<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-14617
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 5, 1996)
$400,000,000
EL PASO NATURAL GAS COMPANY
$200,000,000 % NOTES DUE 2003
$200,000,000 % DEBENTURES DUE 2026
The % Notes Due 2003 (the "Notes") and the % Debentures Due 2026 (the
"Debentures" and, collectively with the Notes, the "Offered Securities") are
being issued by El Paso Natural Gas Company, a Delaware corporation. Interest
on the Offered Securities will be payable semi-annually on and of
each year, commencing , 1997. The Notes will mature on , 2003, and
the Debentures will mature on , 2026. The Offered Securities are not
redeemable prior to maturity and do not provide for any sinking fund. The
Offered Securities will constitute unsubordinated and unsecured obligations of
the Company, ranking pari passu in right of payment with all other
unsubordinated and unsecured obligations of the Company. See "Description of
Offered Securities".
The Notes and the Debentures will each be represented by a Global Security
registered in the name of the nominee of The Depository Trust Company ("DTC"),
which will act as securities depositary. Beneficial interests in such Global
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its direct and indirect participants.
Except as described herein, Offered Securities in definitive form will not be
issued. See "Description of Offered Securities--Book-Entry System".
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 FOR CERTAIN RISK FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE
OFFERED SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
Per Debenture.............................. % % %
Total...................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against or make
contributions relating to certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting".
(3) Before deduction of estimated expenses of $900,000 in the aggregate payable
by the Company.
The Offered Securities are offered severally by the Underwriters, subject to
prior sale, when, as and if issued to and accepted by the Underwriters, and
subject to approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Offered Securities will be made on or about ,
1996 in New York, New York against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
THE DATE OF THE PROSPECTUS SUPPLEMENT IS , 1996.
<PAGE>
EL PASO/TENNECO ENERGY U.S. OPERATIONS
[U.S. MAP APPEARS HERE]
El Paso Tenneco
------- -------
Cornerstone 100%
Altamont Gas Transmission
(proposed) 53 1/3%
Midwestern Gas Transmission 100%
East Tennessee Natural Gas 100%
Tennessee Gas Pipeline 100%
D-T Line 40%
A/S Pipeline 50%
Oasis Pipeline 30%
EPNG Pipeline System 100%
Mojave Pipeline 100%
TransColorado 33 1/3%
Overthrust Pipeline 18%
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
Capitalized terms used in this Prospectus Supplement but not defined herein
have the meanings assigned to them in the accompanying Prospectus if defined
therein; otherwise such capitalized terms shall have the meanings assigned to
them in the Company's Joint Proxy Statement-Prospectus, dated November 4, 1996
(the "Joint Proxy Statement-Prospectus"), filed as an exhibit to the Company's
Current Report on Form 8-K/A, dated November 5, 1996 (the "November Current
Report") incorporated by reference in the accompanying Prospectus. References
herein to the "Company", "EPG" and "El Paso" refer to El Paso Natural Gas
Company.
THE COMPANY
The Company is a Delaware corporation which was incorporated in 1928. In
recognition of changes in the natural gas industry and the manner in which EPG
manages its businesses, and in order to facilitate a more detailed
understanding of the various activities in which it engages, EPG began doing
business under the name El Paso Energy Corporation (effective April 22, 1996)
and has segregated its business activities into three business segments: (i)
natural gas transmission, (ii) field and merchant services, and (iii) corporate
and other.
The natural gas transmission segment includes one of the nation's largest
mainline natural gas transmission systems, connecting natural gas supply
regions in New Mexico, Texas, Oklahoma, and Colorado to markets in California,
Nevada, Arizona, New Mexico, Texas, and northern Mexico. The transmission
system consists of approximately 10,000 miles of pipeline and is connected to
one of the most prolific supply basins in the nation, the San Juan Basin of
northern New Mexico and southern Colorado.
The field and merchant services segment provides field services, including
gathering, products extraction, dehydration, purification and compression. In
addition, the field and merchant services segment purchases, markets and trades
natural gas, natural gas liquids, power and other energy commodities, and
provides risk management activities associated with these commodities. This
segment has approximately 7,900 miles of gathering lines and 64,000 horsepower
of compression located in the San Juan, Anadarko and Permian Basins, and in
East Texas and Louisiana.
The corporate and other segment includes El Paso Energy International,
through which EPG conducts its international activities, and other corporate
activities.
EPG's principal executive offices are located at One Paul Kayser Center, 100
North Stanton Street, El Paso, Texas 79901, and its telephone number at that
address is (915) 541-2600. Upon consummation of the Merger (as defined below),
if it occurs, EPG's principal executive offices will be located at 1010 Milam
Street, Houston, Texas, and its telephone number at that address will be (713)
757-2131.
RECENT DEVELOPMENTS
OVERVIEW OF THE PROPOSED MERGER WITH TENNECO
On June 19, 1996, EPG, El Paso Merger Company, an indirect wholly owned
subsidiary of EPG ("El Paso Subsidiary"), and Tenneco Inc. ("Tenneco") entered
into a definitive merger agreement (as amended and supplemented from time to
time, the "Merger Agreement"), pursuant to which El Paso Subsidiary will be
merged with and into Tenneco (the "Merger"). Prior to the Merger, Tenneco and
its subsidiaries will undertake various intercompany transfers and
distributions designed to restructure, divide and separate their existing
businesses, assets and liabilities so that all the assets, liabilities and
operations related to their automotive parts, packaging and administrative
services businesses (collectively, the "Industrial Business") and their
shipbuilding business (the "Shipbuilding Business") will be spun-off to
Tenneco's common stockholders (the "Distributions"). The remaining existing and
discontinued operations of Tenneco, consisting primarily of those operations
related to the transmission and marketing of natural gas (the "Energy Business"
or "Tenneco Energy"), will continue to be owned by Tenneco.
S-3
<PAGE>
The Merger is conditioned upon, among other things, the receipt of tax
rulings stating that the Distributions and the Merger are tax-free (which
condition has been satisfied), completion of a debt realignment plan by
Tenneco, certain government approvals and approval of Tenneco's stockholders.
Consideration to be paid by El Paso in the Merger will consist of:
. the retention of approximately $2.65 billion of debt less
approximately $275 million of new preferred stock obligations of
Tenneco following the Merger, subject to certain adjustments;
. the issuance of EPG equity securities valued at approximately $895.9
million, based on a closing price per share on the New York Stock
Exchange Inc. (the "NYSE") of $47.50 for El Paso's Common Stock, par
value $3.00 per share (the "Common Stock"), on November 4, 1996, to
Tenneco's existing common and preferred stockholders, subject to the
formulas set forth in the Merger Agreement; and
. the retention of approximately $600 million of estimated assumed
liabilities related to certain discontinued businesses of Tenneco.
The proposed issuance by EPG (the "Stock Issuance") of up to 23,894,862
shares of Common Stock (or such greater number of shares of Common Stock as may
be required under the Merger Agreement under certain circumstances if the
closing price per share of Common Stock on the NYSE on the day prior to the
vote at the Tenneco Special Meeting (defined below) is less than $31.3875) to
Tenneco stockholders in connection with the transactions contemplated by the
Merger Agreement is being submitted for approval of EPG's stockholders at a
special meeting presently scheduled to be held on December 9, 1996 (the "El
Paso Special Meeting"). If the Stock Issuance is not approved, the Merger is
still expected to be consummated, but EPG will issue to Tenneco stockholders
7,000,000 shares of Common Stock, with the balance of the equity consideration
to consist of depositary shares (the "Depositary Shares"), each representing a
one twenty-fifth fractional interest in a whole share of a new series of EPG
voting preferred stock (the "El Paso Preferred Stock"). Tenneco's stockholders
are being asked to vote on a significant reorganization of Tenneco, of which
the Merger and the Distributions are parts, at a special meeting (the "Tenneco
Special Meeting") to be held on December 10, 1996.
There can be no assurance that the Stock Issuance will be approved.
Furthermore, although EPG believes that all the conditions to the Merger will
be satisfied, there can be no assurance that such conditions will be satisfied
and that the Merger will be consummated.
DESCRIPTION OF THE TRANSACTION
The Distributions, Merger and amendment to the Certificate of Incorporation
of Tenneco (the "Charter Amendment") are separate parts of the proposed
reorganization of Tenneco (the "Transaction"), none of which will be
consummated unless the Transaction as a whole is approved at the Tenneco
Special Meeting (although Tenneco may elect subsequently to proceed with one or
more of the transactions included in the Transaction which do not require
stockholder approval if the Transaction is not approved). The following sets
forth the principal transactions which constitute parts of, and will be
undertaken to consummate, the Transaction.
NPS Issuance. Tenneco will issue (the "NPS Issuance") in a registered public
offering shares of one or more new series of its junior preferred stock (the
"Tenneco Junior Preferred Stock") in an amount calculated, to the extent
possible, to have an aggregate value equal to approximately 25% of the total
value of all shares of Tenneco capital stock outstanding as of the effective
time of the Merger (the "Merger Effective Time"). Holders of Tenneco Junior
Preferred Stock will have the right to elect one-sixth of the Board of
Directors of Tenneco. The proceeds (the "NPS Issuance Proceeds") to Tenneco
from the sale of the Tenneco Junior Preferred Stock in the NPS Issuance (which
are estimated to be $275 million) will, net of underwriting commissions and
other expenses, be used to repay certain existing indebtedness of Tenneco and
certain of its subsidiaries incurred in connection with the Debt Realignment
(as defined).
S-4
<PAGE>
Debt Realignment. The indebtedness for money borrowed of Tenneco and certain
of its consolidated subsidiaries (the "Tenneco Energy Consolidated Debt") will
be restructured through a series of tender offers, exchange offers, payments,
redemptions, prepayments and defeasances involving Tenneco, New Tenneco Inc., a
Delaware corporation and newly formed, wholly owned subsidiary of Tenneco ("New
Tenneco") and Newport News Shipbuilding Inc., a Delaware corporation and wholly
owned subsidiary of Tenneco ("Newport News") (the "Debt Realignment"). The Debt
Realignment is intended to reduce the total amount of the Tenneco Energy
Consolidated Debt to an amount that, when added to the total amount of certain
other liabilities and obligations of Tenneco Energy outstanding as of the
Merger Effective Time (as so added, the "Actual Energy Debt Amount," described
more fully in the Joint Proxy Statement-Prospectus), equals $2.65 billion, less
the NPS Issuance Proceeds and subject to certain other adjustments described
herein (the "Base Debt Amount"). If the Actual Energy Debt Amount varies from
the Base Debt Amount, the amount of such variance will be accounted for in a
post-Transaction cash payment (the "Debt Cash Adjustment") (i) from New Tenneco
to Tenneco, in the event the Actual Energy Debt Amount exceeds the Base Debt
Amount, or (ii) from Tenneco to New Tenneco, in the event the Actual Energy
Debt Amount is less than the Base Debt Amount.
Corporate Restructuring Transactions. Pursuant to the Distribution Agreement,
dated as of November 1, 1996, among Tenneco, New Tenneco and Newport News (the
"Distribution Agreement"), Tenneco and its subsidiaries will undertake various
intercompany transfers and distributions (collectively, the "Corporate
Restructuring Transactions") designed to restructure, divide and separate their
existing businesses and assets so that, upon consummation of the Distributions,
the assets, liabilities and operations of (i) the Industrial Business will be
directly and indirectly owned and operated by New Tenneco, and (ii) the
Shipbuilding Business will be directly and indirectly owned and operated by
Newport News.
Cash Realignment. The total amount of cash and cash equivalents of Tenneco
and its consolidated subsidiaries (which, as of June 30, 1996, totalled
approximately $229 million) as of the Merger Effective Time will be allocated
$25 million to Tenneco (subject to certain adjustments), $5 million to Newport
News and the balance to New Tenneco (the "Cash Realignment").
The Charter Amendment. Prior to the Merger, Tenneco will file the Charter
Amendment to eliminate the rights, powers and preferences of its junior
preferred stock (certain of which may be preserved in the certificates of
designation for the Tenneco Junior Preferred Stock to be issued in the NPS
Issuance) contained in Tenneco's Certificate of Incorporation, as amended.
The Distributions. On the effective date of the Distributions (the
"Distribution Date"), Tenneco will distribute to all holders of common stock,
par value $5.00 per share, of Tenneco (the "Tenneco Common Stock") of record as
of the close of business on a record date to be specified by the Tenneco Board
of Directors (which Tenneco presently estimates will be on or about the
Distribution Date) (i) one share of New Tenneco common stock, $.01 par value,
for every share of Tenneco Common Stock held, and (ii) one share of Newport
News common stock, $.01 par value, for every five shares of Tenneco Common
Stock held. Cash will be paid in lieu of fractional shares.
The Merger. El Paso Subsidiary will be merged with and into Tenneco, which
will then consist solely of the Energy Business. The consideration to be paid
by EPG in the Merger consists of (i) the retention by Tenneco of any
outstanding Tenneco Energy Consolidated Debt as of the Merger Effective Time
(subject to the Debt Cash Adjustment) and Tenneco's obligations to the holders
of the Tenneco Junior Preferred Stock issued in the NPS Issuance, (ii) the
retention by Tenneco after the Merger of liabilities related to certain
discontinued businesses of Tenneco estimated by EPG to be approximately $600
million, and (iii) the issuance of EPG equity securities to the holders of
Tenneco common and preferred stock, subject to the effect of a collar on the
price of the stock. Tenneco will survive the Merger, with 100% of its common
equity and approximately 75% of its combined equity value at that time held
indirectly by EPG (and the remainder held by the holders of the Tenneco Junior
Preferred Stock issued pursuant to the NPS Issuance).
For further information regarding the Merger, the Transaction, and the
various transactions to be undertaken in connection therewith, see the Joint
Proxy Statement-Prospectus filed as an exhibit to the November Current Report
which is incorporated by reference in the accompanying Prospectus.
S-5
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
THE COMPANY
On October 11, 1996, EPG reported net income of $14 million for the nine
months ended September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
---- ----
(IN MILLIONS EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C>
Revenues............................................. $ 1,938 $ 629
Operating costs and expenses......................... 1,745 468
Employee separation and asset impairment charge...... 99 --
--------- --------
Operating income..................................... 94 161
Other (income) expense, net.......................... (1) (5)
Interest expense..................................... 73 64
--------- --------
Income before income taxes........................... 22 102
Provision for income taxes........................... 8 40
--------- --------
Net income........................................... $ 14 $ 62
========= ========
Earnings per common share............................ $ .40 $ 1.81
========= ========
</TABLE>
Revenues for the nine months ended September 30, 1996 were $1.3 billion
higher than for the same period of 1995. This increase was due primarily to the
acquisition of Eastex Energy Inc., Premier Gas Company, and Cornerstone Natural
Gas Inc.
Operating costs and expenses for the nine months ended September 30, 1996
were $1.2 billion higher than for the same period of 1995. This increase was
due primarily to the acquisition of Eastex Energy Inc., Premier Gas Company,
and Cornerstone Natural Gas Inc. EPG also took a special charge related to
employee separation and asset impairments in the first quarter of 1996.
Earnings per share of Common Stock excluding the special charge would have been
$2.12.
Other income for the nine months ended September 30, 1996 was $4 million
lower than for the same period of 1995 due primarily to a loss on donations and
lower income related to the recovery of certain regulatory assets, partially
offset by a gain on the disposition of property.
Interest expense for the nine months ended September 30, 1996 was $9 million
higher than for the same period of 1995 due primarily to increased short-term
borrowing levels and accruals for a provision for revenues collected subject to
refund.
TENNECO ENERGY
Earnings for Tenneco Energy, which includes certain of Tenneco's corporate
operations, for the nine months ended September 30, 1996 and 1995 are
summarized below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Revenues.............................................. $1,997 $1,368
======== ========
Income before interest expense and income taxes....... $ 264 $ 182
Interest expense...................................... 101 86
Income tax expense.................................... 36 44
-------- --------
Income before extraordinary loss...................... 127 52
Extraordinary loss, net of income tax................. (1) --
-------- --------
Net income............................................ $ 126 $ 52
======== ========
</TABLE>
S-6
<PAGE>
The revenue increase for the Energy Business in 1996 compared to 1995
resulted primarily from higher gas prices as well as benefits from a new rate
case implemented on July 1, 1995. Volumes also increased in both of Tenneco
Energy's regulated and non-regulated operations.
Operating income from regulated operations increased $43 million to $251
million due to benefits derived from the new rate case, increased volume
activity and a reduction in controllable costs. Year ago results also included
$24 million in operating income from Kern River Gas Transmission Company which
was sold in late 1995. Non-regulated operations contributed $31 million in
1996, up $10 million from 1995. The increase is primarily due to higher income
of $10 million from the acquisition of Australian assets and higher earnings of
$14 million from oil and gas production. Also, results in 1995 included a $25
million reserve related to the liquidation of surplus real estate holdings.
OTHER MATTERS
On July 24, 1996, EPG was served with a complaint in the matter of Jack J.
Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District Court for
the District of Columbia. The plaintiff brought this action under the False
Claims Act against several interstate pipelines and others alleging that the
defendants mismeasured natural gas produced from federal and Indian lands,
which deprived the United States of royalties otherwise due it. The plaintiff
seeks, among other things, to recover, on behalf of the United States,
unspecified treble damages, his finder's fee and attorneys' fees. All
defendants have been granted an extension until November 1996 to respond to the
complaint. It is believed that there are valid jurisdictional, procedural and
substantive defenses to the plaintiff's complaint. However, even if the
plaintiff is ultimately entitled to pursue his claims, EPG believes that its
measurement practices are consistent with industry practice and all applicable
standards, regulations, contracts and tariffs and that EPG should not be liable
in any event. Accordingly, based on information available at this time, EPG
does not believe that the ultimate resolution of this matter will have a
material adverse effect on the Company's financial condition.
S-7
<PAGE>
THE OFFERING
Offered Securities.......... $200,000,000 aggregate principal amount of %
Notes Due 2003 and $200,000,000 aggregate
principal amount of % Debentures Due 2026.
Maturity dates.............. , 2003 with respect to the Notes and ,
2026 with respect to the Debentures.
Interest payment dates...... and of each year, commencing ,
1997.
Optional redemption......... None.
Sinking fund................ None.
Ranking..................... The Offered Securities will constitute
unsubordinated and unsecured obligations of the
Company, ranking pari passu in right of payment
with all other unsubordinated and unsecured
indebtedness of EPG.
Covenants................... The indenture governing the Offered Securities
will contain certain covenants, including, but
not limited to, covenants limiting (i) the
creation of liens securing indebtedness, and (ii)
sale and leaseback transactions.
Use of proceeds............. Repayment of short-term indebtedness and for
general corporate purposes.
S-8
<PAGE>
RISK FACTORS
In addition to the other information included in this Prospectus Supplement
and the accompanying Prospectus, the following risk factors should be
considered by prospective purchasers of the Offered Securities.
RISKS RELATED TO THE TRANSACTION
Risk of Non-Consummation of the Transaction
The Distributions, the Merger and the Charter Amendment will not be
consummated unless the Transaction is approved by the stockholders of Tenneco
at the Tenneco Special Meeting. If the Transaction is not approved by
Tenneco's stockholders, El Paso will not be able to consummate the Merger. In
addition, the Distributions and the Merger are subject to certain other
conditions. There can be no assurance that the Transaction will be approved by
Tenneco's stockholders, that such conditions will be satisfied or waived, or
that the Merger will occur.
Increased Fixed Charges if Stock Issuance is Not Approved
The Stock Issuance is being submitted to EPG's stockholders at the El Paso
Special Meeting presently scheduled to be held on December 9, 1996. If the
Stock Issuance is not approved, the Merger is still expected to be consummated
except that EPG will issue to Tenneco stockholders the Depositary Shares
representing interests in El Paso Preferred Stock in lieu of certain shares of
Common Stock that would have been issued had the Stock Issuance been approved.
The issuance of such Depositary Shares would require the Company to incur
significant after-tax dividend expenses. The issuance of the Depositary Shares
could result in a downgrading of the ratings of the securities of EPG and its
subsidiaries, including any senior debt then outstanding, such as the Offered
Securities.
OTHER RISKS
Prospective investors should carefully consider the risk factors appearing
on pages 42 through 53, inclusive, of the Joint Proxy Statement-Prospectus,
which is included as part of the November Current Report incorporated by
reference into the accompanying Prospectus.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus Supplement and the accompanying Prospectus contain or
incorporate by reference forward-looking statements. The factors identified
under "Risk Factors" are important factors (but not necessarily all important
factors) that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, EPG (or
its subsidiaries).
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, EPG cautions
that, while such assumptions or bases are believed to be reasonable and are
made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. Where, in any forward-
looking statement, EPG (or its subsidiaries), or its management, express an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished. The words "believe", "expect" and "anticipate" and
similar expressions identify forward-looking statements.
S-9
<PAGE>
USE OF PROCEEDS
The net proceeds to EPG from the sale of the Offered Securities (the
"Offering") are estimated to be approximately $396 million, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. Of such net proceeds, EPG will use approximately $313 million to
repay short-term indebtedness having a weighted average interest rate of
approximately 5.6% and having maturities of 30 to 180 days. The balance of
such net proceeds from the Offering will be used for general corporate
purposes. See "Capitalization".
CAPITALIZATION
The following table sets forth the unaudited historical cash and
capitalization of EPG at June 30, 1996 and such capitalization (i) as adjusted
to give effect to the Offering and the application of the estimated net
proceeds therefrom, and (ii) as further adjusted to reflect the Merger and the
Refinancing Transactions (as defined below). This table should be read in
conjunction with the Consolidated Financial Statements of EPG and related
notes thereto incorporated by reference herein and the Unaudited Pro Forma
Combined Financial Information included herein.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------------------------------
PRO FORMA EL PASO/
TENNECO ENERGY
EL PASO EL PASO COMBINED
HISTORICAL AS ADJUSTED(a) AS ADJUSTED(b)
---------- -------------- ------------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash.............................. $ 50 $ 133 $ 158
======= ======= =======
Short-term debt:
Current maturities of long-term
debt........................... $ 108 $ 108 $ 108
Commercial paper and bank debt.. 313 -- 330
------- ------- -------
Total short-term debt......... 421 108 438
------- ------- -------
Long-term debt:
Notes offered hereby............ -- 200 200
Debentures offered hereby....... -- 200 200
9.45% Notes, due September 1999. 47 47 47
7 3/4% Notes, due January 2002.. 215 215 215
8 5/8% Debentures, due March
2012........................... 17 17 17
8 5/8% Debentures, due January
2022........................... 258 258 258
Other Debt...................... 133 133 1,647(c)
------- ------- -------
Total long-term debt.......... 670 1,070 2,584
------- ------- -------
Preferred stock of subsidiary..... -- -- 265(d)
------- ------- -------
Stockholders' equity:
Common Stock.................... 112 112 184
Additional paid in capital...... 462 462 1,472
Accumulated earnings............ 114 114 114
------- ------- -------
Total stockholders' equity.... 688 688 1,770
------- ------- -------
Total capitalization.............. $ 1,779 $ 1,866 $ 5,057
======= ======= =======
</TABLE>
- --------
(a) Adjusted to reflect the Offering and the application of $313 million of
the estimated net proceeds thereof to reduce short-term debt, with the
balance of such net proceeds going to cash.
(b) Adjusted to give effect to the Merger and the Refinancing Transactions.
See "Unaudited Pro Forma Financial Information".
(c) Consists primarily of the bank borrowings at Tenneco which will be assumed
by EPG upon consummation of the Merger.
(d) The Tenneco Junior Preferred Stock to be issued prior to consummation of
the Merger is reflected in "Minority interest" in the Unaudited Pro Forma
Combined Balance Sheet. See "Unaudited Pro Forma Financial Information".
S-10
<PAGE>
DESCRIPTION OF OFFERED SECURITIES
The following description of the particular terms of the Offered Securities
supplements, and to the extent inconsistent therewith replaces, the
description in the accompanying Prospectus of the general terms and provisions
of the Debt Securities (as defined in the accompanying Prospectus), to which
description reference is hereby made.
GENERAL
The Notes will mature on , 2003 and will be limited to $200 million
aggregate principal amount. The Debentures will mature on , 2026 and
will be limited to $200 million aggregate principal amount. The Offered
Securities will be unsubordinated and unsecured obligations of the Company and
will rank pari passu in right of payment with all other unsubordinated and
unsecured obligations of the Company. The Notes and the Debentures will each
constitute a series of Debt Securities to be issued under the Indenture dated
as of , 1996 (as amended and supplemented from time to time, the
"Indenture"), between EPG and The Chase Manhattan Bank, as trustee (the
"Trustee"), the terms of which are more fully described in the accompanying
Prospectus. The statements herein concerning the Offered Securities and the
Indenture do not purport to be complete and are qualified in their entirety by
reference to the provisions of the Indenture, including the definitions of
certain terms used herein without definition.
The Offered Securities are not redeemable or repayable prior to maturity and
do not provide for any sinking fund. The Company may purchase Offered
Securities in the open market, by tender or otherwise. Offered Securities so
purchased may be held, resold or surrendered to the Trustee for cancellation.
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and other securities laws and regulations in connection with any such
purchase. The Offered Securities may be defeased in the manner provided in the
Indenture.
Interest on the Notes and Debentures will be payable semi-annually on each
and (each, an "Interest Payment Date"), commencing , 1997.
Interest payable on each Interest Payment Date will include interest accrued
from , 1996 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for. Interest payable on any Interest
Payment Date will be payable to the person in whose name a Note or Debenture
(or any predecessor Note or Debenture) is registered at the close of business
on the or , as the case may be, next preceding such Interest Payment
Date. Interest shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.
BOOK-ENTRY SYSTEMS
DTC will act as securities depositary for the Offered Securities. The
Offered Securities will be issued in fully registered form in the name of Cede
& Co. (DTC's nominee). One or more fully registered certificates will be
issued as Global Securities for each of the Notes and Debentures in the
aggregate principal amount of the Notes and Debentures, and will be deposited
with DTC.
DTC has advised EPG and the Underwriters that it intends to follow the
procedures described below:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, 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 holds securities that its participants
("Direct Participants") deposit with DTC. DTC also facilitates the
settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Direct Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is
owned by a number
S-11
<PAGE>
of its Direct Participants and by the NYSE, the American Stock Exchange,
Inc. and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and
dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants" and, together with Direct Participants,
"Participants"). The rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission.
Purchases of Offered Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Offered
Securities on DTC's records. The ownership interest of each actual
purchaser of Offered Securities ("Beneficial Owner") is in turn to be
received on the Participants' records. Beneficial Owners will not receive
written confirmation from DTC on their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Offered Securities are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Offered
Securities except in the event that use of the book-entry system for the
Offered Securities is discontinued.
To facilitate subsequent transfers, all Offered Securities deposited by
Direct Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Debt Securities with DTC and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
Offered Securities. DTC's records reflect only the identity of the Direct
Participants to whose accounts such Offered Securities are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Participants to Beneficial Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Offered Securities. Under its usual procedures, DTC would mail an Omnibus
Proxy to EPG as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Offered Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Offered Securities will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on the
payable date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment
on the payment date. Payments by Participants to Beneficial Owners 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 "street name", and will be the responsibility of such
Participant and not of DTC, EPG or the Trustee, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of EPG or the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursements of such payments to the Beneficial
Owners shall be the responsibility of Participants.
Settlement for the Offered Securities will be made by the Underwriters in
immediately available funds and all applicable payments of principal and
interest on the Offered Securities issued as Global Securities will be made by
EPG in immediately available funds.
So long as DTC, or its nominee, is the registered owner of the Global
Securities, DTC or its nominee, as the case may be, will be considered the
sole owner or Holder (as defined in the Indenture) of the Offered Security
S-12
<PAGE>
represented by such Global Security for all purposes under the Indenture.
Except as set forth below, owners of beneficial interests in a Global Security
will not be entitled to have Offered Securities represented by a Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Offered Securities in definitive form and will not be
considered the owners or Holders thereof under the Indenture. Accordingly,
each person owning a beneficial interest in a Global Security must rely on the
procedures of DTC and, if such person is not a Participant, those of the
Participants through which such person owns its interest, in order to exercise
any rights of a Holder under the Indenture.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer beneficial interests in the Global
Securities.
DTC may discontinue providing its service as securities depositary with
respect to the Offered Securities at any time by giving reasonable notice to
EPG or the Trustee. Under such circumstances, if a successor securities
depositary is not obtained, Note or Debenture certificates in fully registered
form, as the case may be, are required to be printed and delivered.
EPG may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, Note or
Debenture certificates in fully registered form, as the case may be, will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that EPG believes to be reliable (including
DTC), but EPG takes no responsibility for the accuracy thereof.
Neither EPG, the Trustee nor the Underwriters will have any responsibility
or obligation to Participants, or the persons for whom they act as nominees,
with respect to the accuracy of the records of DTC, its nominee or any
Participant with respect to any ownership interest in the Offered Securities,
or payments to, or the providing of notice for Participants or Beneficial
Owners.
For other terms of the Offered Securities, see "Description of Debt
Securities" in the accompanying Prospectus.
S-13
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Terms Agreement relating to the Offered Securities, the Company has
agreed to sell to the several Underwriters named below (the "Underwriters"),
and the several Underwriters have agreed to purchase, the principal amounts of
the Notes and Debentures set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF NOTES OF DEBENTURES
----------- ---------------- ----------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation.............................. $ $
Chase Securities Inc. ....................
Goldman, Sachs & Co. .....................
Morgan Stanley & Co. Incorporated.........
------------ ------------
Total................................. $200,000,000 $200,000,000
============ ============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Offered Securities to the public at the public offering prices set
forth on the cover page of this Prospectus Supplement, and to certain dealers
at such prices less a concession not in excess of % of the principal amount
of the Notes and % of the principal amount of the Debentures. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Offered Securities to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has agreed to indemnify the Underwriters against or make
contributions relating to certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
There currently is no public market for the Offered Securities. The Offered
Securities will not be listed on any securities exchange, and there can be no
assurance that there will be a secondary market for the Offered Securities.
From time to time, the Underwriters may make a market in the Offered
Securities; however, at this time no determination has been made as to whether
the Underwriters will make a market in the Offered Securities. Accordingly,
there can be no assurance as to whether an active trading market for the Notes
or the Debentures will develop or as to the liquidity of any trading market
for the Notes or the Debentures.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Offered Securities are
subject to the approval of certain legal matters by counsel to the
Underwriters and to certain other conditions. The Underwriters are committed
to take and pay for all of the Offered Securities if any are taken.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged, and may in the future engage,
in investment banking or commercial banking transactions with the Company.
Donaldson, Lufkin & Jenrette Securities Corporation will be paid certain
customary fees in connection with the Merger and Morgan Stanley & Co.
Incorporated will also receive certain customary fees upon consummation of the
Transaction. From time to time, affiliates of Chase Securities Inc. engage in
general financing and banking transactions with the Company and its affiliates
for which they are paid customary fees. An affiliate of Chase Securities Inc.
is agent for the lenders under the Company's senior credit facility, as well
as the Trustee under the Indenture, and receives customary compensation
therefor. Reference is made to the Joint Proxy Statement-Prospectus for a
description of certain fees that may be paid to certain of the Underwriters in
the event the Transaction is consummated.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for EPG by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York. The validity of the Offered Securities will
be passed upon for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
S-14
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF EL PASO AND TENNECO
ENERGY
ASSUMING THE STOCK ISSUANCE IS APPROVED
The following Unaudited Pro Forma Combined Financial Statements of El Paso
and Tenneco Energy (the "Pro Forma Financial Statements") illustrate the
effect of (i) the Corporate Restructuring Transactions, the Cash and Debt
Realignment, the NPS Issuance and the Distributions (which are all part of the
Transaction discussed elsewhere herein); (ii) the Merger; and (iii) various
transactions with respect to the Energy Business in order to reduce the amount
of outstanding Tenneco debt that would otherwise be outstanding after
consummation of the Transaction, including (x) the monetization of certain
assets of the Energy Business for anticipated net proceeds of approximately
$500 million, and (y) a public equity offering by El Paso of approximately
$200 million and the use of net proceeds thereof to purchase a series of
subordinated preferred stock from Tenneco (the "Refinancing Transactions"). In
addition, as market conditions allow, El Paso may refinance Tenneco's
remaining post-Transaction debt through the sale of senior debt of Tenneco and
/or TGP. The Unaudited Pro Forma Consolidated Balance Sheet has been prepared
as if such transactions occurred on June 30, 1996; the Unaudited Pro Forma
Consolidated Statements of Income have been prepared as if such transactions
occurred as of January 1, 1995.
The Pro Forma Financial Statements reflect El Paso having acquired 100% of
the outstanding Tenneco Common Stock, $7.40 Preferred Stock and $4.50
Preferred Stock. Pursuant to the Merger Agreement, El Paso will acquire an
amount of debt equal to $2.65 billion (subject to certain other adjustments)
less the NPS Issuance Proceeds, will issue approximately $750 million (subject
to the effects of a collar on the average Common Stock market price) of El
Paso equity securities to holders of Tenneco Common Stock, $4.50 Preferred
Stock and $7.40 Preferred Stock, will assume the $275 million of Tenneco
Junior Preferred Stock issued in the NPS Issuance, and will acquire
approximately an estimated amount of $600 million in other liabilities of
certain discontinued businesses of Tenneco for a total purchase price of
approximately $4 billion. El Paso's acquisition of Tenneco will be accounted
for under the purchase method. El Paso stockholders will be asked to vote on
the Stock Issuance at the El Paso Special Meeting (scheduled to be held
December 9, 1996, one day prior to the Tenneco Special Meeting where Tenneco
stockholders will be asked to vote on the Transaction). These pro forma
financial statements reflect the approval of the Stock Issuance. If the Stock
Issuance is not approved, the Merger is still expected to be consummated, but
Tenneco stockholders will receive a combination of Common Stock and Depositary
Shares evidencing El Paso Preferred Stock (see Unaudited Pro Forma Combined
Financial Statements of El Paso and Tenneco Energy Assuming the Stock Issuance
is Not Approved included herein).
A final determination of required purchase accounting adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma combined financial
information. However, management believes that the pro forma adjustments and
the underlying assumptions reasonably present the significant effects of the
Merger and the Refinancing Transactions. In addition, El Paso will undertake a
study to determine the fair value of Tenneco Energy's assets and liabilities
and will revise purchase accounting adjustments upon completion of that study.
Upon consummation of the Merger, the actual financial position and results of
operations of the combined entity will differ, perhaps significantly, from the
pro forma amounts reflected herein because of a variety of factors, including
access to additional information, changes in value and changes in operating
results between the dates of the pro forma financial information and the date
on which the Merger takes place. The Pro Forma Financial Statements are not
necessarily indicative of actual operating results or financial position had
the transactions occurred as of the dates indicated above, nor do they purport
to indicate operating results or financial position which may be attained in
the future.
The pro forma results of operations reflect (i) higher depreciation expense
to give effect to the allocation of excess purchase price and the fair value
of net assets acquired to property, plant and equipment, and (ii) higher
interest expense reflecting the debt assumed as a component of the purchase
price. If the Stock Issuance is not
S-15
<PAGE>
approved, earnings available to common stock would be reduced by the preferred
stock dividends of $28 million and $56 million for the six months ended June
30, 1996 and twelve months ended December 31, 1995, respectively.
The significant adjustments to the pro forma financial position reflect (i)
reductions to cash, receivables and payables and increases to debt for the
Corporate Restructuring Transactions and the Cash and Debt Realignment, (ii)
increases to property, plant and equipment and accrued liabilities and
decreases to regulatory assets for the purchase price allocation, and (iii)
decreases to property, plant and equipment and debt and increases to equity
for asset sales, debt restructuring and equity offerings in connection with
the Merger and the Refinancing Transactions. If the Stock Issuance is not
approved, total equity consideration will not change; however, preferred stock
will increase by $556 million and common stock and additional paid in capital
will decrease by an equal amount.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of El Paso and Tenneco Energy, which are
incorporated by reference herein or in the accompanying Prospectus,
respectively, and the Notes to the Pro Forma Financial Statements included
elsewhere herein. The pro forma adjustments do not reflect any potential
operating efficiencies or cost savings which El Paso believes are achievable
with respect to the combined companies.
The Pro Forma Financial Statements do not give effect to the issuance of the
Offered Securities and the application of the net proceeds from the sale
thereof. If the Offered Securities had been reflected in the Pro Forma
Financial Statements, earnings available to common stock and earnings per
average share of common stock would have been approximately $39 million and
$0.67, respectively, for the six months ended June 30, 1996 and approximately
$157 million and $2.72, respectively, for the 12 months ended December 31,
1995.
S-16
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
ASSUMING THE STOCK ISSUANCE IS APPROVED
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- ------------------------------------------
RESTRUCTURING,
TENNECO REALIGNMENT TENNECO EL PASO/
EL PASO ENERGY AND NPS ENERGY MERGER REFINANCING TENNECO ENERGY
HISTORICAL HISTORICAL ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary
investments........... $ 50 $ 100 $ (36)(d) $ 25 $ $ $ 75
(39)(g)
Receivables............ 367 1,190 (116)(a) 760 1,127
(357)(b)
48 (c)
(5)(d)
Other current assets... 78 138 (23)(c) 118 196
3 (d)
------ ------ ----- ------ ------ ----- ------
Total current assets... 495 1,428 (525) 903 1,398
------ ------ ----- ------ ------ ----- ------
Net property, plant and
equipment.............. 1,989 2,924 (39)(c) 2,885 2,089 (k) (580)(n) 6,383
Other assets and
deferred charges....... 280 1,187 (172)(b) 1,014 (590)(j) 80 (n) 784
(1)(c)
------ ------ ----- ------ ------ ----- ------
Total assets $2,764 $5,539 $(737) $4,802 $1,499 $(500) $8,565
====== ====== ===== ====== ====== ===== ======
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Short-term debt........ $ 421 $ 521 $(521)(f) $ $ $ 330 (o) $ 751
Payables............... 426 532 (111)(a) 222 20 (h) 668
(2)(b)
(197)(f)
Other current
liabilities........... 173 718 (11)(c) 605 120 (j) 898
(20)(b)
(82)(f)
------ ------ ----- ------ ------ ----- ------
Total current
liabilities........... 1,020 1,771 (944) 827 140 330 2,317
Long-term debt.......... 670 1,519 1,290 (f) 2,544 (500)(n) 2,184
(265)(e) (200)(m)
(330)(o)
Other liabilities and
deferred credits....... 82 652 (17)(b) 594 151 (j) 827
(41)(d)
Deferred income taxes... 264 413 (13)(b) 401 479 (l) 1,144
1 (c)
------ ------ ----- ------ ------ ----- ------
2,036 4,355 11 4,366 770 (700) 6,472
------ ------ ----- ------ ------ ----- ------
Minority interest....... 40 18 18 265(k) 323
------ ------ ----- ------ ------ ----- ------
Preferred stock with
mandatory redemption
provisions............. 112 112 (112)(i)
------ ------ ----- ------ ------ ----- ------
Stockholders' equity:
Preferred Stock........ 265 (e) 265 (265)(k)
Common Stock........... 112 57 (i) 15 (m) 184
Additional Paid In
Capital............... 462 825 (i) 185 (m) 1,472
Accumulated Earnings... 114 114
Tenneco Combined
Equity................ 1,054 (5)(a) 41 (41)(k)
(477)(b)
(5)(c)
3 (d)
(490)(f)
(39)(g)
------ ------ ----- ------ ------ ----- ------
Total stockholders'
equity.............. 688 1,054 (748) 306 576 200 1,770
------ ------ ----- ------ ------ ----- ------
Total liabilities and
stockholders' equity $2,764 $5,539 $(737) $4,802 $1,499 $(500) $8,565
====== ====== ===== ====== ====== ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
S-17
<PAGE>
EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
ASSUMING THE STOCK ISSUANCE IS APPROVED
RESTRUCTURING, REALIGNMENT AND NPS ISSUANCE:
(a) To reflect the settlement of intercompany trade accounts receivable and
intercompany trade accounts payable with Tenneco Energy affiliates.
(b) To reflect the distribution to New Tenneco of receivables previously sold
to Tenneco Credit Corporation, a Tenneco Energy affiliate.
(c) To reflect the transfer from Tenneco Energy to New Tenneco and affiliates
of certain assets and liabilities held at the corporate level.
(d) To reflect the transfer to New Tenneco of insurance liabilities and the
related portfolio of short-term cash investments and other assets
previously held by Eastern Insurance Company Limited.
(e) To reflect the NPS Issuance of $275 million of Tenneco Junior Preferred
Stock, with an assumed 8 1/2% dividend yield, for net NPS Issuance
Proceeds of $265 million, and the use of the net NPS Issuance Proceeds for
the repayment of Tenneco Energy Consolidated Debt.
(f) To reflect the restructuring and realignment of the Tenneco debt pursuant
to the Debt Realignment, the Distributions and the applicable provisions
of the Merger Agreement, and the assumed payment of accrued interest on
the Tenneco Energy Consolidated Debt defeased, redeemed, tendered or
exchanged as part of the Debt Realignment. The Pro Forma Financial
Statements assume no such reduction in the Base Debt Amount. The amount of
"Tenneco Energy as Adjusted" debt immediately prior to the Merger will
consist primarily of borrowings under the Tenneco Credit Facility
(assuming 100% acceptance of the Debt Tender Offers and Debt Exchange
Offers) and is calculated from the provisions of the Merger Agreement as
follows (in millions):
<TABLE>
<S> <C>
Base Debt Amount per Merger Agreement................................ $2,650
Less: NPS Issuance Proceeds.......................................... (275)
------
2,375
Plus: Cash settlement payments....................................... 439
Less: Estimated collections subject to refund........................ (270)
------
"Tenneco Energy as Adjusted" debt.................................... $2,544
======
</TABLE>
At this time, Tenneco management cannot determine the ultimate amount of
securities which will be purchased in the Debt Tender Offers, or the
ultimate amount of securities which will be exchanged into New Tenneco
Public Debt pursuant to the Debt Exchange Offers, and such amount could
vary significantly. However, for purposes of these pro forma adjustments,
it is assumed that 100% of the securities subject to the Debt Tender Offers
are purchased pursuant to the Debt Tender Offers and 100% of the securities
subject to the Debt Exchange Offers are exchanged into New Tenneco Public
Debt pursuant to the Debt Exchange Offers.
(g) To reflect distribution from Tenneco Energy of cash in excess of $25
million pursuant to the Cash Realignment provisions of the Merger
Agreement. The distribution may be adjusted by the sale of Tenneco Energy
receivables by Tenneco prior to the Merger Effective Time.
MERGER ADJUSTMENTS:
(h) To reflect the liability for the estimated legal, investment banking and
stock issuance costs of $20 million to be incurred by El Paso in
connection with the Merger.
(i) To reflect the issuance of approximately 18.930 million shares of Common
Stock valued at $882 million based on an assumed price of $46.60 per share
(such assumed price is based on the average of the per share closing
prices on the NYSE of Common Stock during the 20 consecutive trading days
ended October 28). If the Stock Issuance is not approved by the
stockholders of El Paso, the transaction will be consummated by issuing
preferred stock, with an assumed 10% dividend yield, and common stock of
El Paso. See Unaudited Pro Forma Combined Financial Statements of El Paso
and Tenneco Energy Assuming the Stock Issuance is Not Approved included
herein. The Equity Consideration will be issued in exchange for the $112
million of $7.40 Preferred Stock and $4.50 Preferred Stock at an assumed
redemption amount equal to $137 million with the remainder exchanged for
Tenneco Common Stock.
S-18
<PAGE>
(j) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting to record assets acquired and liabilities
assumed at estimated fair value for (i) reduction of certain other assets,
deferred charges and regulatory assets, (ii) revision of benefit plan
assumptions relating to the retiree medical plan obligation, other
employee benefit costs and environmental costs, and (iii) the accrual of
an obligation to New Tenneco which is expected to be paid after completion
of the transaction as a result of the utilization of certain tax benefits
generated by the Debt Realignment. The following adjustments reflect El
Paso management's intended business strategies which may differ from the
business strategies employed by Tenneco Energy management prior to the
Merger (in millions):
<TABLE>
<S> <C>
Other assets and deferred charges...................................... $590
Other liabilities and deferred credits................................. 151
Other current liabilities.............................................. 120
----
$861
====
</TABLE>
(k) The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values as follows
(in millions):
<TABLE>
<S> <C>
Increase property, plant and equipment............................... $2,089
Reduce other assets and deferred charges............................. (590)
Increase current liabilities......................................... (140)
Increase other liabilities and deferred credits...................... (151)
Increase deferred income taxes....................................... (479)
Eliminate Tenneco Energy stockholders' equity:
Tenneco Energy preferred stock..................................... 112
Tenneco Energy equity.............................................. 41
------
Issuance of El Paso Common Stock..................................... $ 882
======
</TABLE>
The allocation above reflects El Paso's internal evaluation of the excess
purchase price and is subject to the completion of an independent appraisal
of the fair value of the property. It is not expected that any excess
purchase price allocated to property, plant and equipment will be allowed
for regulatory purposes or recovered through rates. Should the independent
appraisal not support such allocation to property, plant and equipment, the
excess of total purchase price over the fair value of the net assets
acquired will be reflected as goodwill.
(l) To reflect the increase in deferred income taxes of $479 million which
have been provided for temporary differences after the allocation of the
pro forma purchase price and acquisition adjustments. The following pro
forma adjustments were required for estimated book and tax basis
differences resulting from the allocation of the pro forma purchase price,
at an assumed tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment......................................... $ 815
Other assets.......................................................... (230)
Other liabilities..................................................... (106)
-----
$ 479
=====
</TABLE>
REFINANCING TRANSACTIONS:
(m) To reflect the assumed issuance of $200 million Common Stock to pay down
$200 million of long-term debt acquired pursuant to the Merger.
(n) To reflect the assumed monetization of $500 million of assets through
sales or project financings, at book value, and to reflect El Paso's
remaining $80 million investment in certain Australian projects using the
equity method. These proceeds are used to pay down long-term debt acquired
pursuant to the Merger.
(o) To reflect the replacement of the remaining balance under the Tenneco
Credit Facility with short-term and long-term financing at interest rates
of 6% and 8%, respectively.
S-19
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS APPROVED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- ------------------------------------
RESTRUCTURING, EL PASO/
TENNECO REALIGNMENT TENNECO TENNECO
EL PASO ENERGY AND NPS ENERGY MERGER REFINANCING ENERGY
HISTORICAL HISTORICAL ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,193 $1,370 $ $1,370 $ $ (46)(i) $2,517
Operating costs and
expenses............... 1,065 1,279 (38)(a) 1,241 26 (e) (24)(i) 2,312
4 (f)
Employee separation and
asset impairment
charge................. 99 (2) 99
------ ------ ---- ------ ------ ----- ------
Operating income..... 29 91 38 129 (30) (22) 106
Other (income) expense,
net.................... (1) (97) 33(a) (64) (65)
Interest expenses....... 48 63 42(c) 105 (28)(h) 121
(3)(j)
(1)(i)
------ ------ ---- ------ ------ ----- ------
Income (loss) before
income taxes and
minority interest... (18) 125 (37) 88 (30) 10 50
Provision for income
taxes (benefit)(1)..... (7) 22 (14)(d) 8 (12)(g) (5)(i) (5)
11 (k)
------ ------ ---- ------ ------ ----- ------
Income (loss) before
minority interest...... (11) 103 (23) 80 (18) 4 55
Minority interest....... 12 (b) 12 12
------ ------ ---- ------ ------ ----- ------
Net income (loss)....... (11) 103 (35) 68 (18) 4 43
Preferred stock
dividends..............
------ ------ ---- ------ ------ ----- ------
Earnings available to
common stock........... $(11) $103 $(35) $ 68 $ (18) $ 4 $ 43
====== ====== ==== ====== ====== ===== ======
Earnings (loss) per
average share of common
stock(2)............... $ (.31) $ .74
====== ======
Number of shares used in
computation of earnings
per common shares
(in thousands)......... 35,264 18,930 4,292 58,486
====== ====== ===== ======
</TABLE>
- --------
(1) The provision for income taxes for Tenneco Energy reflects the realization
of unrecognized deferred tax assets; therefore, the overall effective tax
rate is significantly lower than the assumed statutory rate of 39%. If the
statutory rate had been used, the combined provision for income taxes
would have been $20 million and the pro forma combined amounts for
earnings available to common stock and earnings per average share of
common stock would have been $18 million and $0.31, respectively.
(2) Per share data is calculated using the income applicable to common shares
divided by the pro forma shares outstanding. The pro forma weighted
average common shares outstanding includes the following assumptions: (i)
the issuance of 18.930 million shares of Common Stock to holders of
Tenneco Common Stock, $7.40 Preferred Stock and $4.50 Preferred Stock
under the terms of the Merger, and (ii) the assumed issuance of 4.292
million shares of Common Stock at $46.60 per share as part of the
Refinancing Transactions, the proceeds of which will be used to pay down
long-term debt. Earnings per average share of common stock excluding the
employee separation and asset impairment special charge ($60 million after
tax) would be $1.41 and $1.77 per common share for the El Paso Historical
and El Paso/Tenneco Energy Combined presentations, respectively.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
S-20
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS APPROVED
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- ------------------------------------
RESTRUCTURING, EL PASO/
TENNECO REALIGNMENT TENNECO TENNECO
EL PASO ENERGY AND NPS ENERGY MERGER REFINANCING ENERGY
HISTORICAL HISTORICAL ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,038 $1,921 $ $1,921 $ $ (47)(i) $2,912
Operating costs and ex-
penses................. 826 1,843 (93)(a) 1,750 52 (e) (41)(i) 2,595
8 (f)
------ ------ ---- ------ ------ ----- ------
Operating income..... 212 78 93 171 (60) (6) 317
Other (income) expense,
net.................... (7) (190) 84 (a) (106) (113)
Interest expense........ 86 122 95 (c) 217 (56)(h) 238
(6)(j)
(3)(i)
------ ------ ---- ------ ------ ----- ------
Income before income
taxes and minority in-
terest.............. 133 146 (86) 60 (60) 59 192
Provision for income
taxes
(benefit)(1)........... 48 (11) (33)(d) (44) (23)(g) 22 (k) 2
(1)(i)
------ ------ ---- ------ ------ ----- ------
Income before minority
interest............... 85 157 (53) 104 (37) 38 190
Minority interest....... 23 (b) 23 23
------ ------ ---- ------ ------ ----- ------
Net income (loss)....... 85 157 (76) 81 (37) 38 167
Preferred stock divi-
dends..................
------ ------ ---- ------ ------ ----- ------
Earnings available to
common stock........... $ 85 $ 157 $(76) $ 81 $ (37) $ 38 $ 167
====== ====== ==== ====== ====== ===== ======
Earnings (loss) per av-
erage share of common
stock(2)............... $ 2.47 $ 2.89
====== ======
Number of shares used in
computation of earnings
per common share
(in thousands)......... 34,495 18,930 4,292 57,717
====== ====== ===== ======
</TABLE>
- --------
(1) The provision for income taxes for Tenneco Energy reflects the realization
of unrecognized deferred tax assets; therefore, the overall effective tax
rate is significantly lower than the assumed statutory rate of 39%. If
this statutory rate had been used, the combined provision for income taxes
would have been $75 million and the pro forma combined amounts for
earnings available to common stock and earnings per average share of
common stock would have been $94 million and $1.63, respectively.
(2) Per share data is calculated using the income applicable to common shares
divided by the pro forma shares outstanding. The pro forma weighted
average common shares outstanding includes the following assumptions: (i)
the issuance of 18.930 million shares of Common Stock to holders of
Tenneco Common Stock, $7.40 Preferred Stock and $4.50 Preferred Stock
under the terms of the Merger, and (ii) the assumed issuance of 4.292
million shares of Common Stock at $46.60 per share as part of the
Refinancing Transactions, the proceeds of which will be used to pay down
long-term debt.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
S-21
<PAGE>
EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS APPROVED
RESTRUCTURING, REALIGNMENT AND NPS ISSUANCE:
(a) To reflect the earnings impact of the distribution to New Tenneco of
receivables previously sold to Tenneco Credit Corporation, a Tenneco
Energy affiliate, and the related income tax expense effect at an
estimated 39%.
(b) To reflect preferred stock dividends in the Combined Pro Forma Income
Statement on the Tenneco Junior Preferred Stock issued in the NPS Issuance
at an assumed dividend yield of 8 1/2%.
(c) To reflect interest expense on additional debt issued under the Tenneco
Credit Facility. For purposes of the pro forma calculations, an assumed
interest rate of 8% has been used.
(d) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
MERGER ADJUSTMENTS:
(e) To reflect depreciation expense related to the increase in fair value of
property, plant and equipment, depreciated over a 40-year period which
approximates the FERC approved depreciation rate for the regulated
property, plant and equipment of Tenneco Energy prospectively.
(f) To reflect the assumed pro forma postretirement cost for Tenneco Energy
employees.
(g) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
REFINANCING TRANSACTIONS:
(h) To reflect an interest expense reduction relating to debt repaid from
proceeds from the $200 million equity offering and proceeds from the
monetization of $500 million of asset sales and project financings at book
value.
(i) To remove the historical operating results of Tenneco Energy's exploration
and production business which is assumed to be disposed at book value.
(j) To reflect the interest expense reduction relating to the replacement of
the remaining balance under the Tenneco Credit Facility with short-term
and long-term financing at interest rates of 6% and 8%, respectively. A
1/8% change in interest rates would have the impact of increasing total
pro forma interest expense by approximately $1 million and $2 million for
the six months ended June 30, 1996 and the year ended December 31, 1995,
respectively.
(k) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
S-22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF EL PASO AND TENNECO
ENERGY
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
The following Pro Forma Financial Statements illustrate the effect of (i)
the Corporate Restructuring Transactions, the Cash and Debt Realignment, the
NPS Issuance and the Distributions (which are all part of the Transaction
discussed elsewhere herein); (ii) the Merger; and (iii) the Refinancing
Transactions. The Unaudited Pro Forma Consolidated Balance Sheet has been
prepared as if such transactions occurred on June 30, 1996; the Unaudited Pro
Forma Consolidated Statements of Income have been prepared as if such
transactions occurred as of January 1, 1995.
The Pro Forma Financial Statements reflect El Paso having acquired 100% of
the outstanding Tenneco Common Stock, $7.40 Preferred Stock and $4.50
Preferred Stock. Pursuant to the Merger Agreement, El Paso will acquire an
amount of debt equal to $2.65 billion (subject to certain other adjustments)
less the NPS Issuance Proceeds, will issue approximately $750 million (subject
to the effects of a collar on the average Common Stock market price) of El
Paso equity securities to holders of Tenneco Common Stock, $4.50 Preferred
Stock and $7.40 Preferred Stock, will assume the $275 million of Tenneco
Junior Preferred Stock issued in the NPS Issuance, and will acquire
approximately an estimated amount of $600 million in other liabilities of
certain discontinued businesses of Tenneco for a total purchase price of
approximately $4 billion. El Paso's acquisition of Tenneco will be accounted
for under the purchase method. El Paso stockholders will be asked to vote on
the Stock Issuance at the El Paso Special Meeting (scheduled to be held
December 9, 1996, one day prior to the Tenneco Special Meeting where Tenneco
stockholders will be asked to vote on the Transaction). These Pro Forma
Financial Statements assume the Stock Issuance is not approved and
accordingly, reflect Equity Consideration of 7 million shares of Common Stock
plus shares of a new series of El Paso Preferred Stock in accordance with the
Merger Agreement. The preferred stock, which has a twenty year maturity, may
be exchanged for Common Stock at El Paso's option as described elsewhere
herein. If the Stock Issuance is approved, Equity Consideration will consist
entirely of Common Stock (see Unaudited Pro Forma Combined Financial
Statements of El Paso and Tenneco Energy Assuming the Stock Issuance is
Approved included herein).
A final determination of required purchase accounting adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma combined financial
information. However, management believes that the pro forma adjustments and
the underlying assumptions reasonably present the significant effects of the
Merger and the Refinancing Transactions. In addition, El Paso will undertake a
study to determine the fair value of Tenneco Energy's assets and liabilities
and will revise purchase accounting adjustments upon completion of that study.
Upon consummation of the Merger, the actual financial position and results of
operations of the combined entity will differ, perhaps significantly, from the
pro forma amounts reflected herein because of a variety of factors, including
access to additional information, changes in value and changes in operating
results between the dates of the pro forma financial information and the date
on which the Merger takes place. The Pro Forma Financial Statements are not
necessarily indicative of actual operating results or financial position had
the transactions occurred as of the dates indicated above, nor do they purport
to indicate operating results or financial position which may be attained in
the future.
The pro forma results of operations reflect (i) higher depreciation expense
to give effect to the allocation of excess purchase price over the fair value
of net assets acquired to property, plant and equipment (ii) higher interest
expense reflecting the debt assumed in a component of the purchase price, and
(iii) higher preferred stock dividends reflecting the issuance of preferred
stock. If the Stock Issuance is approved, preferred stock dividends would not
be required and earnings available to common stock would be increased by $28
million and $56 million for the six months ended June 30, 1996 and twelve
months ended December 31, 1995, respectively.
The significant adjustments to the pro forma financial position reflect (i)
reductions to cash, receivables and payables and increases to debt for the
Corporate Restructuring Transactions and the Cash and Debt Realignment, (ii)
increases to property, plant and equipment and accrued liabilities and
decreases to regulatory assets for the
S-23
<PAGE>
purchase price allocation, and (iii) decreases to property, plant and
equipment and debt and increases to equity for asset sales, debt restructuring
and equity offerings in connection with the Merger and the Refinancing
Transactions. If the Stock Issuance is approved, total equity consideration
will not change; however, preferred stock will decrease by $556 million and
common stock and additional paid in capital will increase by an equal amount.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of El Paso and Tenneco Energy, which are
incorporated by reference herein or in the accompanying Prospectus,
respectively, and the Notes to the Pro Forma Financial Statements included
elsewhere herein. The pro forma adjustments do not reflect any potential
operating efficiencies or cost savings which El Paso believes are achievable
with respect to the combined companies.
The Pro Forma Financial Statements do not give effect to the issuance of the
Offered Securities and the application of the net proceeds from the sale
thereof. If the Offered Securities had been reflected in the Pro Forma
Financial Statements, earnings available to common stock and earnings per
average share of common stock would have been approximately $11 million and
$0.24, respectively, for the six months ended June 30, 1996 and approximately
$101 million and $2.21, respectively, for the 12 months ended December 31,
1995.
S-24
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- ------------------------------------------
RESTRUCTURING,
TENNECO REALIGNMENT TENNECO EL PASO/
EL PASO ENERGY AND NPS ENERGY MERGER REFINANCING TENNECO ENERGY
HISTORICAL HISTORICAL ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary
investments........... $ 50 $ 100 $ (36)(d) $ 25 $ $ $ 75
(39)(g)
Receivables............ 367 1,190 (116)(a) 760 1,127
(357)(b)
48 (c)
(5)(d)
Other current assets... 78 138 (23)(c) 118 196
3 (d)
------ ------ ----- ------ ------ ----- ------
Total current assets... 495 1,428 (525) 903 1,398
------ ------ ----- ------ ------ ----- ------
Net property, plant and
equipment.............. 1,989 2,924 (39)(c) 2,885 2,089 (k) (580)(n) 6,383
Other assets and
deferred charges....... 280 1,187 (172)(b) 1,014 (590)(j) 80 (n) 784
(1)(c)
------ ------ ----- ------ ------ ----- ------
Total assets $2,764 $5,539 $(737) $4,802 $1,499 $(500) $8,565
====== ====== ===== ====== ====== ===== ======
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Short-term debt........ $ 421 $ 521 $(521)(f) $ $ $ 330 (o) $ 751
Payables............... 426 532 (111)(a) 222 20 (h) 668
(2)(b)
(197)(f)
Other current
liabilities........... 173 718 (11)(c) 605 120 (j) 898
(20)(b)
(82)(f)
------ ------ ----- ------ ------ ----- ------
Total current
liabilities......... 1,020 1,771 (944) 827 140 330 2,317
Long-term debt.......... 670 1,519 1,290 (f) 2,544 (500)(n) 2,184
(265)(e) (200)(m)
(330)(o)
Other liabilities and
deferred credits....... 82 652 (17)(b) 594 151 (j) 827
(41)(d)
Deferred income taxes... 264 413 (13)(b) 401 479 (l) 1,144
1 (c)
------ ------ ----- ------ ------ ----- ------
2,036 4,355 11 4,366 770 (700) 6,472
------ ------ ----- ------ ------ ----- ------
Minority interest....... 40 18 18 265(k) 323
------ ------ ----- ------ ------ ----- ------
Preferred stock with
mandatory
redemption provisions.. 112 112 (112)(i)
------ ------ ----- ------ ------ ----- ------
Stockholders' equity:
Preferred stock........ 265 (e) 265 (265)(k)
556 (i) 556
Common stock........... 112 21 (i) 15 (m) 148
Additional paid in
capital............... 462 305 (i) 185 (m) 952
Accumulated earnings... 114 114
Tenneco combined
equity................ 1,054 (5)(a) 41 (41)(k)
(477)(b)
(5)(c)
3 (d)
(490)(f)
(39)(g)
------ ------ ----- ------ ------ ----- ------
Total stockholders'
equity............. 688 1,054 (748) 306 576 200 1,770
------ ------ ----- ------ ------ ----- ------
Total liabilities and
stockholders' equity $2,764 $5,539 $(737) $4,802 $1,499 $(500) $8,565
====== ====== ===== ====== ====== ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
S-25
<PAGE>
EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
RESTRUCTURING, REALIGNMENT AND NPS ISSUANCE:
(a) To reflect the settlement of intercompany trade accounts receivable and
intercompany trade accounts payable with Tenneco Energy affiliates.
(b) To reflect the distribution to New Tenneco of receivables previously sold
to Tenneco Credit Corporation, a Tenneco Energy affiliate.
(c) To reflect the transfer from Tenneco Energy to New Tenneco and affiliates
of certain assets and liabilities held at the corporate level.
(d) To reflect the transfer to New Tenneco of insurance liabilities and the
related portfolio of short-term cash investments and other assets
previously held by Eastern Insurance Company Limited.
(e) To reflect the NPS Issuance of $275 million of Tenneco Junior Preferred
Stock, with an assumed 8 1/2% dividend yield, for net NPS Issuance
Proceeds of $265 million, and the use of the net NPS Issuance Proceeds for
the repayment of Tenneco Energy Consolidated Debt.
(f) To reflect the restructuring and realignment of the Tenneco debt pursuant
to the Debt Realignment, the Distributions and the applicable provisions
of the Merger Agreement, and the assumed payment of accrued interest on
the Tenneco Energy Consolidated Debt defeased, redeemed, tendered or
exchanged as part of the Debt Realignment. The Pro Forma Financial
Statements assume no such reduction in the Base Debt Amount. The amount of
"Tenneco Energy as Adjusted" debt immediately prior to the Merger will
consist primarily of borrowings under the Tenneco Credit Facility
(assuming 100% acceptance of the Debt Tender Offers and Debt Exchange
Offers) and is calculated from the provisions of the Merger Agreement as
follows (in millions):
<TABLE>
<S> <C>
Base Debt Amount per Merger Agreement................................ $2,650
Less: NPS Issuance Proceeds.......................................... (275)
------
2,375
Plus: Cash settlement payments....................................... 439
Less: Estimated collections subject to refund........................ (270)
------
"Tenneco Energy as Adjusted" debt.................................... $2,544
======
</TABLE>
At this time, Tenneco management cannot determine the ultimate amount of
securities which will be purchased in the Debt Tender Offers, or the
ultimate amount of securities which will be exchanged into New Tenneco
Public Debt pursuant to the Debt Exchange Offers, and such amounts could
vary significantly. However, for purposes of these pro forma adjustments,
it is assumed that 100% of the securities subject to the Debt Tender Offers
are purchased pursuant to the Debt Tender Offers and 100% of the securities
subject to the Debt Exchange Offers are exchanged into New Tenneco Public
Debt pursuant to the Debt Exchange Offers.
(g) To reflect distribution from Tenneco Energy of cash in excess of $25
million pursuant to the Cash Realignment provisions of the Merger
Agreement. The distribution may be adjusted by the sale of Tenneco Energy
receivables by Tenneco prior to the Merger Effective Time.
MERGER ADJUSTMENTS:
(h) To reflect the liability for the estimated legal, investment banking and
stock issuance costs of $20 million to be incurred by El Paso in
connection with the Merger.
(i) To reflect the issuance of approximately 7 million shares of Common Stock
valued at $326 million based on an assumed price of $46.60 per share, plus
shares of a new El Paso preferred stock valued at $556 million, with an
assumed 10% dividend yield. The El Paso Preferred Stock, which has a
twenty-year maturity, may be exchanged for Common Stock at El Paso's
option as described elsewhere herein. The El Paso Equity Consideration
will be issued in exchange for the $112 million of $7.40 Preferred Stock
and $4.50 Preferred Stock at an assumed redemption amount equal to $137
million with the remainder exchanged for Tenneco Common Stock. (If the
Stock Issuance is approved by the stockholders of El Paso, the total value
of the Equity
S-26
<PAGE>
Consideration is the same; however, the transaction will be consummated by
issuing 18.930 million shares of common stock valued at $882 million based
on an assumed price of $46.60 per share. See Unaudited Pro Forma Combined
Financial Statements of El Paso and Tenneco Energy Assuming the Stock
Issuance is Approved included herein.
(j) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting to record assets acquired and liabilities
assumed at estimated fair value for (i) reduction of certain other assets,
deferred charges and regulatory assets, (ii) revision of benefit plan
assumptions relating to the retiree medical plan obligation, other
employee benefit costs and environmental costs, and (iii) the accrual of
an obligation to New Tenneco which is expected to be paid after completion
of the transaction as a result of the utilization of certain tax benefits
generated by the Debt Realignment. The following adjustments reflect El
Paso management's intended business strategies which may differ from the
business strategies employed by Tenneco Energy management prior to the
Merger (in millions):
<TABLE>
<S> <C>
Other assets and deferred charges...................................... $590
Other liabilities and deferred credits................................. 151
Other current liabilities.............................................. 120
----
$861
====
</TABLE>
(k) The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values as follows
(in millions):
<TABLE>
<S> <C>
Increase property, plant and equipment............................... $2,089
Reduce other assets and deferred charges............................. (590)
Increase current liabilities......................................... (140)
Increase liabilities and deferred credits............................ (151)
Increase deferred income taxes....................................... (479)
Eliminate Tenneco Energy stockholders' equity:
Tenneco Energy preferred stock..................................... 112
Tenneco Energy equity.............................................. 41
------
Issuance of El Paso Common Stock..................................... $ 882
======
</TABLE>
The allocation above reflects El Paso's internal evaluation of the excess
purchase price and is subject to the completion of an independent appraisal
of the fair value of the property. It is not expected that any excess
purchase price allocated to property, plant and equipment will be allowed
for regulatory purposes or recovered through rates. Should the independent
appraisal not support such allocation to property, plant and equipment, the
excess of total purchase price over the fair value of the net assets
acquired will be reflected as goodwill.
(l) To reflect the increase in deferred income taxes of $479 million which
have been provided for temporary differences after the allocation of the
pro forma purchase price and acquisition adjustments. The following pro
forma adjustments were required for estimated book and tax basis
differences resulting from the allocation of the pro forma purchase price,
at an assumed tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment......................................... $ 815
Other assets.......................................................... (230)
Other liabilities..................................................... (106)
-----
$ 479
=====
</TABLE>
REFINANCING TRANSACTIONS:
(m) To reflect the assumed issuance of $200 million Common Stock to pay down
$200 million of long-term debt acquired pursuant to the Merger.
(n) To reflect the assumed monetization of $500 million of assets through
sales or project financings, at book value, and to reflect El Paso's
remaining $80 million investment in certain Australian projects using the
equity method. These proceeds are used to pay down long-term debt acquired
pursuant to the Merger.
(o) To reflect the replacement of the remaining balance under the Tenneco
Credit Facility with short-term and long-term financing at interest rates
of 6% and 8%, respectively.
S-27
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- -----------------------------------
RESTRUCTURING, EL PASO/
TENNECO REALIGNMENT TENNECO TENNECO
EL PASO ENERGY AND NPS ENERGY MERGER REFINANCING ENERGY
HISTORICAL HISTORICAL ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,193 $1,370 $ $1,370 $ $ (46)(i) $2,517
Operating costs and
expenses............... 1,065 1,279 (38)(a) 1,241 26 (e) (24)(i) 2,312
4 (f)
Employee separation and
asset impairment
charge................. 99 (2) 99
------ ------ ---- ------ ----- ----- ------
Operating income..... 29 91 38 129 (30) (22) 106
Other (income) expense,
net.................... (1) (97) 33 (a) (64) (65)
Interest expenses....... 48 63 42 (c) 105 (28)(k) 121
(3)(j)
(1)(i)
------ ------ ---- ------ ----- ----- ------
Income (loss) before
income taxes and
minority interest... (18) 125 (37) 88 (30) 10 50
Provision for income
taxes (benefit)(1)..... (7) 22 (14)(d) 8 (12)(h) 11 (l) (5)
(5)(i)
------ ------ ---- ------ ----- ----- ------
Income (loss) before
minority interest... (11) 103 (23) 80 (18) 4 55
Minority interest....... 12 (b) 12 12
------ ------ ---- ------ ----- ----- ------
Net income (loss)...... (11) 103 (35) 68 (18) 4 43
Preferred stock
dividends.............. 28 (g) 28
------ ------ ---- ------ ----- ----- ------
Earnings available to
common stock.......... $ (11) $ 103 $(35) $ 68 $ (46) $ 4 $ 15
====== ====== ==== ====== ===== ===== ======
Earnings (loss) per
average share of common
stock(2)............... $ (.31) $ .33
====== ======
Number of shares used in
computation of earnings
per common shares
(in thousands)......... 35,264 7,000 4,292 46,556
====== ===== ===== ======
</TABLE>
- --------
(1) The provision for income taxes for Tenneco Energy reflects the realization
of unrecognized deferred tax assets; therefore, the overall effective tax
rate is significantly lower than the assumed statutory rate of 39%. If the
statutory rate had been used, the combined provision for income taxes
would have been $20 million and the pro forma combined amounts for
earnings available to common stock and earnings per average share of
common stock would have been $(10) million and $(.21), respectively.
(2) Per share data is calculated using the income applicable to common shares
divided by the pro forma shares outstanding. The pro forma weighted
average common shares outstanding includes the following assumptions: (i)
the issuance of 7 million shares of Common Stock to holders of Tenneco
Common Stock, $7.40 Preferred Stock and $4.50 Preferred Stock under the
terms of the Merger and (ii) the assumed issuance of 4.292 million shares
of Common Stock at $46.60 per share as part of the Refinancing
Transactions, the proceeds of which will be used to pay down long-term
debt. Earnings per average share of common stock excluding the employee
separation and asset impairment special charge ($60 million after tax)
would be $1.41 and $1.61 per common share for the El Paso Historical and
El Paso/Tenneco Energy Combined presentations, respectively.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
S-28
<PAGE>
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- -----------------------------------
RESTRUCTURING, EL PASO/
TENNECO REALIGNMENT TENNECO TENNECO
EL PASO ENERGY AND ENERGY MERGER REFINANCING ENERGY
HISTORICAL HISTORICAL NPS ISSUANCE AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- -------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,038 $1,921 $ $1,921 $ $(47)(i) $2,912
Operating costs and ex-
penses................. 826 1,843 (93)(a) 1,750 52 (e) (41)(i) 2,595
8 (f)
------ ------ ---- ------ ----- ----- ------
Operating income....... 212 78 93 171 (60) (6) 317
Other (income) expense,
net.................... (7) (190) 84 (a) (106) (113)
Interest expense........ 86 122 95 (c) 217 (56)(k) 238
(6)(j)
(3)(i)
------ ------ ---- ------ ----- ----- ------
Income before income
taxes and minority in-
terest.............. 133 146 (86) 60 (60) 59 192
Provision for income
taxes
(benefit)(1)........... 48 (11) (33)(d) (44) (23)(h) 22 (l) 2
(1)(i)
------ ------ ---- ------ ----- ----- ------
Income before minority
interest............... 85 157 (53) 104 (37) 38 190
Minority interest....... 23 (b) 23 23
------ ------ ---- ------ ----- ----- ------
Net income (loss)....... 85 157 (76) 81 (37) 38 167
Preferred stock divi-
dends.................. 56 (g) 56
------ ------ ---- ------ ----- ----- ------
Earnings available to
common stock........... $ 85 $ 157 $(76) $ 81 $ (93) $ 38 $ 111
====== ====== ==== ====== ===== ===== ======
Earnings (loss) per av-
erage share of common
stock(2)............... $ 2.46 $ 2.43
====== ======
Number of shares used in
computation of earnings
per common share
(in thousands)......... 34,495 7,000 4,292 45,787
====== ===== ===== ======
</TABLE>
- --------
(1) The provision for income taxes for Tenneco Energy reflects the realization
of unrecognized deferred tax assets; therefore, the overall effective tax
rate is significantly lower than the assumed statutory rate of 39%. If
this statutory rate had been used, the combined provision for income taxes
would have been $75 million and the pro forma combined amounts for
earnings available to common stock and earnings per average share of
common stock would have been $38 million and $.83, respectively.
(2) Per share data is calculated using the income applicable to common shares
divided by the pro forma shares outstanding. The pro forma weighted
average common shares outstanding includes the following assumptions: (i)
the issuance of 7 million shares of Common Stock to holders of Tenneco
Common Stock, $7.40 Preferred Stock and $4.50 Preferred Stock under the
terms of the Merger, and (ii) the assumed issuance of 4.292 million shares
of Common Stock at $46.60 per share as part of the Refinancing
Transactions, the proceeds of which will be used to pay down long-term
debt.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
S-29
<PAGE>
EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
ASSUMING THE STOCK ISSUANCE IS NOT APPROVED
RESTRUCTURING, REALIGNMENT AND NPS ISSUANCE:
(a) To reflect the earnings impact of the distribution to New Tenneco of
receivables previously sold to Tenneco Credit Corporation, a Tenneco
Energy affiliate and the related income tax expense effect at an estimated
rate of 39%.
(b) To reflect preferred stock dividends in the Combined Pro Forma Income
Statement on the Tenneco Junior Preferred Stock issued in the NPS Issuance
at an assumed dividend yield of 8 1/2%.
(c) To reflect interest expense on additional debt issued under the Tenneco
Credit Facility. For purposes of the pro forma calculations, an assumed
interest rate of 8% has been used.
(d) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
MERGER ADJUSTMENTS:
(e) To reflect depreciation expense related to the increase in fair value of
property, plant and equipment depreciated over a 40 year period which
approximates the FERC approved depreciation rate for the regulated
property, plant and equipment of Tenneco Energy prospectively.
(f) To reflect the assumed pro forma postretirement cost for Tenneco Energy
employees.
(g) To reflect preferred dividends included in the Combined Pro Forma Income
Statement at an assumed dividend yield of 10%. (If the Stock Issuance is
approved by the stockholders of El Paso, the transaction will be
consummated by issuing 18.930 million shares of common stock and no
preferred stock will be issued other than the Tenneco Junior Preferred
Stock, which is reflected as minority interest, and accordingly there will
be no preferred stock dividends. See Pro Forma Financial Information
Assuming the Stock Issuance is Approved included herein.)
(h) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
REFINANCING TRANSACTIONS:
(i) To remove the historical operating results of Tenneco Energy's exploration
and production business which is assumed to be disposed at book value.
(j) To reflect the interest expense reduction relating to the replacement of
the remaining balance under the Tenneco Credit Facility with short-term
and long-term financing at interest rates of 6% and 8%, respectively. A
1/8% change in interest rates would have the impact of increasing total
pro forma interest expense by approximately $1 million and $2 million for
the six months ended June 30, 1996 and the year ended December 31, 1995,
respectively.
(k) To reflect an interest expense reduction relating to debt repaid from
proceeds from the $200 million equity offering and proceeds from the
monetization of $500 million of asset sales and project financings at book
value.
(l) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
S-30
<PAGE>
PROSPECTUS
EL PASO NATURAL GAS COMPANY
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
----------------
El Paso Natural Gas Company ("EPG" or the "Company") may offer and sell from
time to time in one or more series its (i) unsecured debt securities
consisting of notes, debentures or other evidences of indebtedness (the "Debt
Securities"), (ii) shares of preferred stock, $.01 par value (the "Preferred
Stock"), and (iii) shares of common stock, $3.00 par value (the "Common
Stock"). The Debt Securities, the Preferred Stock and the Common Stock offered
hereby are collectively hereinafter referred to as the "Securities". The
Securities will be limited to an aggregate initial public offering price not
to exceed $800,000,000, or, in the case of Debt Securities, the equivalent
thereof in one or more foreign currencies, including composite currencies. The
Securities may be offered, separately or together, in separate series, in
amounts, at prices and on terms to be determined at the time of sale and set
forth in a supplement to this Prospectus (a "Prospectus Supplement").
Certain specific terms of the particular Securities in respect of which this
Prospectus is being delivered will be set forth in a related Prospectus
Supplement, including, where applicable, (i) in the case of Debt Securities,
the specific designation, aggregate principal amount, authorized
denominations, maturities, interest rate or rates (which may be fixed or
variable), the date or dates on which interest, if any, shall be payable, the
place or places where principal of and premium, if any, and interest, if any,
on such Debt Securities of the series will be payable, terms of optional or
mandatory redemption or any sinking fund or analogous provisions, currency or
currencies, or currency unit or currency units of denomination and payment if
other than U.S. dollars, the initial public offering price, terms relating to
temporary or permanent global securities, provisions regarding convertibility,
if any, provisions regarding registration of transfer or exchange, the
proceeds to EPG and other special terms; (ii) in the case of Preferred Stock,
the specific designations, the number of shares, dividend rights (including,
if applicable, the manner of calculation thereof), and any liquidation,
redemption, conversion, voting and other rights, the initial public offering
price and other special terms; and (iii) in the case of Common Stock, the
terms of the offering and sales thereof.
The Securities may be offered and sold to or through underwriters, dealers,
or agents as designated from time to time, or through a combination of such
methods, and also may be offered and sold directly to one or more other
purchasers. See "Plan of Distribution". The names of, and the principal
amounts or number of shares to be purchased by, underwriters, dealers or
agents, and the compensation of such underwriters, dealers or agents,
including any applicable fees, commissions, and discounts, will be set forth
in the related Prospectus Supplement. No Securities may be sold without
delivery of a Prospectus Supplement describing such series or issue of
Securities and the method and terms of offering thereof.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 5, 1996
<PAGE>
AVAILABLE INFORMATION
EPG is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material also may be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Such material also may be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov. EPG's Common Stock is listed
on the New York Stock Exchange (the "NYSE"), and reports, proxy statements and
other information concerning EPG may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
This Prospectus does not contain all of the information set forth in the
Registration Statement, of which this Prospectus is a part, filed with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"). Reference is made to such Registration Statement for further
information with respect to EPG and the Securities offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety
by reference to the copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by EPG pursuant
to the Exchange Act are incorporated herein by reference:
1. EPG's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K");
2. EPG's Quarterly Report on Form 10-Q for the quarterly periods ended March
31, 1996, as amended pursuant to a Form 10-Q/A filed May 15, 1996, and June
30, 1996;
3. The portions of EPG's definitive Proxy Statement for the Annual Meeting of
Stockholders held on April 30, 1996 that have been incorporated by
reference into the Form 10-K;
4. EPG's Current Reports on Form 8-K dated May 2, 1996, and June 28, 1996;
5. EPG's Current Report on Form 8-K dated October 22, 1996, as amended
pursuant to a Form 8-K/A filed November 5, 1996 (the "November Current
Report"); and
6.EPG's Registration Statement on Form 8-A filed with respect to the Common
Stock, as amended to date.
All documents filed by EPG pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained therein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
EPG will provide without charge to each person, including any beneficial
owner of a Security, to whom a copy of this Prospectus is delivered, upon
written or oral request of such person, a copy of any or all documents
incorporated by reference in this Prospectus (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents). Written requests for such copies should be directed to the
Vice President, Investor and Public Relations, El Paso Natural Gas Company,
One Paul Kayser Center, 100 North Stanton Street, El Paso, Texas 79901
(telephone (915) 541-2600).
2
<PAGE>
THE COMPANY
GENERAL
EPG is a Delaware corporation which was incorporated in 1928. In recognition
of changes in the natural gas industry and the manner in which EPG manages its
businesses, and in order to facilitate a more detailed understanding of the
various activities in which it engages, EPG began doing business under the
name El Paso Energy Corporation (effective April 22, 1996) and has segregated
its business activities into three business segments: (i) natural gas
transmission, (ii) field and merchant services, and (iii) corporate and other.
The natural gas transmission segment includes one of the nation's largest
mainline natural gas transmission systems, connecting natural gas supply
regions in New Mexico, Texas, Oklahoma, and Colorado to markets in California,
Nevada, Arizona, New Mexico, Texas, and northern Mexico. The transmission
system consists of approximately 10,000 miles of pipeline and is connected to
one of the most prolific supply basins in the nation, the San Juan Basin of
northern New Mexico and southern Colorado.
The field and merchant services segment provides field services, including
gathering, products extraction, dehydration, purification and compression. In
addition, the field and merchant services segment purchases, markets and
trades natural gas, natural gas liquids, power and other energy commodities,
and provides risk management activities associated with these commodities.
This segment has approximately 7,900 miles of gathering lines and 64,000
horsepower of compression located in the San Juan, Anadarko and Permian
Basins, and in East Texas and Louisiana.
The corporate and other segment includes El Paso Energy International,
through which EPG conducts its international activities, and other corporate
activities.
EPG's principal executive offices are located at One Paul Kayser Center, 100
North Stanton Street, El Paso, Texas 79901, and its telephone number at that
address is (915) 541-2600. Upon consummation of the Merger (as defined below),
if it occurs, EPG's principal executive offices will be located at 1010 Milam
Street, Houston, Texas, and its telephone number at that address will be (713)
757-2131.
THE TENNECO MERGER
On June 19, 1996, EPG, El Paso Merger Company, an indirect wholly owned
subsidiary of EPG ("El Paso Subsidiary"), and Tenneco Inc. ("Tenneco") entered
into a definitive merger agreement (as amended and supplemented from time to
time, the "Merger Agreement"), pursuant to which El Paso Subsidiary will be
merged with and into Tenneco (the "Merger"). Prior to the Merger, Tenneco and
its subsidiaries will undertake various intercompany transfers and
distributions designed to restructure, divide and separate their existing
businesses, assets and liabilities so that all the assets, liabilities and
operations related to their automotive parts, packaging and administrative
services businesses and their shipbuilding business will be spun-off to
Tenneco's common stockholders (the "Distributions"). The remaining existing
and discontinued operations of Tenneco, consisting primarily of those
operations related to the transmission and marketing of natural gas (the
"Energy Business"), will continue to be owned by Tenneco.
The Merger is conditioned upon, among other things, the receipt of tax
rulings stating that the Distributions and the Merger are tax-free (which
condition has been satisfied), completion of a debt realignment plan by
Tenneco, certain government approvals and approval of Tenneco's stockholders.
Consideration to be paid by El Paso in the Merger will consist of:
. the retention of approximately $2.65 billion of debt less
approximately $275 million of new preferred stock obligations of
Tenneco following the Merger, subject to certain adjustments;
. the issuance of EPG equity securities valued at approximately $895.9
million, based on a closing price per share on the NYSE of $47.50
for Common Stock on November 4, 1996, to Tenneco's existing common
and preferred stockholders, subject to the formulas set forth in the
Merger Agreement; and
. the retention of approximately $600 million of estimated assumed
liabilities related to certain discontinued businesses of Tenneco.
3
<PAGE>
The proposed issuance by EPG (the "Stock Issuance") of up to 23,894,862
shares of Common Stock (or such greater number of shares of Common Stock as
may be required under the Merger Agreement under certain circumstances if the
closing price per share of Common Stock on the NYSE on the day prior to the
vote at the Tenneco Special Meeting (as defined below) is less than $31.3875)
to Tenneco stockholders in connection with the transactions contemplated by
the Merger Agreement is being submitted for approval of EPG's stockholders at
a special meeting presently scheduled to be held on December 9, 1996 (the "El
Paso Special Meeting"). If the Stock Issuance is not approved, the Merger is
still expected to be consummated but EPG will issue to Tenneco stockholders
7,000,000 shares of Common Stock, with the balance of the equity consideration
to consist of depositary shares, each representing a fractional interest in a
whole share of a new series of EPG voting preferred stock. Tenneco's
stockholders are being asked to vote on a significant reorganization of
Tenneco, of which the Merger and the Distributions are parts, at a special
meeting (the "Tenneco Special Meeting") to be held on December 10, 1996.
There can be no assurance that the Stock Issuance will be approved.
Furthermore, although EPG believes that all the conditions to the Merger will
be satisfied, there can be no assurance that such conditions will be satisfied
and that the Merger will be consummated.
For further information regarding the Merger and the various transactions to
be undertaken in connection therewith, see EPG's definitive Joint Proxy
Statement-Prospectus relating to the El Paso Special Meeting (the "Joint Proxy
Statement-Prospectus"), which has been filed as an exhibit to the November
Current Report, which November Current Report is incorporated herein by
reference.
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds from
the sale of the Securities will be used for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -----------------------------
1996 1995 1994 1993 1992 1991
-------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Combined
Fixed Charges and Preferred and
Preference Stock Dividend
Requirements..................... -- (a) 2.51x 2.87x 3.04x 2.73x 2.86x
</TABLE>
- --------
(a) Earnings for the six months ended June 30, 1996 were inadequate to cover
fixed charges by $18 million due to a special charge for employee separation
and asset impairments of $99 million pre-tax.
The ratio of earnings to combined fixed charges and preferred and preference
stock dividend requirements for the periods presented is the same as the ratio
of earnings to fixed charges since EPG has no outstanding preferred stock or
preference stock and, therefore, no dividend requirements.
For purposes of calculating these ratios: (i) "fixed charges" represent
interest expense (exclusive of interest on rate refunds), amortization of debt
costs and the portion of rental expense representing the interest factor; and
(ii) "earnings" represent the aggregate of income from continuing operations
before income taxes, interest expense (exclusive of interest on rate refunds),
amortization of debt costs and the portion of rental expense representing the
interest factor.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby will represent unsecured obligations of
EPG. The Debt Securities offered hereby will be issued under an Indenture (the
"Indenture"), between EPG and The Chase Manhattan Bank, as trustee (the
"Trustee"). The Indenture does not limit the aggregate principal amount of
Debt Securities that may be issued thereunder from time to time in one or more
series.
4
<PAGE>
The terms of the Debt Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Debt Securities are subject
to all such terms, and holders of Debt Securities are referred to the
Indenture and the Trust Indenture Act for a statement of those terms.
The statements set forth below in this section are brief summaries of
certain provisions contained in the Indenture, do not purport to be complete,
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Indenture, including the definitions therein of certain
terms, a copy of which Indenture is incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus is a part. Capitalized
terms used in this section and not otherwise defined in this section have the
respective meanings assigned to them in the Indenture.
GENERAL
Reference is made to the Prospectus Supplement relating to the particular
series offered thereby for the terms of such Debt Securities, including where
applicable: (a) the form and title of the Debt Securities; (b) the aggregate
principal amount of the Debt Securities; (c) the date or dates on which the
Debt Securities may be issued; (d) the date or dates on which the principal of
and premium, if any, on the Debt Securities shall be payable; (e) the rate or
rates (which may be fixed or variable) at which the Debt Securities shall bear
interest, if any, and the date or dates from which such interest shall accrue;
(f) the dates on which interest, if any, shall be payable and the record dates
for the interest payment dates; (g) the place or places where the principal of
and premium, if any, and interest, if any, on the Debt Securities of the
series will be payable; (h) the period or periods, if any, within which, the
price or prices at which, and the terms and conditions upon which, the Debt
Securities may be redeemed at the option of EPG or otherwise; (i) any optional
or mandatory redemption or any sinking fund or analogous provisions; (j) if
other than denominations of $1,000 and integral multiples thereof, the
denominations in which the Debt Securities of the series shall be issuable;
(k) if other than the principal amount thereof, the portion of the principal
amount of the Debt Securities which shall be payable upon declaration of the
acceleration of the maturity thereof in accordance with the provisions of the
Indenture; (l) whether payment of the principal of and premium, if any, and
interest, if any, on the Debt Securities shall be without deduction for taxes,
assessments, or governmental charges paid by the holders; (m) the currency or
currencies, or currency unit or currency units, in which the principal of and
premium, if any, and interest, if any, on the Debt Securities shall be
denominated, payable, redeemable or purchasable, as the case may be; (n) any
Events of Default (as defined below) with respect to the Debt Securities that
differ from those set forth in the Indenture; (o) whether the Debt Securities
will be convertible; (p) whether the Debt Securities of such series shall be
issued as a global certificate or certificates and, in such case, the identity
of the depositary for such series; and (q) any other terms not inconsistent
with the Indenture.
If any Debt Securities offered hereby are sold for foreign currencies or
foreign currency units or if the principal of and premium, if any, or
interest, if any, on any series of Debt Securities is payable in foreign
currencies or foreign currency units, the restrictions, elections, tax
consequences, specific terms and other information with respect to such issue
of Debt Securities and such currencies and currency units will be set forth in
the Prospectus Supplement relating thereto.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities offered hereby will be issued only in fully registered
form in denominations of $1,000 or any integral multiple thereof. The Debt
Securities of a series may be issuable in the form of one or more global
certificates, which will be denominated in an amount equal to all or a portion
of the aggregate principal amount of such Debt Securities. See "--Global Debt
Securities".
One or more series of Debt Securities offered hereby may be sold at a
substantial discount below their stated principal amount, bearing no interest
or interest at a rate that at the time of issuance is below market rates. The
5
<PAGE>
Federal income tax consequences and special considerations applicable to any
such series of Debt Securities will be described generally in the Prospectus
Supplement relating thereto.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with, or on
behalf of, a depositary (the "Depositary") identified in the Prospectus
Supplement relating to such series. Unless and until such global certificate
or certificates are exchanged in whole or in part for Debt Securities in
individually certificated form, a global Debt Security may not be transferred
except as a whole to a nominee of the Depositary for such global Debt
Security, or by a nominee for the Depositary to the Depositary, or to a
successor of the Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities and the rights of, and limitations on, owners of beneficial
interests in a global Debt Security representing all or a portion of a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series.
CERTAIN COVENANTS
Limitations on Liens. The Indenture provides that EPG will not, nor will it
permit any Restricted Subsidiary (as defined below) to, create, assume, incur
or suffer to exist any Lien (as defined below) upon any Principal Property (as
defined below), whether owned or leased on the date of the Indenture or
thereafter acquired, to secure any Debt (as defined below) of EPG or any other
Person (as defined below) (other than the Debt Securities issued thereunder),
without in any such case making effective provision whereby all of the Debt
Securities Outstanding thereunder shall be secured equally and ratably with,
or prior to, such Debt so long as such Debt shall be so secured. There is
excluded from this restriction:
(i) any Lien upon any property or assets of EPG or any Restricted
Subsidiary in existence on the date of the Indenture or created pursuant to
an "after-acquired property" clause or similar term in existence on the
date of the Indenture or any mortgage, pledge agreement, security agreement
or other similar instrument in existence on the date of the Indenture;
(ii) any Lien upon any property or assets created at the time of
acquisition of such property or assets by EPG or any Restricted Subsidiary
or within one year after such time to secure all or a portion of the
purchase price for such property or assets or Debt incurred to finance such
purchase price, whether such Debt was incurred prior to, at the time of or
within one year of such acquisition;
(iii) any Lien upon any property or assets existing thereon at the time
of the acquisition thereof by EPG or any Restricted Subsidiary (whether or
not the obligations secured thereby are assumed by EPG or any Restricted
Subsidiary);
(iv) any Lien upon any property or assets of a Person existing thereon at
the time such Person becomes a Restricted Subsidiary by acquisition, merger
or otherwise;
(v) the assumption by EPG or any Restricted Subsidiary of obligations
secured by any Lien existing at the time of the acquisition by EPG or any
Restricted Subsidiary of the property or assets subject to such Lien or at
the time of the acquisition of the Person which owns such property or
assets;
(vi) any Lien on property to secure all or part of the cost of
construction or improvements thereon or to secure Debt incurred prior to,
at the time of, or within one year after completion of such construction or
making of such improvements, to provide funds for any such purpose;
(vii) any Lien on any oil, gas, mineral and processing and other plant
properties to secure the payment of costs, expenses or liabilities incurred
under any lease or grant or operating or other similar agreement in
connection with or incident to the exploration, development, maintenance or
operation of such properties;
(viii) any Lien arising from or in connection with a conveyance by EPG or
any Restricted 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;
6
<PAGE>
(ix) any Lien in favor of EPG or any Restricted Subsidiary;
(x) any Lien created or assumed by EPG or any Restricted Subsidiary in
connection with the issuance of Debt the interest on which is excludable
from gross income of the holder of such Debt pursuant to the Internal
Revenue Code of 1986, as amended, or any successor statute, for the purpose
of financing, in whole or in part, the acquisition or construction of
property or assets to be used by EPG or any Subsidiary;
(xi) any Lien upon property or assets of any foreign Restricted
Subsidiary to secure Debt of that foreign Restricted Subsidiary;
(xii) Permitted Liens (as defined below);
(xiii) any Lien upon any additions, improvements, replacements, repairs,
fixtures, appurtenances or component parts thereof attaching to or required
to be attached to property or assets pursuant to the terms of any mortgage,
pledge agreement, security agreement or other similar instrument, creating
a Lien upon such property or assets permitted by clauses (i) through (xii),
inclusive, above; or
(xiv) any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refundings or replacements)
of any Lien, in whole or in part, that is referred to in clauses (i)
through (xiii), inclusive, above, or of any Debt secured thereby; provided,
however, that the principal amount of Debt secured thereby shall not exceed
the greater of the principal amount of Debt so secured at the time of such
extension, renewal, refinancing, refunding or replacement and the original
principal amount of Debt so secured (plus in each case the aggregate amount
of premiums, other payments, costs and expenses required to be paid or
incurred in connection with such extension, renewal, refinancing, refunding
or replacement); provided further, however, that such extension, renewal,
refinancing, refunding or replacement shall be limited to all or a part of
the property (including improvements, alterations and repairs on such
property) subject to the encumbrance so extended, renewed, refinanced,
refunded or replaced (plus improvements, alterations and repairs on such
property).
Notwithstanding the foregoing, under the Indenture, EPG may, and may permit
any Restricted Subsidiary to, create, assume, incur, or suffer to exist any
Lien upon any Principal Property to secure Debt of EPG or any Person (other
than the Debt Securities) that is not excepted by clauses (i) through (xiv),
inclusive, above without securing the Debt Securities issued under the
Indenture, provided that the aggregate principal amount of all Debt then
outstanding secured by such Lien and all similar Liens, together with all net
sale proceeds from Sale-Leaseback Transactions (as defined below) (excluding
Sale-Leaseback Transactions permitted by clauses (i) through (iv), inclusive,
of the first paragraph of the restriction on sale-leasebacks covenant
described below) does not exceed 15% of Consolidated Net Tangible Assets (as
defined below).
Restriction on Sale-Leasebacks. The Indenture provides that EPG will not,
nor will it permit any Restricted Subsidiary to, engage in a Sale-Leaseback
Transaction, unless: (i) such Sale-Leaseback Transaction occurs within one
year from the date of acquisition of the Principal Property subject thereto or
the date of the completion of construction or commencement of full operations
on such Principal Property, whichever is later; (ii) the Sale-Leaseback
Transaction involves a lease for a period, including renewals, of not more
than three years; (iii) EPG or such Restricted Subsidiary would be entitled to
incur Debt secured by a Lien on the Principal Property subject thereto in a
principal amount equal to or exceeding the net sale proceeds from such Sale-
Leaseback Transaction without securing the Debt Securities; or (iv) EPG or
such Restricted Subsidiary, within a one-year period after such Sale-Leaseback
Transaction, applies or causes to be applied an amount not less than the net
sale proceeds from such Sale-Leaseback Transaction to (A) the repayment,
redemption or retirement of Funded Debt (as defined below) of EPG or any
Subsidiary, or (B) investment in another Principal Property.
Notwithstanding the foregoing, under the Indenture, EPG may, and may permit
any Restricted Subsidiary to, effect any Sale-Leaseback Transaction that is
not excepted by clauses (i) through (iv), inclusive, of the above paragraph,
provided that the net sale proceeds from such Sale-Leaseback Transaction,
together with the aggregate principal amount of outstanding Debt (other than
the Debt Securities) secured by Liens upon Principal Properties not excepted
by clauses (i) through (xiv), inclusive, of the first paragraph of the
limitation on liens covenant described above, do not exceed 15% of the
Consolidated Net Tangible Assets.
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Certain Defined Terms. As used herein:
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets after deducting therefrom (i) all current liabilities
(excluding (A) any current liabilities that by their terms are extendable or
renewable at the option of the obligor thereon to a time more than 12 months
after the time as of which the amount thereof is being computed, and (B)
current maturities of long-term debt), and (ii) the value (net of any
applicable reserves) of all goodwill, trade names, trademarks, patents and
other like intangible assets, all as set forth on the consolidated balance
sheet of EPG and its consolidated subsidiaries for EPG's most recently
completed fiscal quarter, prepared in accordance with generally accepted
accounting principles.
"Debt" means any obligation created or assumed by any Person for the
repayment of money borrowed and any purchase money obligation created or
assumed by such Person.
"Funded Debt" means all Debt maturing one year or more from the date of the
creation thereof, all Debt directly or indirectly renewable or extendible, at
the option of the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the date of the
creation thereof, and all Debt under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more.
"Lien" means any mortgage, pledge, security interest, charge, lien or other
encumbrance of any kind, whether or not filed, recorded or perfected under
applicable law.
"Permitted Liens" means (i) Liens upon rights-of-way for pipeline purposes;
(ii) any governmental Lien, mechanics', materialmen's, carriers' or similar
Lien incurred 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; (iii) the 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;
(iv) Liens of taxes and assessments which are (A) for the then current year,
(B) not at the time delinquent, or (C) delinquent but the validity of which is
being contested at the time by EPG or any Subsidiary in good faith; (v) Liens
of, or to secure performance of, leases; (vi) any Lien upon, or deposits of,
any assets in favor of any surety company or clerk of court for the purpose of
obtaining indemnity or stay of judicial proceedings; (vii) any Lien upon
property or assets acquired or sold by EPG or any Restricted Subsidiary
resulting from the exercise of any rights arising out of defaults on
receivables; (viii) any Lien incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance, temporary
disability, social security, retiree health or similar laws or regulations or
to secure obligations imposed by statute or governmental regulations; (ix) any
Lien upon any property or assets in accordance with customary banking practice
to secure any Debt incurred by EPG or any Restricted Subsidiary in connection
with the exporting of goods to, or between, or the marketing of goods in, or
the importing of goods from, foreign countries; or (x) any Lien in favor of
the United States of America or any state thereof, or any other country, or
any political subdivision of any of the foregoing, to secure partial,
progress, advance, or other payments pursuant to any contract or statute, or
any Lien securing industrial development, pollution control, or similar
revenue bonds.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, other
entity, unincorporated organization, or government or any agency or political
subdivision thereof.
"Principal Property" means (a) any pipeline assets of EPG or any Subsidiary,
including any related facilities employed in the transportation, distribution
or marketing of natural gas, that are located in the United States or Canada,
and (b) any processing or manufacturing plant owned or leased by EPG or any
Subsidiary that is located within the United States or Canada, except, in the
case of either clause (a) or (b), any such assets or plant which, in the
opinion of EPG's Board of Directors, is not material in relation to the
activities of EPG and its Subsidiaries as a whole.
"Restricted Subsidiary" means any Subsidiary of EPG owning or leasing any
Principal Property.
"Sale-Leaseback Transaction" means the sale or transfer by EPG or any
Restricted Subsidiary of any Principal Property to a Person (other than EPG or
a Subsidiary) and the taking back by EPG or any Restricted Subsidiary, as the
case may be, of a lease of such Principal Property.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that EPG may, without the consent of the Trustee or
the holders of any Debt Securities issued thereunder, consolidate or merge
with, or sell, lease or transfer its properties and assets as, or
substantially as, an entirety to, any Person, provided that (i) either EPG is
the surviving entity or such successor Person shall expressly assume the due
and punctual payment of the principal of, and any premium and interest on, all
the Debt Securities and the performance or observance of every covenant and
condition of the Indenture on the part of EPG to be performed or observed,
(ii) immediately after giving effect to the transaction, no Default or Event
of Default exists, and (iii) EPG has delivered the Officer's Certificate and
Opinion of Counsel required by the Indenture. Any such successor Person shall
succeed to and be substituted for, and may exercise every right and power of,
EPG under the Indenture with the same effect as if it had been named a party
in the Indenture and EPG shall, except in the case of a lease, be released and
discharged from all its obligations under the Debt Securities and the
Indenture.
EVENTS OF DEFAULT
An "Event of Default" will occur under the Indenture with respect to Debt
Securities of a particular series issued thereunder upon: (a) default in the
payment of the principal of, or premium, if any, on, any Debt Security of such
series at its maturity; (b) default in the payment of any interest on any Debt
Security of such series when it becomes due and payable and continuance of
such default for a period of 30 days; (c) default in the performance, or
breach, of any term, covenant or warranty contained in the Indenture with
respect to such series for a period of 60 days upon giving written notice as
provided in the Indenture; (d) the occurrence of certain events of bankruptcy;
or (e) any other Event of Default applicable to such series.
The Indenture provides that if an Event of Default with respect to a series
of Debt Securities issued thereunder shall have occurred and be continuing,
either the Trustee or the holders of not less than 25% in principal amount of
Debt Securities of such series then outstanding may declare the principal
amount of all Debt Securities of such series to be due and payable immediately
upon giving written notice as provided in the Indenture. The Indenture
provides that the holders of a majority in principal amount of Debt Securities
then outstanding of such series may rescind and annul such declaration and its
consequences under certain circumstances.
The holders of a majority in principal amount of Debt Securities of a series
then outstanding may waive past defaults under the Indenture with respect to
such series and its consequences (except a continuing default in the payment
of principal of or premium, if any, or interest on any series of Debt
Securities or a default in respect of any covenant or provision of the
Indenture which cannot be modified or amended by a supplemental indenture
without the consent of the holder of each outstanding Debt Security affected
thereby).
Pursuant to the Indenture, the holders of a majority in aggregate principal
amount of all affected series of Debt Securities then outstanding may direct
with respect to such series 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, provided that such direction shall not be in
conflict with any rule of law or the Indenture. Before proceeding to exercise
any right or power under the Indenture at the direction of any holders, the
Trustee shall be entitled to receive from such holders reasonable security or
indemnity against the costs, expenses, and liabilities which might be incurred
by it in compliance with any such direction.
Under the terms of the Indenture, EPG is required to furnish to the Trustee
annually an Officer's Certificate to the effect that to the best of such
officer's knowledge, EPG is not in default in the performance and observance
of the terms, provisions and conditions of the Indenture or, if such officer
has knowledge that EPG is in default, specifying such default. The Indenture
requires the Trustee to give to all holders of Debt Securities outstanding
thereunder notice of any Default by EPG in the manner provided in the
Indenture, unless such Default shall have been cured or waived; however,
except in the case of a default in the payment of principal of and premium, if
any, or interest, if any, on any Debt Securities outstanding thereunder, the
Trustee is entitled to withhold such notice in the event that the board of
directors, the executive committee, or a trust committee of directors or
certain officers of the Trustee in good faith determine that withholding such
notice is in the interest of the holders of such outstanding Debt Securities.
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SATISFACTION AND DISCHARGE; LEGAL AND COVENANT DEFEASANCE
Under the terms of the Indenture, EPG may satisfy and discharge certain
obligations to holders of Debt Securities of any series which have not already
been delivered to the Trustee for cancellation and which have either become
due and payable or are by their terms due and payable within one year or are
to be called for redemption within one year by (i) depositing or causing to be
deposited with the Trustee funds in an amount sufficient to pay the principal
and any premium and interest to the date of such deposit (in case of Debt
Securities of such series which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, (ii) paying or causing to be
paid all other sums payable under the Indenture with respect to such Debt
Securities, and (iii) delivering to the Trustee an Officer's Certificate and
Opinion of Counsel relating to such satisfaction and discharge.
The Indenture also provides that EPG and any other obligor, if any, will be
discharged from any and all obligations in respect of any series of Debt
Securities issued thereunder (excluding, however, certain obligations, such as
the obligation to register the transfer or exchange of such outstanding Debt
Securities of such series, to replace stolen, lost, mutilated or destroyed
certificates, to pay principal and interest on the original stated due dates
or specified redemption date, to make any sinking fund payments, and to
maintain paying agencies) on the 91st day following the deposit referred to in
the following clause (i), subject to the following conditions: (i) the
irrevocable deposit, in trust, of cash or U.S. Government Obligations (or a
combination thereof) which through the payment of interest and principal
thereof in accordance with their terms will provide cash in an amount
sufficient to pay the principal and interest and premium, if any, on the
outstanding Debt Securities of such series and any mandatory sinking fund
payments, in each case, on the stated maturity of such payments in accordance
with the terms of the Indenture and the outstanding Debt Securities of such
series or on any Redemption Date established pursuant to clause (iii) below,
(ii) EPG's receipt of an Opinion of Counsel based on the fact that (A) EPG has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case, to the effect that, and
confirming that, the holders of the Debt Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance 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 and defeasance had not occurred, (iii) if the Debt Securities are to
be redeemed prior to Stated Maturity (other than from mandatory sinking fund
payments or analogous payments), notice of such redemption shall have been
duly given pursuant to the Indenture or provision therefor satisfactory to the
Trustee shall have been made, (iv) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default will have
occurred and be continuing on the date of such deposit, and (v) EPG's delivery
to the Trustee of an Officer's Certificate and an Opinion of Counsel, each
stating that the conditions precedent under the Indenture have been complied
with.
Under the Indenture, EPG also may discharge its obligations referred to
above under "--Certain Covenants" and "--Consolidation, Merger and Sale of
Assets", as well as certain of its obligations relating to reporting
obligations under the Indenture, in respect of any series of Debt Securities
on the 91st day following the deposit referred to in clause (i) in the
immediately preceding paragraph, subject to satisfaction of the conditions
described in clauses (i), (iii), (iv) and (v) in the immediately preceding
paragraph with respect to such series of Debt Securities and the delivery of
an Opinion of Counsel confirming that the holders of the Debt Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and covenant defeasance 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 and covenant defeasance had not occurred.
CHANGES IN CONTROL AND HIGHLY LEVERAGED TRANSACTIONS
The Indenture does not contain provisions requiring redemption of the Debt
Securities issued thereunder, or adjustment to any terms of such Debt
Securities, upon any change in control of EPG.
Other than the limitations on Liens and the restriction on Sale-Leaseback
Transactions described above under "--Certain Covenants", the Indenture does
not contain any covenant or other provisions designed to afford holders of the
Debt Securities issued thereunder protection in the event of a highly
leveraged transaction involving EPG.
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MODIFICATION OF THE INDENTURE
The Indenture provides that EPG and the Trustee may enter into supplemental
indentures without the consent of the holders of Debt Securities issued
thereunder to: (a) secure any of such Debt Securities, (b) evidence the
succession of another Person to EPG under the Indenture and the Debt
Securities and the assumption by such successor Person of the obligations of
EPG thereunder; (c) add covenants and Events of Default for the benefit of the
holders of all or any series of such Debt Securities or to surrender any right
or power conferred by the Indenture upon EPG; (d) add to, change or eliminate
any of the provisions of the Indenture, provided that any such addition,
change or elimination shall become effective only after there are no such Debt
Securities of any series entitled to the benefit of such provision
outstanding; (e) establish the forms or terms of the Debt Securities of any
series issued thereunder; (f) cure any ambiguity or correct any inconsistency
in the Indenture; (g) evidence the acceptance of appointment by a successor
trustee; and (h) qualify the Indenture under the Trust Indenture Act.
The Indenture also contains provisions permitting EPG and the Trustee, with
the consent of the holders of a majority in aggregate principal amount of all
outstanding Debt Securities affected by such supplemental indenture (voting as
one class), to add any provisions to, or change in any manner or eliminate any
of the provisions of, the Indenture, or modify in any manner the rights of the
holders of such Debt Securities, provided that EPG and the Trustee may not,
without the consent of the holder of each outstanding Debt Security affected
thereby, (a) change the stated maturity of the principal of or any installment
of principal of or interest, if any, on, any Debt Security, or reduce the
principal amount thereof or premium, if any, on or the rate of interest
thereon, (b) reduce the percentage in principal amount of Debt Securities
required for any such supplemental indenture or for any waiver provided for in
the Indenture, (c) change EPG's obligation to maintain an office or agency for
payment of Debt Securities and the other matters specified therein, or (d)
modify any of the provisions of the Indenture relating to the execution of
supplemental indentures with the consent of holders of Debt Securities which
are discussed in this paragraph or modify any provisions relating to the
waiver by holders of past defaults and certain covenants, except to increase
any required percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of
each outstanding Debt Security affected thereby.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES OR STOCKHOLDERS
No director, officer, employee or stockholder, as such, of EPG or any of its
affiliates shall have any personal liability in respect of the obligations of
EPG under the Indenture or the Debt Securities by reason of his, her or its
status as such.
APPLICABLE LAW
The Indenture is, and the Debt Securities offered hereby will be, governed
by, and construed in accordance with, the laws of the State of New York.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will use the same degree of care and skill in its exercise of the
rights and powers vested in it by the Indenture as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of EPG, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of such claims, as
security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
The Chase Manhattan Bank, a New York banking corporation, is the Trustee
under the Indenture. EPG maintains banking and other commercial relationships
with The Chase Manhattan Bank in the ordinary course of business.
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DESCRIPTION OF CAPITAL STOCK
The statements under this caption are brief summaries, do not purport to be
complete, and are subject to, and are qualified in their entirety by reference
to, the more complete descriptions contained in (a) EPG's Restated Certificate
of Incorporation, as amended (the "EPG Charter"), and the Shareholder Rights
Agreement, dated as of July 7, 1992, between EPG and The First National Bank
of Boston, as Rights Agent (the "Shareholder Rights Agreement"), copies of
which are incorporated by reference as exhibits to the Registration Statement
of which this Prospectus is a part, and (b) the certificate of designation
relating to each series of Preferred Stock, which will be filed with the
Commission at, or prior to, the time of the offering of such series of
Preferred Stock.
GENERAL
EPG currently is authorized by the EPG Charter to issue up to 100,000,000
shares of Common Stock and up to 25,000,000 shares of Preferred Stock. As of
September 30, 1996, there were issued and outstanding 36,212,026 shares of
Common Stock and no shares of Preferred Stock.
COMMON STOCK
EPG currently is authorized by the EPG Charter to issue up to 100,000,000
shares of Common Stock. The holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors of EPG out of funds
legally available therefor. In the event of a liquidation, dissolution, or
winding up of EPG, holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and liquidation preference
of any outstanding Preferred Stock. Holders of Common Stock have no preemptive
rights and have no rights to convert their Common Stock into any other
securities. There are no redemption provisions with respect to any shares of
Common Stock. All of the outstanding shares of Common Stock are, and the
Common Stock offered hereby will be, upon issuance against full payment of the
purchase price therefor, fully paid and nonassessable.
The transfer agent and registrar for EPG's Common Stock is The First
National Bank of Boston.
PREFERRED STOCK
EPG's Board of Directors, without any further action by the stockholders of
EPG, is authorized to issue up to 25,000,000 shares of Preferred Stock, and to
divide the Preferred Stock into one or more series, and to fix by resolution
or resolutions any of the designations, powers, preferences and rights, and
the qualifications, limitations, or restrictions of the shares of each such
series, including, but not limited to, dividend rates, conversion rights,
voting rights, terms of redemption and liquidation preferences, and the number
of shares constituting each such series. The issuance of Preferred Stock may
have the effect of delaying, deterring, or preventing a change in control of
EPG. Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular series of Preferred Stock will be described in the Prospectus
Supplement relating to that series. The description of Preferred Stock set
forth below and the description of the terms of the particular series of
Preferred Stock set forth in the related Prospectus Supplement do not purport
to be complete and are qualified in their entirety by reference to the
certificate of designation relating to the particular series of Preferred
Stock.
The designations, powers, preferences and rights, and the qualifications,
limitations, or restrictions of the Preferred Stock of each series will be
fixed by the certificate of designation relating to such series. The
Prospectus Supplement relating to each series will specify the terms of the
Preferred Stock as follows:
(a)The maximum number of shares to constitute such series and the
distinctive designation thereof;
(b)The annual dividend rate, if any, on shares of such series, whether
such rate is fixed or variable or both, the date or dates from which
dividends will begin to accrue or accumulate, and whether dividends will be
cumulative;
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(c)The price at which, and the terms and conditions on which, the shares
of such series may be redeemed, including the time during which shares of
such series may be redeemed and any accumulated dividends thereon that the
holders of shares of such series shall be entitled to receive upon the
redemption thereof;
(d)The liquidation preference, if any, and any accumulated dividends
thereon, that the holders of shares of such series shall be entitled to
receive upon the liquidation, dissolution, or winding up of the affairs of
EPG;
(e)Whether or not the shares of such series will be subject to operation
of a retirement or sinking fund, and, if so, the extent and manner in which
any such fund shall be applied to the purchase or redemption of the shares
of such series for retirement or for other corporate purposes, and the
terms and provisions relating to the operation of such fund;
(f)The terms and conditions, if any, on which the shares of such series
shall be convertible into, or exchangeable for, debt securities, shares of
any other class or classes of capital stock of EPG, or any series of any
other class or classes, or of any other series of the same class, including
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
(g)The voting rights, if any, on the shares of such series; and
(h)Any or all other preferences and relative, participating, operational,
or other special rights, qualifications, limitations, or restrictions
thereof.
The Federal income tax consequences and special considerations applicable to
any such series of Preferred Stock will be generally described in the
Prospectus Supplement relating thereto.
As of the date of this Prospectus, no Preferred Stock is outstanding.
Pursuant to the Shareholder Rights Agreement, the Board of Directors of EPG
has designated the Series A Preferred Stock (as defined below).
EPG is currently seeking approval from its stockholders to issue up to
23,894,862 shares of Common Stock (i.e., the Merger Stock Issuance) in
connection with the Merger. If the Merger Stock Issuance is not approved by
the stockholders of EPG, the Merger is still expected to be consummated, but
common stockholders and certain preferred stockholders of Tenneco will receive
an aggregate of 7,000,000 shares of Common Stock plus depositary shares
representing interests in shares of a new series of Preferred Stock to be
designated the Adjustable Rate Cumulative Preferred Stock, $.01 par value per
share (the "AR Preferred Stock"). Each share of AR Preferred Stock will
entitle the holder thereof to 15 votes per share on all matters submitted to a
vote at any meeting of EPG stockholders. In addition, the EPG Charter provides
that holders of Preferred Stock of EPG, including the holders of Series A
Preferred Stock and AR Preferred Stock, shall have the right to vote together
as a class to elect two directors of EPG during any period that dividends on
such stock are in arrears in an amount equal to six quarterly dividend
payments.
SHAREHOLDER RIGHTS AGREEMENT
In July 1992, EPG's Board of Directors declared a dividend distribution of
one right (a "Right") for each share of Common Stock then outstanding. All
shares of Common Stock issued subsequently also include these Rights. Under
certain conditions, each Right may be exercised to purchase from EPG one one-
hundredth of a share of a series of EPG's Preferred Stock, designated as
Series A Junior Participating Preferred Stock, $.01 par value (the "Series A
Preferred Stock"), at a price of $75 per one one-hundredth of a share, subject
to adjustment.
The EPG Charter provides that the holders of Series A Preferred Stock are
entitled to 100 votes per share on all matters submitted to a vote of the
stockholders of EPG, subject to adjustment. In addition, during any period
that dividends on the Series A Preferred Stock are in arrears in an amount
equal to six quarterly dividend payments, the holders of Series A Preferred
Stock will have the right to vote together as a class to elect two directors
of EPG as described above.
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The Rights are exercisable only if, without the prior consent of EPG's Board
of Directors, a person or group acquires or obtains the right to acquire
beneficial ownership of 15% or more of the voting power of all outstanding
voting securities of EPG or commences or announces a tender or exchange offer,
after consummation of which such person or group would beneficially own 15% or
more of EPG's voting securities. If, after the Rights become exercisable, EPG
is involved in a merger or other business combination transaction in which its
Common Stock is exchanged or changed, or it sells 50% or more of its assets or
earning power, each Right will entitle the holder thereof to purchase, at the
Right's then-current exercise price, common stock of the acquiring company
having a value of twice the exercise price of the Right. If a person becomes
the beneficial owner of securities having 15% or more of the voting power of
all then-outstanding voting securities of EPG, or if, during any period of
such ownership, there shall be any reclassification of securities or
recapitalization of EPG, or any merger or consolidation of EPG with any of its
subsidiaries or any other transaction or series of transactions which has the
effect, directly or indirectly, of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity
securities of EPG or any of its subsidiaries which is directly or indirectly
owned by such person, then each Right not owned by such person will entitle
the holder thereof to purchase, at the Right's then-current exercise price,
shares of Common Stock (or in certain circumstances other equity securities of
EPG with at least the same economic value as the Common Stock) having a market
value of twice the Right's then-current exercise price. The Rights, which have
no voting rights, expire no later than July 7, 2002. The Rights may be
redeemed by EPG under certain circumstances prior to their expiration date at
a purchase price of $.01 per Right. It is possible that the existence of the
Rights may have the effect of delaying, deterring or preventing a takeover of
EPG.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
EPG is subject to Section 203 of the Delaware General Corporation Law
("Section 203") which restricts certain transactions and business combinations
between a corporation and an interested stockholder (defined in Section 203,
generally, as a person owning 15% or more of a corporation's outstanding
voting stock) for a period of three years from the time such person becomes an
interested stockholder. Subject to certain exceptions, unless the transaction
is approved by the board of directors and the holders of at least 66 2/3% of
the outstanding voting stock of the corporation (excluding voting stock held
by the interested stockholder), Section 203 prohibits certain business
transactions, such as a merger with, disposition of assets to, or receipt of
disproportionate financial benefits by the interested stockholder, or any
other transaction that would increase the interested stockholder's
proportionate ownership of any class or series of the corporation's stock. The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock of the corporation (excluding
voting stock held by persons who are both directors and officers or by certain
employee stock plans) or if either the proposed transaction or the transaction
by which the interested stockholder became such is approved by the board of
directors of the corporation prior to the time such stockholder becomes an
interested stockholder.
EPG'S RESTATED CERTIFICATE OF INCORPORATION
The EPG Charter contains provisions applicable to a merger, consolidation,
asset sale, liquidation, recapitalization, or certain other business
transactions, including the issuance of stock of EPG ("Business
Combinations"). The EPG Charter requires the affirmative vote of 51% or more
of the voting stock of EPG, excluding any voting stock held by an interested
stockholder (defined in the EPG Charter as any person who owns 10% or more of
the voting stock and certain defined affiliates), with respect to all Business
Combinations involving the interested stockholder, unless directors who served
as such prior to the time the interested stockholder became an interested
stockholder determine by a two-thirds vote that (i) the proposed consideration
meets certain minimum price criteria, or (ii)(A) the interested stockholder
holds 80% or more of the voting stock and (B) the interested stockholder has
not received (other than proportionately as a stockholder) the benefit of any
financial assistance from EPG, whether in anticipation of or in connection
with such Business Combination. To meet the minimum price criteria, all
stockholders must receive consideration or retain value per share after the
transaction which is not less than the price per share paid by the interested
stockholder. The EPG Charter
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also requires the dissemination to stockholders of a proxy or information
statement describing the Business Combination.
The EPG Charter also prohibits the taking of any action by written
stockholder consent in lieu of a meeting and the subsequent amendment of the
EPG Charter to repeal or alter the above provisions without the affirmative
vote of 51% of EPG's voting stock, excluding voting stock held by any
interested stockholder.
PLAN OF DISTRIBUTION
EPG may offer or sell Securities to or through one or more underwriters,
dealers or agents as designated from time to time, or through a combination of
such methods and also may offer or sell the Securities directly to one or more
other purchasers. EPG may sell Securities as soon as practicable after
effectiveness of the Registration Statement of which this Prospectus is a
part.
A Prospectus Supplement will set forth the terms of the offering of the
particular series of Securities offered thereby, including: (i) the name or
names of any underwriters or agents; (ii) the initial public offering or
purchase price of such series of Securities; (iii) any underwriting discounts,
commissions, and other items constituting underwriters' compensation and any
other discount, concessions, or commissions allowed or reallowed or paid by
any underwriters to other dealers; (iv) any commissions paid to any agents;
(v) the net proceeds to EPG from the sales; and (vi) any securities exchanges
or markets on which the Securities may be listed.
Unless otherwise set forth in the Prospectus Supplement relating to a
particular series of Securities, the obligations of the underwriters to
purchase such series of Securities will be subject to certain conditions
precedent and each of the underwriters with respect to such series of
Securities will be obligated to purchase all of the Securities of such series
allocated to it if any such Securities are purchased. Any initial public
offering price and any discounts or concessions allowed, reallowed, or paid to
dealers may be changed from time to time.
The Securities may be offered and sold by EPG directly or through agents
designated by EPG from time to time. Unless otherwise indicated in the related
Prospectus Supplement, each such agent will be acting on a best efforts basis
for the period of its appointment. Any agent participating in the distribution
of Securities may be deemed to be an "underwriter", as that term is defined in
the Securities Act, of the Securities so offered and sold. The Securities also
may be sold to dealers at the applicable price to the public set forth in the
Prospectus Supplement relating to such series of Securities. Such dealers may
be deemed to be "underwriters" within the meaning of the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with EPG, to indemnification by EPG against certain civil liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, EPG in the ordinary course of business.
Other than Common Stock, all Securities offered will be a new issue of
securities with no established trading market. Any underwriter to whom
Securities are sold by EPG for public offering and sale may make a market in
such Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. The Securities may
or may not be listed on a national securities exchange or a foreign securities
exchange, except that the Common Stock is listed on the New York Stock
Exchange. Any Common Stock sold pursuant to a Prospectus Supplement will be
listed on the New York Stock Exchange, subject to official notice of issuance.
No assurance can be given as to the liquidity of or the trading markets for
any Securities.
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LEGAL MATTERS
The validity of the Securities will be passed upon for EPG by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York. If the Securities are being distributed in
an underwritten offering, the validity of the Securities will be passed upon
for the underwriters by counsel identified in the related Prospectus
Supplement.
EXPERTS
The consolidated financial statements and financial statement schedules of
EPG as of December 31, 1995 and 1994, and for the years ended December 31,
1995, 1994, and 1993, incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
The following financial statements and schedules are included or
incorporated by reference in the Joint Proxy Statement-Prospectus, which has
been filed as an exhibit to the November Current Report, which November
Current Report is incorporated by reference in this Prospectus (each of the
following capitalized terms has the meaning assigned to it in the Joint Proxy
Statement-Prospectus):
(i) (A) the Businesses of Tenneco Energy, (B) the Businesses of New
Tenneco, and (C) the Businesses of Newport News, each of which, to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, and are incorporated
herein by reference in reliance upon the authority of said firm as experts
in accounting and auditing in giving said reports; and
(ii) the combined financial statements of Mobil Plastics Division of
Mobil Oil Corporation for the period December 29, 1994 to November 17, 1995
and the year ended December 28, 1994 included in the Joint Proxy Statement-
Prospectus which was included as an exhibit to the November Current Report,
which is incorporated by reference herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
included therein. Such financial statements have been incorporated herein
by reference in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PRO-
SPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OF-
FERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Supplement Summary............................................. S-3
Risk Factors.............................................................. S-9
Use of Proceeds........................................................... S-10
Capitalization............................................................ S-10
Description of Offered Securities......................................... S-11
Underwriting.............................................................. S-14
Legal Matters............................................................. S-14
Unaudited Pro Forma Financial Information................................. S-15
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 4
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference Stock Dividend Requirements......... 4
Description of Debt Securities............................................ 4
Description of Capital Stock.............................................. 12
Plan of Distribution...................................................... 15
Legal Matters............................................................. 16
Experts................................................................... 16
</TABLE>
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$400,000,000
EL PASO NATURAL GAS COMPANY
$200,000,000 % NOTES DUE 2003
$200,000,000 % DEBENTURES DUE 2026
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PROSPECTUS SUPPLEMENT
--------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
, 1996
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