends; or (2) the Internal
Revenue Service has notified you that you are no longer subject to backup
withholding. [ ]
PART 3: Awaiting TIN [ ]
</TABLE>
Certification: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, ACCURATE AND COMPLETE
SIGNATURE DATE ________________ , 1999
NAME
(Please Print)
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFERS. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either: (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office; or (b)
I intend to mail or deliver an application in the near future. I understand
that, if I do not provide a taxpayer identification number to the Exchange
Agent, 31% of all reportable payments made to me will be withheld until I
provide a certified taxpayer identification number.
- ------------------------------------------------------
------------------------------------------------, 1999
Signature Date
- ------------------------------------
Name (Please Print)
15
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF-
1. An individual account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined
funds, the first individual on the account(1)
3. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
4. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is not legal or The actual owner(1)
valid trust under state law.
5. Sole proprietorship The owner(3)
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION NUMBER OF-
6. A valid trust, estate, or pension trust The legal entity(4)
7. Corporate account The corporation
8. Association, club, religious, charitable, The organization
educational or other tax-exempt organization
9. Partnership account The partnership
10. A broker or registered nominee The broker nominee
11. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a state or
local government, school district, or prison)
that receives agricultural program payments
</TABLE>
- ---------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name. You may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
NOTE: If no name is circled when there is more than one name listed, the
number will be considered to be that of the first name listed.
16
<PAGE> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Note: Section references are to the Internal Revenue Code unless otherwise
noted.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and persons registered under the Investment Advisors Act
of 1940 who regularly act as brokers are exempt. Payments subject to reporting
under sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except a corporation
(other than certain hospitals described in Regulations section 1.6041-3(c)) that
provides medical and health care services or bills and collects payments for
such services is not exempt from backup withholding or information reporting.
Only payees described in items (1) through (5) are exempt from backup
withholding for barter exchange transactions and patronage dividends.
(1) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7), if the account satisfies the
requirements of section 401(f)(2).
(2) The United States or any of its agencies or instrumentalities.
(3) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(4) A foreign government or any of its political sub-divisions, agencies or
instrumentalities.
(5) An international organization or any of its agencies or instrumentalities.
(6) A corporation
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
(15) A trust exempt from tax under section 664 or described in Section 4947.
Payments of dividends and patronage dividends that generally are exempt from
backup withholding include the following: - Payments to nonresident aliens
subject to withholding under section
1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest that generally are exempt from backup withholding include
the following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments of mortgage interest to you.
Exempt payees described above should file substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM AND CHECK
THE BOX IN PART 2, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE
A NON-RESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE
WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN
STATUS).
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations promulgated thereunder.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your correct taxpayer identification number to a requester, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 18
THE DEALER MANAGERS FOR THE EXCHANGE OFFERS AND CONSENT SOLICITATION ARE:
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
1585 Broadway, Second Floor Eleven Madison Avenue
New York, NY 10036 New York, NY 10010
Attn: Liability Management Group Attn: Liability Management Group
(800) 624-1808 (800) 820-1653
</TABLE>
Any questions concerning the terms
of the Exchange Offers may be directed to the Dealer Managers.
THE INFORMATION AGENT FOR THE EXCHANGE OFFERS AND CONSENT SOLICITATION IS:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
Any questions concerning tender procedures or requests for additional copies of
this
document may be directed to the Information Agent.
<PAGE> 1
EXHIBIT 99.2
LETTER TO DTC PARTICIPANTS MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
[$ ]
EXCHANGE OFFERS AND CONSENT SOLICITATION
OUTSTANDING DEBT SECURITIES OF TENNECO INC.
(TO BE RENAMED TENNECO AUTOMOTIVE INC.)
EXCHANGED FOR
NEW DEBT SECURITIES OF TENNECO PACKAGING INC.
(TO BE RENAMED)
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY, ON
, 1999, UNLESS EXTENDED (THE "EARLY EXCHANGE
TIME") OR EARLIER TERMINATED. HOLDERS MUST TENDER BEFORE THE EARLY EXCHANGE TIME
TO BE ELIGIBLE TO RECEIVE THE EARLY EXCHANGE PREMIUM, AS DESCRIBED BELOW.
TENDERED SECURITIES MAY BE WITHDRAWN AND CONSENTS MAY BE REVOKED AT ANY
TIME BEFORE THE EARLIER OF (1) THE EARLY EXCHANGE TIME AND (2) 5:00 P.M., NEW
YORK CITY TIME, ON THE DATE THAT TENNECO PUBLICLY ANNOUNCES IT HAS RECEIVED THE
REQUIRED CONSENTS, AS DESCRIBED BELOW.
To DTC Participants, Including Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by Tenneco Inc., a Delaware corporation ("Tenneco"),
to act as Dealer Managers in connection with the offers to exchange, upon the
terms and subject to the conditions set forth in the Prospectus and Consent
Solicitation of Tenneco and Tenneco Packaging Inc. (to be renamed), a Delaware
corporation ("Packaging"), dated , 1999 (the
"Prospectus"), and in the related Letter of Consent/Transmittal enclosed
herewith (the "Letter of Transmittal"), up to [$ ] aggregate principal
amount of newly issued debt securities (the "New Securities") of Packaging for
any and all of the [$ ] aggregate principal amount of certain
outstanding securities issued by Tenneco (the "Original Securities") described
herein (each such offer is referred to individually as an "Exchange Offer" and
collectively as the "Exchange Offers"). In connection with the Exchange Offers,
Tenneco is soliciting consents ("Consents") to amendments to the indenture under
which Tenneco issued the Original Securities (the "Proposed Amendments") that
would eliminate the restrictions on Tenneco's operations currently included in
that indenture (the "Consent Solicitation").
For each $1,000 principal amount of Original Securities validly tendered
and accepted for exchange, Tenneco is offering (1) $1,000 principal amount of
the corresponding series of Packaging's New Securities, as
<PAGE> 2
shown in the table below, plus (2) the "Early Exchange Premium" shown in the
table below for holders who validly tender their Original Securities before the
Early Exchange Time.
<TABLE>
<CAPTION>
FOR EACH: EXCHANGING HOLDERS WILL RECEIVE:
- ---------------------------------- ----------------------------------------
AGGREGATE $1,000 PRINCIPAL AMOUNT EARLY
PRINCIPAL OF TENNECO'S ORIGINAL $1,000 PRINCIPAL AMOUNT EXCHANGE
AMOUNT SECURITIES OF PACKAGING'S NEW SECURITIES PREMIUM*
- --------- ----------------------- ----------------------------- --------
<S> <C> <C> <C>
[To come]
</TABLE>
- ---------------
* Tenneco will pay the Early Exchange Premium only for Original Securities
validly tendered before the Early Exchange Time, and only if Tenneco accepts
those Original Securities for exchange.
Tenneco will also pay accrued but unpaid interest on Original Securities
exchanged through the date Tenneco accepts them for exchange. If, however,
Tenneco accepts for exchange any particular series of Original Securities after
an interest record date for that series and on or before the related interest
payment date, accrued but unpaid interest will instead be paid to the holder of
those Original Securities as of the record date (if different from the tendering
holder).
ANY NEW SECURITIES ISSUED IN EXCHANGE FOR ORIGINAL SECURITIES WILL BE
ISSUED ONLY IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST COMPANY ("DTC"),
WHICH MEANS THAT NO EXCHANGING HOLDER WILL RECEIVE CERTIFICATES EVIDENCING ANY
NEW SECURITIES.
Subject to the terms and conditions of each Exchange Offer and the Consent
Solicitation and applicable law, Tenneco will make payment for the Original
Securities accepted for exchange by depositing with The Chase Manhattan Bank, as
exchange agent (the "Exchange Agent"): (1) New Securities (in book-entry form);
(2) cash for the payment of any applicable Early Exchange Premium; and (3) cash
for the payment of any applicable accrued but unpaid interest on Original
Securities. This will occur on the first New York Stock Exchange trading day
after Tenneco accepts the related Original Securities for exchange. The Exchange
Agent will act as agent for the tendering holders for the purpose of receiving
payments and/or New Securities (in book-entry form) from Tenneco and then
delivering payments and/or New Securities (in book-entry form) to or at the
direction of those holders. The Exchange Agent will make this delivery on the
same day Tenneco deposits payment for the related Original Securities, or as
soon thereafter as practicable.
For your information and for forwarding to your clients for whom you hold
Original Securities registered in your name or in the name of your nominee or
who hold Original Securities registered in their own names, we are enclosing the
following documents:
1. The Prospectus;
2. The Letter of Transmittal to be used by holders of Original Securities
to tender their Original Securities and to Consent to the Proposed
Amendments and the execution of a supplemental indenture relating
thereto (as described in the Prospectus);
3. A form of letter which may be sent to your clients for whose accounts
you hold Original Securities in your name or in the name of your
nominees with space provided for obtaining such clients' instructions
with regard to the Exchange Offers and Consent Solicitation.
4. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
5. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS
PROMPTLY.
IMPORTANT: A PROPERLY COMPLETED LETTER OF TRANSMITTAL (OR A FACSIMILE
THEREOF) OR A PROPERLY TRANSMITTED "AGENT'S MESSAGE" (AS DESCRIBED IN THE
PROSPECTUS), TOGETHER WITH THE ORIGINAL SECURITIES AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EARLY EXCHANGE
TIME
2
<PAGE> 3
WITH RESPECT TO HOLDERS WISHING TO RECEIVE THE EARLY EXCHANGE PREMIUM TOGETHER
WITH THE APPLICABLE NEW SECURITIES (IN BOOK-ENTRY FORM) AND ACCRUED INTEREST. A
PROPERLY COMPLETED LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) OR PROPERLY
TRANSMITTED AGENT'S MESSAGE, TOGETHER WITH THE ORIGINAL SECURITIES AND ALL OTHER
REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE
APPLICABLE EXPIRATION TIME WITH RESPECT TO HOLDERS WISHING TO RECEIVE ONLY THE
APPLICABLE NEW SECURITIES (IN BOOK-ENTRY FORM) AND ACCRUED INTEREST (BUT NOT THE
EARLY EXCHANGE PREMIUM).
Holders of Original Securities who desire to accept an Exchange Offer in
respect of their Original Securities must Consent to the Proposed Amendments and
the execution of the related supplemental indenture with respect to those
Original Securities. The Proposed Amendments and supplemental indenture are
described in the Prospectus under the caption "The Proposed Amendments."
CONSUMMATION OF THE EXCHANGE OFFERS AND CONSENT SOLICITATION IS CONDITIONED
UPON, AMONG OTHER THINGS, SATISFACTION OR TENNECO'S WAIVER OF THE FOLLOWING
CONDITIONS: (1) RECEIPT BY TENNECO OF THE REQUIRED CONSENTS TO AMEND THE
INDENTURE UNDER WHICH TENNECO ISSUED THE ORIGINAL SECURITIES (AS DESCRIBED IN
THE PROSPECTUS); (2) ANY AND ALL CONDITIONS TO TENNECO'S CONCURRENT CASH TENDER
OFFERS (AS DESCRIBED IN THE PROSPECTUS); AND (3) ANY AND ALL CONDITIONS TO
TENNECO'S PLANNED SPIN-OFF OF PACKAGING TO ITS PUBLIC STOCKHOLDERS (AS DESCRIBED
IN THE PROSPECTUS).
In order to take advantage of the Exchange Offers, a duly executed and
properly completed Letter of Transmittal and any signature guarantees, or a
properly transmitted agent's message, should be delivered to the Exchange Agent,
and certificates representing the tendered Original Securities (or confirmations
of book-entry transfer) should be delivered to the Exchange Agent, all in
accordance with the instructions set forth in the Letter of Transmittal and the
Prospectus.
Neither Tenneco nor Packaging will pay any fees or commissions to any
broker, dealer or other person in connection with the solicitation of tenders of
Original Securities and Consents pursuant to the Exchange Offers and Consent
Solicitation, except for the Dealer Managers, Information Agent and Exchange
Agent as identified and described in the Prospectus. Tenneco will, however,
reimburse brokers, dealers, commercial banks and trust companies for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
Tenneco will pay or cause to be paid all transfer taxes, if any, with
respect to the sale and transfer of any Original Securities to it pursuant to
the Exchange Offers, except as otherwise provided in Instruction 5 of the Letter
of Transmittal.
Questions and requests for assistance should be addressed to either of the
Dealer Managers at the addresses and telephone numbers set forth on the back
cover page of the enclosed Prospectus. Requests for additional copies of the
enclosed materials should be directed to Georgeson & Company Inc., as
Information Agent, at its address and telephone number set forth on the back
cover page of the enclosed Prospectus. Such additional copies will be furnished
promptly at Tenneco's expense.
Very truly yours,
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS IS INTENDED TO
CONSTITUTE YOU OR ANY PERSON THE AGENT OF TENNECO, PACKAGING, MORGAN STANLEY
DEAN WITTER, CREDIT SUISSE FIRST BOSTON, THE EXCHANGE AGENT, THE INFORMATION
AGENT OR ANY OF THEIR AFFILIATES OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE
ANY STATEMENT ON THEIR BEHALF OTHER THAN STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS OR THE LETTER OF TRANSMITTAL OR USE ANY DOCUMENTS IN CONNECTION WITH
THE EXCHANGE OFFERS OR CONSENT SOLICITATION OTHER THAN FOR THE PURPOSES
DESCRIBED HEREIN.
3
<PAGE> 1
EXHIBIT 99.3
LETTER TO BENEFICIAL HOLDERS
[$ ]
EXCHANGE OFFERS AND CONSENT SOLICITATION
OUTSTANDING DEBT SECURITIES
OF
TENNECO INC.
(TO BE RENAMED TENNECO AUTOMOTIVE INC.)
EXCHANGED FOR
NEW DEBT SECURITIES OF
TENNECO PACKAGING INC. (TO BE RENAMED)
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY, ON
, 1999, UNLESS EXTENDED ("THE EARLY EXCHANGE
TIME") OR EARLIER TERMINATED. HOLDERS MUST TENDER BEFORE THE EARLY EXCHANGE TIME
TO BE ELIGIBLE TO RECEIVE THE EARLY EXCHANGE PREMIUM, AS DESCRIBED BELOW.
TENDERED SECURITIES MAY BE WITHDRAWN AND CONSENTS MAY BE REVOKED AT ANY TIME
BEFORE THE EARLIER OF (1) THE EARLY EXCHANGE TIME AND (2) 5:00 P.M., NEW YORK
CITY TIME, ON THE DATE THAT TENNECO PUBLICLY ANNOUNCES IT HAS RECEIVED THE
REQUIRED CONSENTS, AS DESCRIBED BELOW.
[ ,] 1999
To Our Clients:
Enclosed for your consideration are a Prospectus and Consent Solicitation
of Tenneco Inc., a Delaware corporation ("Tenneco"), and Tenneco Packaging Inc.
(to be renamed), a Delaware corporation ("Packaging"), dated [ ],
1999 (the "Prospectus"), and the related Letter of Consent/Transmittal (the
"Letter of Transmittal"). These documents relate to:
- the offers by Tenneco to exchange, upon the terms and subject to the
conditions set forth in the Prospectus and in the Letter of Transmittal,
up to [$ ] aggregate principal amount of newly issued debt
securities (the "New Securities") of Packaging for any and all of the
[$ ] aggregate principal amount of certain outstanding debt
securities issued by Tenneco (the "Original Securities") described herein
(each such offer is referred to individually as an "Exchange Offer" and
collectively as the "Exchange Offers"); and
- in connection with the Exchange Offers, Tenneco's solicitation of
consents (the "Consent Solicitation") to amendments to the indenture
under which Tenneco issued the Original Securities that would eliminate
the restrictions on Tenneco's operations currently included in that
indenture (the "Proposed Amendments").
<PAGE> 2
For each $1,000 principal amount of Original Securities validly tendered
and accepted for exchange, Tenneco is offering (1) $1,000 principal amount of
the corresponding series of Packaging's New Securities, as shown in the table
below, plus (2) the "Early Exchange Premium" shown in the table below for
holders who validly tender their Original Securities before the Early Exchange
Time.
<TABLE>
<CAPTION>
FOR EACH: EXCHANGING HOLDERS WILL RECEIVE:
- ---------------------------------- ----------------------------------------
AGGREGATE $1,000 PRINCIPAL AMOUNT EARLY
PRINCIPAL OF TENNECO'S ORIGINAL $1,000 PRINCIPAL AMOUNT EXCHANGE
AMOUNT SECURITIES OF PACKAGING'S NEW SECURITIES PREMIUM*
- --------- ----------------------- ----------------------------- --------
<S> <C> <C> <C>
</TABLE>
[To come]
- ---------------
* Tenneco will pay the Early Exchange Premium only for Original Securities
validly tendered before the Early Exchange Time, and only if Tenneco accepts
those Original Securities for exchange.
Tenneco will also pay accrued but unpaid interest on Original Securities
exchanged through the date Tenneco accepts them for exchange. If, however,
Tenneco accepts for exchange any particular series of Original Securities after
an interest record date for that series and on or before the related interest
payment date, accrued but unpaid interest will instead be paid to the holder of
those Original Securities as of the record date (if different from the tendering
holder).
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND
CANNOT BE USED BY YOU TO TENDER ORIGINAL SECURITIES HELD BY US FOR YOUR ACCOUNT
OR TO CONSENT TO THE PROPOSED AMENDMENTS (A "CONSENT").
ANY NEW SECURITIES ISSUED IN EXCHANGE FOR ORIGINAL SECURITIES WILL BE
ISSUED ONLY IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST COMPANY ("DTC"),
WHICH MEANS THAT NO EXCHANGING HOLDER WILL RECEIVE CERTIFICATES EVIDENCING ANY
NEW SECURITIES.
We are the registered holder of Original Securities held for your account.
A tender of these securities can be made and a Consent to the Proposed
Amendments described in the Prospectus may be given only by us as the registered
holder and pursuant to your instructions.
We request that you advise us whether you wish us to tender and to deliver
a Consent to the Proposed Amendments with respect to any or all of the Original
Securities held by us for your account, upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to execute the Letter of Transmittal and tender your Original
Securities and Consent to the Proposed Amendments on your behalf in accordance
with the terms of the Exchange Offers and Consent Solicitation. THE DEADLINE FOR
HOLDERS TO QUALIFY TO RECEIVE THE EARLY EXCHANGE PREMIUM ALONG WITH THEIR NEW
SECURITIES IS 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1999, UNLESS
EXTENDED OR EARLIER TERMINATED.
Your attention is directed to the following:
1. Subject to the terms and conditions of each Exchange Offer and the
Consent Solicitation and applicable law, Tenneco will make payment for the
Original Securities accepted for exchange by depositing with The Chase Manhattan
Bank, as exchange agent (the "Exchange Agent"): (1) New Securities (in book-
entry form); (2) cash for the payment of any applicable Early Exchange Premium;
and (3) cash for the payment of any applicable accrued but unpaid interest on
Original Securities. This will occur on the first New York Stock Exchange
trading day after Tenneco accepts the related Original Securities for exchange.
The Exchange Agent will act as agent for the tendering holders for the purpose
of receiving payments and/or New Securities (in book-entry form) from Tenneco
and then delivering payments and/or New Securities (in book-entry form) to or at
the direction of those holders. The Exchange Agent will make this delivery on
the same day Tenneco deposits payment for the related Original Securities, or as
soon thereafter as practicable.
2
<PAGE> 3
2. Packaging is currently owned by Tenneco. Tenneco intends to spin-off
Packaging to its public stockholders. Upon completion of the spin-off, Packaging
will become an independent, publicly held company engaged in Tenneco's current
packaging businesses. The Exchange Offers are one component of a plan to realign
Tenneco's debt before the spin-off.
3. Each Exchange Offer will expire at 5:00 p.m., New York City time, on
[ ], 1999, unless extended or earlier terminated. The Consent
Solicitation will expire at 5:00 p.m., New York City time, on [ ],
1999, unless extended or earlier terminated. Consummation of the Exchange Offers
and Consent Solicitation is conditioned upon, among other things, satisfaction
or Tenneco's waiver of the following conditions: (1) receipt by Tenneco of the
required consents to amend the indenture under which Tenneco issued the Original
Securities (as described in the Prospectus); (2) any and all conditions to
Tenneco's concurrent cash tender offers (as described in the Prospectus); and
(3) any and all conditions to the spin-off (as described in the Prospectus).
4. Holders of Original Securities who desire to accept an Exchange Offer in
respect of their Original Securities must Consent to the Proposed Amendments
with respect to those Original Securities. The valid tender of any Original
Securities will automatically constitute a Consent to the Proposed Amendments
with respect to those Original Securities. The Proposed Amendments would
eliminate the restrictions on Tenneco's operations currently included in the
indenture under which Tenneco issued the Original Securities. This includes
eliminating a covenant that might, if held to apply to the spin-off, otherwise
require Packaging to become the obligor of the Original Securities (the
application of which Tenneco and Packaging believe is uncertain in these
circumstances).
5. If you desire to receive the Early Exchange Premium, as well as the
applicable New Securities (in book-entry form) and accrued interest, we must
receive your instructions in ample time to permit us to effect a tender of
Original Securities and delivery of a related Consent on your behalf before the
Early Exchange Time, which is 5:00 p.m., New York City time, on
[ ], 1999, unless extended or earlier terminated.
6. If you desire to tender any Original Securities and receive only the
applicable New Securities (in book-entry form) and accrued interest, and not the
Early Exchange Premium, we must receive your instructions in ample time to
permit us to effect a tender of Original Securities on your behalf before the
applicable Expiration Time.
7. Tenders of Original Securities may only be withdrawn (and Consents
thereby may only be revoked) before the earlier of (1) the Early Expiration Time
and (2) 5:00 p.m., New York City time, on the date that Tenneco publicly
announces it has received the required consents to amend the indenture under
which Tenneco issued the Original Securities.
8. Any transfer taxes with respect to the sale and transfer of any Original
Securities pursuant to the Exchange Offers will be paid by Tenneco, except as
otherwise provided in Instruction 5 of the Letter of Transmittal.
If you wish to have us tender any or all of your Original Securities and
Consent to the Proposed Amendments, please complete, detach and return to us the
instruction form set forth below. An envelope to return your instructions is
enclosed. Your instructions should be forwarded to us in ample time to permit us
to submit a tender and Consent on your behalf by the Early Exchange Time or
applicable Expiration Time, as the case may be.
Exchange Offers are not being made to, and Consents are not being solicited
from (nor will tenders of Original Securities be accepted from or on behalf of),
holders in any jurisdiction in which the Exchange Offers or Consent
Solicitation, or the acceptance thereof, would not be in compliance with the
laws of that jurisdiction. However, Tenneco may, in its sole discretion, take
such action as it may deem necessary to make the Exchange Offers and solicit
Consents in any such jurisdiction, and may extend the Exchange Offers to, and
solicit Consents from, holders in that jurisdiction.
3
<PAGE> 4
INSTRUCTION WITH RESPECT TO EXCHANGE OFFERS
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus of Tenneco and Packaging dated [ ], 1999, and the
related Letter of Transmittal in connection with the Exchange Offers and Consent
Solicitation by Tenneco.
This will instruct you to: (a) tender the Original Securities indicated
below held by you for the account of the undersigned, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal; and (b) Consent to the Proposed Amendments and the execution of a
supplemental indenture relating thereto with respect to the Original Securities
tendered, as described in the Prospectus.
- ------------------------------------------------------
Signature
- ------------------------------------------------------
Name (Please Print)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Address
- ------------------------------------------------------
Daytime Phone
- ------------------------------------------------------
Dated
- ------------------------------------------------------
Signature
(If more than one account holder)
- ------------------------------------------------------
Name (Please Print)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Address
- ------------------------------------------------------
Daytime Phone
- ------------------------------------------------------
Dated
Type of Original Securities to be tendered
and as to which Consent is given:
<TABLE>
<CAPTION>
ORIGINAL SECURITY BEING TENDERED (CHECK ONLY ONE*): PRINCIPAL AMOUNT TENDERED**
--------------------------------------------------- ---------------------------
<S> <C>
[ ]
[ ]
[ ] [TO COME]
[ ]
[ ]
[ ]
[ ]
</TABLE>
- ------------------------
* A separate instruction must be completed for each type of Original Security
tendered.
** The tender of Original Securities will constitute a Consent to the Proposed
Amendments and the execution of a supplemental indenture relating thereto, as
described in the Prospectus.
4
<PAGE> 1
EXHIBIT 99.4
LETTER TO HOLDERS MORGAN STANLEY DEAN WITTER
OF PHYSICAL SECURITIES CREDIT SUISSE FIRST BOSTON
[$ ]
EXCHANGE OFFERS AND CONSENT SOLICITATION
OUTSTANDING DEBT SECURITIES OF TENNECO INC.
(TO BE RENAMED TENNECO AUTOMOTIVE INC.)
EXCHANGED FOR
NEW DEBT SECURITIES OF TENNECO PACKAGING INC.
(TO BE RENAMED)
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY, ON
, 1999, UNLESS EXTENDED ("THE EARLY EXCHANGE
TIME") OR EARLIER TERMINATED. HOLDERS MUST TENDER BEFORE THE EARLY EXCHANGE TIME
TO BE ELIGIBLE TO RECEIVE THE EARLY EXCHANGE PREMIUM, AS DESCRIBED BELOW.
TENDERED SECURITIES MAY BE WITHDRAWN AND CONSENTS MAY BE REVOKED AT ANY TIME
BEFORE THE EARLIER OF (1) THE EARLY EXCHANGE TIME AND (2) 5:00 P.M., NEW YORK
CITY TIME, ON THE DATE THAT TENNECO PUBLICLY ANNOUNCES IT HAS RECEIVED THE
REQUIRED CONSENTS, AS DESCRIBED BELOW.
, 1999
To Holders of Physical Securities:
We have been appointed by Tenneco Inc., a Delaware corporation ("Tenneco"),
to act as Dealer Managers in connection with the offers to exchange, upon the
terms and subject to the conditions set forth in the Prospectus and Consent
Solicitation of Tenneco and Tenneco Packaging Inc. (to be renamed), a Delaware
corporation ("Packaging"), dated , 1999 (the "Prospectus"), and in the
related Letter of Consent/Transmittal enclosed herewith (the "Letter of
Transmittal"), up to [$ ] aggregate principal amount of newly issued
debt securities (the "New Securities") of Packaging for any and all of the
[$ ] aggregate principal amount of certain outstanding securities
issued by Tenneco (the "Original Securities") described herein (each such offer
is referred to individually as an "Exchange Offer" and collectively as the
"Exchange Offers"). In connection with the Exchange Offers, Tenneco is
soliciting consents ("Consents") to amendments to the indenture under which
Tenneco issued the Original Securities that would eliminate the restrictions on
Tenneco's operations currently included in that indenture (the "Consent
Solicitation").
For each $1,000 principal amount of Original Securities validly tendered
and accepted for exchange, Tenneco is offering (1) $1,000 principal amount of
the corresponding series of Packaging's New Securities, as
<PAGE> 2
shown in the table below, plus (2) the "Early Exchange Premium" shown in the
table below for holders who validly tender their Original Securities before the
Early Exchange Time.
<TABLE>
<CAPTION>
FOR EACH: EXCHANGING HOLDERS WILL RECEIVE:
- ---------------------------------- ----------------------------------------
AGGREGATE $1,000 PRINCIPAL AMOUNT EARLY
PRINCIPAL OF TENNECO'S ORIGINAL $1,000 PRINCIPAL AMOUNT EXCHANGE
AMOUNT SECURITIES OF PACKAGING'S NEW SECURITIES PREMIUM*
- --------- ----------------------- ----------------------------- --------
<S> <C> <C> <C>
[To come]
</TABLE>
- ---------------
* Tenneco will pay the Early Exchange Premium only for Original Securities
validly tendered before the Early Exchange Time, and only if Tenneco accepts
those Original Securities for exchange.
Tenneco will also pay accrued but unpaid interest on Original Securities
exchanged through the date Tenneco accepts them for exchange. If, however,
Tenneco accepts for exchange any particular series of Original Securities after
an interest record date for that series and on or before the related interest
payment date, accrued but unpaid interest will instead be paid to the holder of
those Original Securities as of the record date (if different from the tendering
holder).
ANY NEW SECURITIES ISSUED TO YOU IN EXCHANGE FOR YOUR ORIGINAL SECURITIES
WILL BE ISSUED ONLY IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST COMPANY
("DTC"), WHICH MEANS THAT YOU WILL NOT RECEIVE A CERTIFICATE EVIDENCING ANY NEW
SECURITIES THAT ARE ISSUED TO YOU.
Subject to the terms and conditions of each Exchange Offer and the Consent
Solicitation and applicable law, Tenneco will make payment for the Original
Securities accepted for exchange by depositing with The Chase Manhattan Bank, as
exchange agent (the "Exchange Agent"): (1) New Securities (in book-entry form);
(2) cash for the payment of any applicable Early Exchange Premium; and (3) cash
for the payment of any applicable accrued but unpaid interest on Original
Securities. This will occur on the first New York Stock Exchange trading day
after Tenneco accepts the related Original Securities for exchange. The Exchange
Agent will act as agent for the tendering holders for the purpose of receiving
payments and/or New Securities (in book-entry form) from Tenneco and then
delivering payments and/or New Securities (in book-entry form) to or at the
direction of those holders. The Exchange Agent will make this delivery on the
same day Tenneco deposits payment for the related Original Securities, or as
soon thereafter as practicable.
For your information, we are enclosing the following documents:
1. The Prospectus;
2. The Letter of Transmittal to be used by you to tender your Original
Securities and to Consent to the proposed amendments (as described in
the Prospectus);
3. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
4. A return envelope addressed to the Exchange Agent.
If you decide to tender any or all of the Original Securities that you hold
in the Exchange Offers, you must complete the accompanying Letter of Transmittal
and send it, with any other required documents, to the Exchange Agent at one of
the addresses indicated on the front of the Letter of Transmittal, in compliance
with the procedures described in the Prospectus and in the Letter of
Transmittal. To receive your New Securities in book-entry form, you will need to
contact a broker, dealer, commercial bank, trust company or other nominee in
order to provide the necessary DTC account information on the Letter of
Transmittal (see Instruction 1 of
2
<PAGE> 3
the Letter of Transmittal) and inform them that delivery of the New Securities
will be made through a DTC deposit transaction. Failure to provide the necessary
account information may result in your tender being rejected or may cause a
delay in confirmation of your New Securities, as well as a delay in payment of
any applicable Early Exchange Premium or accrued but unpaid interest on your
Original Securities that are exchanged. The Letter of Transmittal requires you
to provide other information as well, so please be sure to follow the
instructions carefully.
Questions and requests for assistance should be addressed to either of the
Dealer Managers at the addresses and telephone numbers set forth on the back
cover page of the enclosed Prospectus. Requests for additional copies of the
enclosed materials should be addressed to Georgeson & Company Inc., the
Information Agent for the Exchange Offers, at its address and telephone number
set forth on the back cover page of the enclosed Prospectus. Such additional
copies will be furnished promptly at Tenneco's expense.
Very truly yours,
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
3
<PAGE> 1
EXHIBIT 99.5
Consents to be a director of Packaging of the following persons:
- Mark Andrews
- Larry D. Brady
- Roger B. Porter
- Paul T. Stecko
FOR DIRECTORS AND OFFICERS OF TENNECO PACKAGING INC. AFTER THE SPIN-OFF:
The undersigned does hereby consent to the being appointed or continuing
to serve as a director and/or officer of Tenneco Packaging Inc., a Delaware
corporation (the "CORPORATION"), in connection with the spin-off of the
Corporation by Tenneco Inc., which is currently the parent corporation of the
Corporation. The undersigned further consents to being named as a director
and/or officer of the Corporation, as applicable, in any filing made by the
Corporation or any of its affiliates with the Securities and Exchange
Commission in connection with the spin-off and agrees to serve as such a
director and/or officer for the term provided in the by-laws of the Corporation.
Dated: August 5, 1999
/s/ MARK ANDREWS
--------------------------------
Name: Mark Andrews
FOR DIRECTORS AND OFFICERS OF TENNECO PACKAGING INC. AFTER THE SPIN-OFF:
The undersigned does hereby consent to the being appointed or continuing
to serve as a director and/or officer of Tenneco Packaging Inc., a Delaware
corporation (the "CORPORATION"), in connection with the spin-off of the
Corporation by Tenneco Inc., which is currently the parent corporation of the
Corporation. The undersigned further consents to being named as a director
and/or officer of the Corporation, as applicable, in any filing made by the
Corporation or any of its affiliates with the Securities and Exchange
Commission in connection with the spin-off and agrees to serve as such a
director and/or officer for the term provided in the by-laws of the Corporation.
Dated: August 14, 1999
/s/ LARRY D. BRADY
--------------------------------
Name: Larry D. Brady
FOR DIRECTORS AND OFFICERS OF TENNECO PACKAGING INC. AFTER THE SPIN-OFF:
The undersigned does hereby consent to the being appointed or continuing
to serve as a director and/or officer of Tenneco Packaging Inc., a Delaware
corporation (the "CORPORATION"), in connection with the spin-off of the
Corporation by Tenneco Inc., which is currently the parent corporation of the
Corporation. The undersigned further consents to being named as a director
and/or officer of the Corporation, as applicable, in any filing made by the
Corporation or any of its affiliates with the Securities and Exchange
Commission in connection with the spin-off and agrees to serve as such a
director and/or officer for the term provided in the by-laws of the Corporation.
Dated: August 19, 1999
/s/ ROGER B. PORTER
--------------------------------
Name: Roger B. Porter
FOR DIRECTORS AND OFFICERS OF TENNECO PACKAGING INC. AFTER THE SPIN-OFF:
The undersigned does hereby consent to the being appointed or continuing
to serve as a director and/or officer of Tenneco Packaging Inc., a Delaware
corporation (the "CORPORATION"), in connection with the spin-off of the
Corporation by Tenneco Inc., which is currently the parent corporation of the
Corporation. The undersigned further consents to being named as a director
and/or officer of the Corporation, as applicable, in any filing made by the
Corporation or any of its affiliates with the Securities and Exchange
Commission in connection with the spin-off and agrees to serve as such a
director and/or officer for the term provided in the by-laws of the Corporation.
Dated: August 7, 1999
/s/ PAUL T. STECKO
--------------------------------
Name: Paul T. Stecko
