<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
Amendment No. 1
to
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 21, 1997 (Date of Earliest
Event Reported: December 11, 1996)
EL PASO TENNESSEE PIPELINE CO.
(Formerly Tenneco Inc.)
(Exact Name of Registrant as Specified in the Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-9864 74-0233548
(Commission File Number) (I.R.S. Employer Identification No.)
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 757-2131
(Registrant's Telephone Number, Including Area Code)
Tenneco Inc.
1275 King Street
Greenwich, Connecticut 06831
(former name or former address if
changed since last report)
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<PAGE> 2
Items 1 and 2. Changes in Control of the Registrant; Acquisition or Disposition
of Assets.
On December 12, 1996, El Paso Natural Gas Company, doing business as El
Paso Energy Corporation ("El Paso"), completed the acquisition of the energy
assets and certain other discontinued business assets and liabilities of the
Registrant. References herein to "Old Tenneco" refer to the Registrant prior to
the Distributions and Merger described below and references to "El Paso
Tennessee" refer to the Registrant following the Distributions and Merger. In
the Merger, Old Tenneco (i.e., Tenneco Inc.) changed its name to "El Paso
Tennessee Pipeline Co."
On December 12, 1996, El Paso Merger Company, an indirect subsidiary of
El Paso ("El Paso Merger Sub"), merged with and into Old Tenneco (the
"Merger"), which became an indirect subsidiary of El Paso. The Merger was
effected in accordance with the Amended and Restated Agreement and Plan of
Merger dated as of June 19, 1996 (the "Merger Agreement"), among El Paso Merger
Sub, El Paso and Old Tenneco, which Merger Agreement is filed as an exhibit to
this Current Report on Form 8-K and incorporated herein by reference. In
addition, El Paso and New Tenneco Inc. ("New Tenneco") entered into a Letter
Agreement, dated December 11, 1996, relating to the Merger, which Letter
Agreement is filed as an exhibit to this Current Report on Form 8-K and
incorporated herein by reference.
The consideration paid by El Paso in the Merger consisted of:
o the retention after the Merger of approximately $2.6 billion
of debt and preferred stock obligations of Old Tenneco, subject
to certain adjustments (which obligations consisted, in part,
of (1) approximately $200 million of public debt of Old Tenneco
outstanding at the effective time of the Merger, (2) $2.1
billion of debt of Old Tenneco outstanding at the effective
time of the Merger under a $3 billion Revolving Credit and
Competitive Advance Facility Agreement, dated as of November 4,
1996 (the "Credit Agreement"), among Old Tenneco, the banks and
other financial institutions party thereto and The Chase
Manhattan Bank, as agent, and (3) $300 million of Old Tenneco
preferred stock);
o the issuance of 18.8 million shares of common stock of
El Paso valued at approximately $914 million, based on a closing
price per share of common stock on the New York Stock Exchange
of $48.625 on December 9, 1996, to the holders of Old Tenneco's
common stock and two series of its preferred stock; and
o the retention of liabilities related to certain discontinued
businesses of Old Tenneco which El Paso estimated to be
approximately $600 million.
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<PAGE> 3
The number of shares of El Paso's common stock issued in the Merger to
stockholders of Old Tenneco was determined pursuant to formulas set forth in
the Merger Agreement. In the Merger, (i) a holder of Old Tenneco's common stock
received .093 of a share of El Paso's common stock for each share of Old Tenneco
common stock, (ii) a holder of Old Tenneco's $7.40 Cumulative Preferred Stock
received 2.365 shares of El Paso's common stock for each such share of $7.40
Cumulative Preferred Stock, and (iii) a holder of Old Tenneco's $4.50 Cumulative
Preferred Stock received 2.365 shares of El Paso's common stock for each such
share of $4.50 Cumulative Preferred Stock.
As a result of the Merger, El Paso indirectly owns 100% of the common
equity and approximately 75% of the combined equity value of El Paso
Tennessee. Currently, approximately $300 million of preferred stock issued in a
public offering by Old Tenneco on November 18, 1996 remains outstanding. The
holders of such preferred stock have the right to elect one-sixth of the board
of directors of El Paso Tennessee.
El Paso currently is engaged in a comprehensive review of the business
and operations of El Paso Tennessee and its subsidiaries (collectively,
"Tenneco Energy"). Following the completion of such review, El Paso intends to
integrate, for the most part, the operations of Tenneco Energy with those of El
Paso to increase operating and administrative efficiency through consolidation
and reengineering of facilities, workforce reductions and coordination of
purchasing, sales and marketing activities. El Paso anticipates that the
complementary interstate and intrastate pipeline operations and gas marketing
activities of El Paso and Tenneco Energy should provide the combined company
with increased operating flexibility and access to additional customers and
markets. As previously disclosed, El Paso is pursuing the monetization of
certain assets of Tenneco Energy through asset sales and non-recourse project
financings. In December 1996 El Paso received approximately $400 million in
proceeds from the sale of a 70% interest in Tenneco Energy's two Australian
pipelines and a related debt financing. It also has completed the sale of its
oil and gas exploration, production and financing unit, formerly known as
Tenneco Ventures, in a $105 million transaction. The net proceeds from these
monetization transactions were used to repay outstanding borrowings under the
Credit Agreement. El Paso is also pursuing the monetization of other assets.
Prior to the Merger, Old Tenneco and its subsidiaries effected various
intercompany transfers and distributions which restructured, divided and
separated their 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") were spun-off to
Old Tenneco's then existing common stockholders (the "Distributions"). The
Distributions were effected on December 11, 1996 pursuant to the Distribution
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<PAGE> 4
Agreement dated as of November 1, 1996 (as amended, the "Distribution
Agreement"), among Old Tenneco, New Tenneco and Newport News Shipbuilding Inc.
("Newport News"), which Distribution Agreement is filed as an exhibit to this
Current Report on Form 8-K and incorporated herein by reference. Following the
Distributions, the remaining operations of Old Tenneco consisted primarily of
those operations related to the transmission and marketing of natural gas.
In connection with the Distributions, Old Tenneco's Board of Directors
declared a special distribution consisting of all of the capital stock of (i)
New Tenneco (now known as Tenneco Inc.), a newly formed, wholly owned
subsidiary of Old Tenneco which held the Industrial Business, and (ii) Newport
News, a newly formed, wholly owned subsidiary of Old Tenneco which held the
Shipbuilding Business.
The shares of common stock of New Tenneco and Newport News were
distributed to holders of record of Old Tenneco's common stock on the
distribution record date, December 11, 1996, without any consideration being
paid by such holders, on the basis of (i) one share of common stock of New
Tenneco for every share of common stock of Old Tenneco and (ii) one share of
common stock of Newport News for every five shares of common stock of Old
Tenneco. No certificates or scrip representing fractional shares of Newport
News common stock were issued in the Distributions. Holders of Old Tenneco
common stock who would be entitled to receive fractional shares of common stock
of Newport News received cash in the Distributions, in lieu of such fractional
shares, derived from the sale of such fractional shares on the open market.
The reorganization of Old Tenneco, including the Merger and the
Distributions, was approved by the stockholders of Old Tenneco at a special
meeting of stockholders on December 10, 1996. The issuance of common stock of
El Paso in the Merger was approved by the stockholders of El Paso at a special
meeting of stockholders on December 9, 1996.
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<PAGE> 5
As a part of the Merger, the directors of El Paso Merger Sub became
the directors of El Paso Tennessee. The current directors of El Paso Tennessee
are William A. Wise, H. Brent Austin, Joel Richards III, Britton White, Jr. and
Jeffrey I. Beason.
The executive officers of El Paso Tennessee prior to the Merger resigned
as of the effective time of the Merger. The following persons are presently
serving as executive officers of El Paso Tennessee in the capacities indicated:
NAME POSITION
---- --------
William A. Wise Chairman of the Board,
President and Chief Executive
Officer
H. Brent Austin Senior Vice President and
Chief Financial Officer
Joel Richards III Senior Vice President
Britton White, Jr. Senior Vice President and
General Counsel
Wayne B. Allred Vice President and Treasurer
Jeffrey I. Beason Vice President and Controller
Stacy J. James Secretary
As described above, Old Tenneco entered into the Credit Agreement under
which a syndicate of banks and other financial institutions (the "Lenders")
committed to provide up to $3 billion of financing to Old Tenneco on an
unsecured basis. Chase Securities Inc. arranged the Credit Agreement and The
Chase Manhattan Bank is acting as agent for the Lenders. A list of the Lenders
is set forth on Exhibit 99.1 which is incorporated herein by reference. The
Credit Agreement consists of a 364-day revolving credit facility, with a
two-year term thereafter, the proceeds of which were used to effect the Debt
Realignment (as defined and as described in the Merger Agreement) and for other
general corporate purposes, and is guaranteed by El Paso. The borrowings under
the Credit Agreement will mature in November 1999. Borrowings under the Credit
Agreement bear interest at a rate per annum equal to, at the borrowers' option,
either
(a) the highest of (i) the rate from time to time publicly
announced by The Chase Manhattan Bank in New York City as its prime
rate, and (ii) the federal funds effective rate from time to time plus
1/2 of 1%, or
(b) the average of the rates at which eurodollar deposits
for one, two, three or six months or, subject to availability to each
lender, nine or 12 months (as selected by the borrowers) are offered in
the interbank eurodollar market in the approximate amount of the
relevant loan, plus the Applicable Margin.
The "Applicable Margin" will be based on El Paso's senior long-term debt
rating, as determined from time to time, or if El Paso's debt is not rated,
each rating agency will be assumed to have assigned its lowest rating. At
December 26, 1996, the outstanding loans under the Credit Agreement bore a
weighted average interest rate of 5.94% per annum.
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<PAGE> 6
The Credit Agreement requires that El Paso's ratio of total
indebtedness to total indebtedness plus net worth not exceed 70%. Failure to
satisfy the foregoing minimum requirement will be a default under the Credit
Agreement that will enable the Lenders to refuse to loan funds to El Paso
Tennessee and to accelerate the indebtedness thereunder. The Credit Agreement
also imposes prohibitions or limitations on liens (other than agreed permitted
liens), subsidiary indebtedness and guarantee obligations, and asset
dispositions (with certain permitted exceptions), among others. The Credit
Agreement contains certain default provisions, including, among other things,
(i) nonpayment of any amount due to the lenders under the Credit Agreement,
(ii) material breach of representations and warranties, (iii) default in the
performance of covenants, (iv) bankruptcy or insolvency, (v) cross-default with
respect to indebtedness for borrowed money and related guaranty obligations in
excess of $100 million, and (vi) a judgment suffered by El Paso in excess of
$50 million not covered by insurance and which judgment shall not have been
vacated, discharged, stayed or bonded pending appeal within 60 days.
Although the separation of the Industrial Business from the remainder of
the businesses, operations and companies constituting the Tenneco Group prior to
the Merger has been structured as a "spin-off" of New Tenneco and Newport News
for legal, tax and other reasons, New Tenneco succeeded to certain important
aspects of the former Tenneco business, organization and affairs, namely: (i)
New Tenneco has been renamed "Tenneco Inc." subsequent to the consummation of
the Merger; (ii) New Tenneco is headquartered at Old Tenneco's former
headquarters in Greenwich, Connecticut; (iii) New Tenneco's Board of Directors
consists of those persons previously constituting Old Tenneco's Board of
Directors prior to the Merger; (iv) New Tenneco's executive management consists
substantially of Old Tenneco's executive management; and (v) the Industrial
Business to be conducted by New Tenneco consists largely of Tenneco Automotive
and Tenneco Packaging, which combined represent over half of the assets,
revenues and operating income of the businesses, operations and companies
constituting the Tenneco Group. Consequently, New Tenneco will reflect the
Newport News business and the energy businesses which were acquired by El Paso
as discontinued operations in its financial statements. Additionally, El Paso
Tennessee will reflect the financial position and results of operations of the
acquired energy businesses on a separate and stand alone basis in its historical
financial statements.
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<PAGE> 7
Item 5. Other Events.
El Paso announced on December 23, 1996 that it reached a settlement
that resolves its gas purchase contract disputes with KCS Energy, Inc. Attached
as an exhibit to this Current Report on Form 8-K and incorporated by reference
herein is a press release related to such settlement.
Item 7. Financial Statements and Exhibits.
(b) Pro forma financial information:
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EL PASO TENNESSEE PIPELINE CO.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements of
the Company (the "Pro Forma Financial Statements") illustrate the effect of: the
Corporate Restructuring Transactions, the Cash Realignment and Debt Realignment,
the public offering of New Preferred Stock, and the Distributions. The Unaudited
Pro Forma Consolidated Balance Sheet has been prepared as if such transactions
occurred on September 30, 1996; the Unaudited Pro Forma Consolidated Statements
of Income have been prepared as if such transactions occurred as of January 1,
1995. Capitalized terms used herein shall have the respective meanings set forth
in the Merger Agreement or the Distribution Agreement unless otherwise defined
herein.
The Corporate Restructuring Transactions represent a reorganization of
companies, assets and liabilities under common control and, accordingly, the
transfers of assets and liabilities pursuant to the Corporate Restructuring
Transactions will be accounted for at historical cost. In addition, the
Distributions represent the pro rata distribution of the common stock of New
Tenneco and Newport News to the holders of Tenneco Common Stock in a spin off
transaction. Consequently, the Distributions will be recorded based on
historical cost.
As part of the Merger, El Paso issued approximately $914 million
of El Paso equity consideration to holders of Tenneco stock. A special meeting
of El Paso's stockholders was held on Monday, December 9, 1996 at which the
Stock Issuance was approved. The value of the El Paso Common Stock issued was
calculated based on a closing price per share of common stock on the NYSE of
$48.625 on December 9, 1996. El Paso's acquisition of the Company will be
accounted for under the purchase method and the purchase price adjustments will
be reflected in the separate consolidated financial statements of the Company. 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 consolidated financial information.
However, El Paso's management believes that the pro forma adjustments and the
underlying assumptions reasonably present the significant effects of the Merger
and the Refinancing Transactions (as defined). As used herein, "Refinancing
Transactions" means certain transactions with respect to Tenneco Energy in order
to reduce the amount of El Paso Tennessee debt including (i) the monetization of
certain assets of Tenneco Energy for anticipated net proceeds of approximately
$500 million, and (ii) a public equity offering by El Paso of approximately $150
million and the use of the net proceeds of $140 million to purchase a
subordinated series of preferred stock from El Paso Tennessee. In addition, El
Paso will undertake a study to determine the fair value of the Company's assets
and liabilities and will revise purchase accounting adjustments upon completion
of that study. The actual financial position and results of operations of the
Company 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 purchase accounting adjustments are finalized.
The Pro Forma Financial Statements are not necessarily indicative of
actual operating results or financial position had the transactions reflected
therein 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.
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<PAGE> 9
EL PASO TENNESSEE PIPELINE CO.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------------------- ------------------------------
RESTRUCTURING,
CONSOLIDATED REALIGNMENT, COMPANY MERGER AND CONSOLIDATED
COMPANY OFFERING AND AS REFINANCING COMPANY
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary investments..... $ 165 $ (78)(c) $ 87 $ $ 87
Receivables........................ 1,797 (958)(c) 839 839
Inventories........................ 1,254 (1,229)(c) 25 25
Other current assets................ 369 (251)(c) 118 118
------- ------- ------- ------- ------
Total current assets............ 3,585 (2,516) 1,069 1,069
------- ------- ------- ------- ------
Net property, plant and equipment..... 6,904 (3,971)(c) 2,933 1,720 (f) 4,073
(580)(h)(i)
Goodwill and intangibles.............. 1,381 (1,333)(c) 48 48
Other assets and deferred charges..... 2,107 (1,195)(c) 912 (590)(e) 402
80 (i)
------- ------- ------- ------- ------
Total assets................... $13,977 $(9,015) $ 4,962 $ 630 $5,592
======= ======= ======= ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt.................. $ 1,913 $(1,861)(b) $ 52 $ 330 (j) $ 382
Payables......................... 1,113 (760)(c) 353 20 (d) 373
Other current liabilities........ 1,219 (670)(c) 433 120 (e) 553
(116)(b)
------- ------- ------- ------- ------
Total current liabilities..... 4,245 (3,407) 838 470 1,308
------- ------- ------- ------- ------
Long-term debt...................... 3,399 (295)(a) 2,428 (500)(i) 1,458
(676)(b) (140)(h)
(330)(j)
Other liabilities and deferred
credits.......................... 1,233 (665)(c) 568 151 (e) 719
Deferred income taxes............... 1,024 (601)(c) 423 335 (g) 758
------- ------- ------- ------- ------
9,901 (5,644) 4,257 (14) 4,243
------- ------- ------- ------- ------
Minority interest................... 301 (301)(c) -- --
------- ------- ------- ------- ------
Preferred stock with mandatory
redemption provisions............ 113 113 (113)(f) --
------- ------- ------- ------- ------
Stockholders' equity
Series A Preferred Stock......... -- 295 (a) 295 295
Subordinated Tenneco Preferred
Stock......................... -- -- 140 (h) 140
Common Stock and paid-in
capital....................... 4,562 4,562 (20)(d) 914
(861)(e)
1,720 (f)
(335)(g)
113 (f)
(4,265)(k)
Cumulative translation
adjustments................... 9 (9)(c) -- --
Retained earnings (accumulated
deficit)...................... 62 2,653 (b) (3,294) 3,294 (k) --
(6,009)(c)
------- ------- ------- ------- ------
4,633 (3,070) 1,563 (214) 1,349
Less--Shares held as treasury stock,
at cost.......................... 971 971 (971)(k) --
------- ------- ------- ------- ------
Total stockholders' equity .... 3,662 (3,070) 592 757 1,349
------- ------- ------- ------- ------
Total liabilities and
stockholders' equity....... $13,977 $(9,015) $ 4,962 $ 630 $5,592
======= ======= ======= ======= ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
-8-
<PAGE> 10
EL PASO TENNESSEE PIPELINE CO.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
RESTRUCTURING, REALIGNMENT, OFFERING AND DISTRIBUTIONS:
(a) To reflect the final terms of the public offering of $300 million of
Series A Preferred Stock, with an 8 1/4% dividend yield, for net
Offering Proceeds of $295 million, and the use of the net Offering
Proceeds for the repayment of Energy Consolidated Debt.
(b) To reflect the restructuring and realignment of the Company 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 Energy Consolidated Debt defeased, redeemed, tendered or
exchanged as part of the Debt Realignment. The amount of "Company as
Adjusted" debt immediately prior to the Merger will consist primarily of
borrowings under the Credit Agreement entered into in connection
with the transaction and is calculated from the provisions of the
Merger Agreement as follows (in millions):
<TABLE>
<S> <C>
Base Debt Amount per the Merger Agreement................... $2,611
Less: Offering Proceeds -- see footnote (a)................. (300)
------
2,311
Plus: Cash settlement payments.............................. 439
Less: Estimated collections subject to refund............... (270)
------
Assumed "Company as Adjusted" debt.......................... $2,480
======
</TABLE>
(c) To reflect the distribution of the common stock of New Tenneco and
Newport News pursuant to the Distributions.
MERGER AND REFINANCING TRANSACTIONS:
(d) To reflect the liability for the estimated legal, investment banking and
other costs of $20 million to be incurred by the Company in connection
with the Merger. These costs have been included in the purchase price
reflected in footnote (f).
(e) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting, which will be reflected in the separate
financial statements of the Company to record assets acquired and
liabilities assumed at estimated fair value for: (i) reduction of
certain other assets, deferred charges and regulatory assets; (ii) the
revision of benefit plan assumptions relating to the retiree medical
plan obligation; (iii) adjustments related to other employee benefit
costs and environmental costs; and (iv) the accrual of an obligation to
New Tenneco which is expected to be paid after the 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 the Company's management prior to the
Merger (in millions):
<TABLE>
<S> <C>
Other assets and deferred charges....................... $590
Other current liabilities............................... 120
Other liabilities and deferred credits.................. 151
----
$861
====
</TABLE>
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<PAGE> 11
(f) To reflect the allocation to property, plant and equipment of the excess
purchase price of the Company, which will be reflected in the financial
statements of the Company, as follows (in millions):
<TABLE>
<S> <C>
Issuance of El Paso equity consideration in the Merger........................ $ 914
Less: Conversion of the $113 million book value of
Tenneco $4.50 and $7.40 Cumulative Preferred Stock.......................... (113)
Less: "Company as Adjusted" net common book value subsequent
to the Debt Realignment and Distributions................................... (297)
Acquisition adjustments to assets acquired and liabilities assumed............ 861
Transaction fees payable--see footnote (d).................................... 20
Deferred income taxes on allocation of purchase price and acquisition
adjustments................................................................. 335
------
$1,720
======
</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 acquired. It is not expected that any
excess purchase price allocated to property, plant and equipment will be
allowed for regulatory purposes or recovery 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.
The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values (in millions):
<TABLE>
<S> <C>
Increase in property, plant and equipment..................................... $1,720
Reduce other assets and deferred charges...................................... (590)
Increase other current liabilities............................................ (140)
Increase other liabilities and deferred credits............................... (151)
Increase deferred income tax liability........................................ (335)
Eliminate Tenneco shareowners' equity:
Tenneco preferred stock.................................................. 113
"Company as Adjusted" common equity...................................... 297
------
Total El Paso equity consideration............................................ $ 914
======
</TABLE>
(g) To reflect the increase in deferred income taxes of $335 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
effective tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment................................................. $ 671
Other assets.................................................................. (230)
Other liabilities............................................................. (106)
-----
$ 335
=====
</TABLE>
(h) To reflect the contribution by El Paso to the Company of net proceeds
of $140 million from an assumed issuance of $150 million of El Paso Common
Stock in exchange for subordinated preferred stock of the Company with an
assumed dividend yield of 9%. The proceeds from the Company's issuance of
subordinated preferred stock to El Paso will be utilized by the Company to
pay down $140 million of the Credit Agreement.
(i) To reflect the assumed monetization of $500 million of assets through sales
or project financings, at book value, and to reflect the Company's remaining
$80 million investment in certain Australian projects using the equity
method. These proceeds are assumed to be utilized for the repayment of a
portion of the indebtedness outstanding under the Credit Agreement.
(j) To reflect the replacement of the remaining balance under the Credit
Agreement with short-term and long-term financing at interest rates of 6%
and 8%, respectively.
(k) To reflect the retirement and cancellation of Tenneco Common Stock held as
treasury stock and the capitalization of the pre-Merger "Company as
Adjusted" accumulated equity.
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<PAGE> 12
EL PASO TENNESSEE PIPELINE CO.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------------ -----------------------------
RESTRUCTURING,
CONSOLIDATED REALIGNMENT, COMPANY MERGER AND CONSOLIDATED
COMPANY OFFERING AND AS REFINANCING COMPANY
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 8,320 $ (6,323)(c) $ 1,997 $ (36)(g) $ 1,961
Operating costs and expenses............... 7,599 (5,785)(c) 1,814 32 (d) 1,821
6 (e)
(31)(g)
--------- ---------- -------- --------- ---------
Operating Income......................... 721 (538) 183 (43) 140
Other (income) expense, net................ (242) 118 (c) (124) (124)
Interest expense........................... 268 (112)(b) 156 (38)(f) 110
(3)(g)
(5)(h)
--------- ---------- -------- --------- ---------
Income before income taxes and
minority interest...................... 695 (544) 151 3 154
Provision for income taxes*................ 247 43 (b) 34 3 (g) 36
(256)(c) (1)(i)
Minority interest.......................... 15 (15)(c) -- --
--------- ---------- -------- --------- ---------
Net income from continuing operations.... 433 (316) 117 1 118
Preferred stock dividends.................. 7 19 (a) 26 (7)(j) 29
10 (k)
--------- ---------- -------- --------- ---------
Earnings from continuing operations
available to common stock.............. $ 426 $ (335) $ 91 $ (2) $ 89
========= ========== ======== ========= =========
</TABLE>
- ----------------
* The provision for income taxes for the Company reflects the realization of
unrecognized deferred tax assets; therefore, the overall actual effective
tax rate is significantly lower than the assumed effective tax rate of 39%.
If the assumed effective tax rate had been used, the pro forma provision for
income taxes would have increased by $24 million and the pro forma amount
for earnings from continuing operations available to common stock would have
been $61 million.
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statements.
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<PAGE> 13
EL PASO TENNESSEE PIPELINE CO.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
--------------------------------------------------- -------------------------------
RESTRUCTURING,
CONSOLIDATED REALIGNMENT, COMPANY MERGER AND CONSOLIDATED
COMPANY OFFERING AND AS REFINANCING COMPANY
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . $8,899 $(6,978)(c) $1,921 $(47)(g) $1,874
Operating costs and
expenses . . . . . . . . . . 8,028 (6,278)(c) 1,750 43 (d) 1,760
8 (e)
(41)(g)
------ ------- ------ ---- ------
Operating income . . . . . . 871 (700) 171 (57) 114
Other (income) expense, net. . (225) 119 (c) (106) (106)
Interest expense . . . . . . . 306 (92)(b) 214 (51)(f) 154
(3)(g)
(6)(h)
------ ------- ------ ---- ------
Income before income taxes
and minority interest. . . 790 (727) 63 3 66
Provision for income taxes
(benefit)* . . . . . . . . . 279 35 (b) (44) (1)(g) (41)
(358)(c) 4 (i)
Minority interest. . . . . . . 22 (22)(c) -- --
------ ------- ------ ---- ------
Net income from continuing
operations . . . . . . . . 489 (382) 107 -- 107
Preferred stock dividends. . . 12 25 (a) 37 (12)(j) 39
14 (k)
------ ------- ------ ---- ------
Earnings from continuing
operations available
to common stock. . . . . . $ 477 $ (407) $ 70 $ (2) $ 68
====== ======= ====== ==== ======
</TABLE>
- --------------
* The provision for income taxes for the Company reflects the realization of
unrecognized deferred tax assets; therefore, the overall actual effective tax
rate is significantly lower than the assumed effective tax rate of 39%. If
the assumed effective tax rate had been used, the pro forma provision for
income taxes (benefit) would have increased by $67 million and the pro forma
amount for earnings from continuing operations available to common stock
would have been $1 million.
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statements.
-12-
<PAGE> 14
EL PASO TENNESSEE PIPELINE CO.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
RESTRUCTURING, REALIGNMENT, OFFERING AND DISTRIBUTIONS:
(a) To reflect dividends in the Consolidated Pro Forma Income Statement on
the Series A Preferred Stock issued at a dividend yield of 8 1/4%.
(b) To reflect the effect on interest expense of the restructuring and
realignment of the Company debt pursuant to the Debt Realignment, the
Distributions and the applicable provisions of the Merger Agreement, and
the related effect on the provision for income taxes (benefit) at an
assumed effective tax rate of 39%. The "Company as Adjusted" debt consists
primarily of borrowing under the Credit Agreement at an estimated annual
interest rate of 8%.
(c) To reflect the effects on the Company's results of operations from the
Distributions.
MERGER AND REFINANCING TRANSACTIONS:
(d) To reflect depreciation expense related to the increase in estimated 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 the Company prospectively.
(e) To reflect the assumed pro forma postretirement benefit cost for the
Company employees.
(f) To reflect an interest expense reduction relating to debt repaid with
the net proceeds from the $150 million subordinated preferred stock issued
to El Paso by the Company and proceeds from the monetization of $500
million of assets, and certain project financings, at book value.
(g) To remove the historical operating results of Tenneco Energy's exploration
and production business which is assumed to be disposed of at book value.
(h) 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 pro
forma interest expense by approximately $1.7 million and $2.3 million
for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively.
(i) To reflect the income tax expense (benefit) effects of pro forma
adjustments at an assumed effective tax rate of 39%.
(j) To reflect the elimination of dividends on the $7.40 Preferred Stock and
$4.50 Preferred Stock which will be converted into El Paso Common Stock as
part of the Merger.
(k) To reflect dividends in the Consolidated Pro Forma Income Statement on the
subordinated preferred stock issued to El Paso by the Company with an
assumed dividend yield of 9%.
-13-
<PAGE> 15
(c) Exhibits.
Exhibits not incorporated by reference to a prior filing are designated
by an asterisk; all exhibits not so designated are incorporated herein by
reference to a prior filing as indicated.
2.1 Amended and Restated Agreement and Plan of Merger, dated as of June 19,
1996, among El Paso, El Paso Merger Company and Old Tenneco
(Exhibit 2.1 to El Paso Natural Gas Company's Form 8-K dated
December 26, 1996, File No. 1-2700).
2.2 Distribution Agreement, dated as of November 1, 1996, among Old
Tenneco, New Tenneco Inc. and Newport News Shipbuilding Inc.
(Exhibit 2.2 to El Paso Natural Gas Company's Form 8-K dated
December 26, 1996, File No. 1-2700).
2.3 Amendment No. 1 to Distribution Agreement, entered into as of
December 11, 1996, among Old Tenneco, New Tenneco and Newport News
(Exhibit 2.3 to El Paso Natural Gas Company's Form 8-K/A dated
January 21, 1997, File No. 1-2700).
2.4 Letter Agreement, dated December 11, 1996, between El Paso and New
Tenneco Inc. (Exhibit 2.4 to El Paso Natural Gas Company's Form 8-K
dated January 21, 1997, File No. 1-2700).
*4.1 Certificate of Designation, Preferences and Rights of Junior Preferred
Stock dated November 18, 1996.
99.1 List of Lenders under the Credit Agreement (Exhibit 99.1 to El Paso
Natural Gas Company's Form 8-K dated December 26, 1996, File
No. 1-2700).
99.2 Press Release, dated December 23, 1996 (Exhibit 99.2 to El Paso
Natural Gas Company's Form 8-K dated December 26, 1996, File
No. 1-2700).
-14-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO TENNESSEE PIPELINE CO.
By /s/ H. BRENT AUSTIN
-------------------------------
H. Brent Austin
Senior Vice President
and Chief Financial Officer
Date: January 21, 1997
-15-
<PAGE> 17
EL PASO TENNESSEE PIPELINE CO.
EXHIBIT INDEX
to
FORM 8-K/A CURRENT REPORT
(Amendment No. 1)
Date of Report: January 21, 1997
Exhibits not incorporated by reference to a prior filing are
designated by an asterisk; all exhibits not so designated are incorporated
herein by reference to a prior filing as indicated.
Exhibit
Number Description
- ------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996, among El Paso, El Paso Merger Company and Old Tenneco
(Exhibit 2.1 to El Paso Natural Gas Company's Form 8-K dated
December 26, 1996, File No. 1-2700).
2.2 Distribution Agreement, dated as of November 1, 1996, among Old
Tenneco, New Tenneco and Newport News Shipbuilding Inc.
(Exhibit 2.2 to El Paso Natural Gas Company's Form 8-K dated
December 26, 1996, File No. 1-2700).
2.3 Amendment No. 1 to Distribution Agreement entered into as of
December 11, 1996, by and among Old Tenneco, New Tenneco and Newport
News (Exhibit 2.3 to El Paso Natural Gas Company's Form 8-K/A dated
January 21, 1997, File No. 1-2700).
2.4 Letter Agreement, dated December 11, 1996, between El Paso and New
Tenneco Inc. (Exhibit 2.4 to El Paso Natural Gas Company's Form 8-K/A
dated January 21, 1997, File No. 1-2700).
*4.1 Certificate of Designation, Preferences and Rights of Junior
Preferred Stock dated November 18, 1996.
99.1 List of Lenders under the Credit Agreement (Exhibit 99.1 to El Paso
Natural Gas Company's Form 8-K dated December 26, 1996, File No.
1-2700).
99.2 Press Release, dated December 23, 1996 (Exhibit 99.2 to El paso
Natural Gas Company's Form 8-K dated December 26, 1996, File No.
1-2700).
<PAGE> 1
EXHIBIT 4.1
TENNECO INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF JUNIOR PREFERRED STOCK
BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 6,000,000
SHARES OF JUNIOR PREFERRED STOCK DESIGNATED
"8 1/4% CUMULATIVE JUNIOR PREFERRED STOCK, SERIES A"
---------------------
I, Karl A. Stewart, Vice President and Secretary of Tenneco Inc.
(hereinafter referred to as the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151 thereof, DO HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said Corporation, as amended, the Board of
Directors is authorized to issue Junior Preferred Stock, without par value, of
the Corporation ("Junior Preferred Stock") in one or more series, and the Board
of Directors (i) has authorized the issuance of the series of Junior Preferred
Stock hereinafter provided for, and (ii) has authorized a special committee of
the Board of Directors (the "Junior Preferred Stock Issuance Committee") to
adopt the resolution set forth below creating a series of 6,000,000 shares of
Junior Preferred Stock, without par value, designated as 8 1/4% Cumulative
Junior Preferred Stock, Series A.
That the Junior Preferred Stock Issuance Committee has adopted the
following resolution:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation, as amended (as such may be further amended from time to
time, the "Certificate of Incorporation") and the authority vested by
such Board in a Junior Preferred Stock Issuance Committee, all of the
members of which are members of such Board, a series of Junior Preferred
Stock, without par value, of the Corporation (the "Junior Preferred
Stock") be, and hereby is, created to be designated "8 1/4% Cumulative
Junior Preferred Stock, Series A" (hereinafter referred to as the
"Series A Preferred Stock"), consisting of 6,000,000 shares, and the
designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Preferred Stock are hereby fixed and stated to be as follows (all terms
used herein which are defined in the Certificate of Incorporation shall
be deemed to have the meanings provided therein):
Section 1. Dividends. (a) The dividend rate on the Series A
Preferred Stock shall be 8 1/4% of $50 per share of Series A Preferred
Stock per annum (2.0625% per quarter annum). Dividends (including
Additional DRD Dividends (as defined in Section 2)) on shares of the
Series A Preferred Stock shall accrue, whether or not declared, on a
daily basis from the date of issuance of such shares. Accrued but unpaid
dividends shall not bear interest.
(b) Dividends on the Series A Preferred Stock shall be payable,
when, as and if declared by the Board of Directors of the Corporation
out of assets legally available therefor, quarter yearly on the last
days of March, June, September and December in each year (each, a
"Dividend Payment Date"), with the first dividend payment date being the
next Dividend Payment Date following the date of issuance. Dividends on
each Dividend Payment Date will be payable to holders of record of the
Series A Preferred Stock as they appear on the stock books of the
Corporation on a record date, not more than 60 days preceding such
Dividend Payment Date, fixed for such purpose by the Board of Directors
in advance of such Dividend Payment Date. Dividends payable on the
Series A Preferred Stock for any period shorter than a quarter-yearly
dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. The Series A Preferred Stock shall rank on a
parity with each other series of Junior Preferred Stock as to the
payment of dividends, except to the extent otherwise provided in Section
7 hereof or in the resolution or resolutions providing for the issuance
of such other series.
(c) If (x) the Stock Issuance (as defined in the Amended and
Restated Agreement and Plan of Merger, dated as of June 19, 1996, as
such may be amended or supplemented from time to time (the "Merger
Agreement") among the Corporation, El Paso Natural Gas Company, a
Delaware corporation ("El Paso"),
<PAGE> 2
and El Paso Merger Company, a Delaware corporation) is not approved by the
stockholders of El Paso at a special meeting of El Paso stockholders
(including any adjournments or postponements thereof, the "El Paso Special
Meeting") called to approve such issuance, (y) the Merger (as defined in the
Merger Agreement) is effected, and (z) on or before the 90th day after the date
of the El Paso Special Meeting, either Standard & Poor's Corp. ("S&P") or
Moody's Investors Service, Inc. ("Moody's") downgrades the rating previously
given by it to the Series A Preferred Stock, the annual dividend rate set
forth in (a) above will be automatically subjected to a one-time upward
adjustment to the rate set forth in the table below opposite the applicable
ratings which are given to the Series A Preferred Stock by each of Moody's and
S&P as of the 90th day after the El Paso Special Meeting, effective as of the
date of original issuance of the Series A Preferred Stock.
Annual
Dividend
Revised Ratings (Moody's xxxx) Rate
------------------------------ --------
Ba1/BB+........................................... 9.000%
Ba2/BB+ or Ba1/BB................................. 9.125%
Ba2/BB............................................ 9.250%
Ba3/BB or BA2/BB-................................. 9.500%
Ba3/BB-........................................... 10.000%
If any such adjustment to the annual dividend rate occurs after a
Dividend Payment Date as to which the Corporation previously paid dividends on
the Series A Preferred Stock, additional dividends will be payable, out of funds
legally available therefor, on each share of Series A Preferred Stock on the
next succeeding Dividend Payment Date (or if such adjustment occurs after the
dividend payable on the next succeeding Dividend Payment Date has been
declared, on the second succeeding Dividend Payment Date following the date of
such adjustment) to the holder of record of such share of Series A Preferred
Stock as of the record date established for such succeeding Dividend Payment
Date (or second succeeding Dividend Payment Date, as the case may be) in an
amount equal to the excess of (x) the aggregate amount of dividends that would
have been payable on such share on all Dividend Payment Dates as so which the
Corporation previously paid dividends on the Series A Preferred Stock if
dividends had accrued from the date of issuance of the Series A Preferred Stock
at the adjusted annual dividend rate, over (y) the aggregate amount of
dividends actually paid with respect to such share of Series A Preferred Stock.
If the annual dividend rate is adjusted as provided above, the Corporation
will cause notice of such adjustment to be sent to the holders of record of
the Series A Preferred Stock as they appear in the stock register of the
Corporation.
Section 2. Changes in the Dividends Received Percentage. (a)
Notwithstanding Section 1 hereof, if one or more amendments to the Internal
Revenue Code of 1986, as amended (the "Code"), are enacted that reduce the
percentage of the dividends received deductions as specified in Section
243(a)(1) of the Code or any successor provision (the "Dividends Received
Percentage") to below 70%, the amount of each dividend payable per share of the
Series A Preferred Stock for dividend payments made on or after the effective
date of such change (or the second succeeding dividend payment after such
effective date, as hereinafter described) will be adjusted by multiplying the
amount of the dividend payable pursuant to Section 1 (before adjustment
pursuant to the Section 2) by a factor, which will be the number determined in
accordance with the following formula (the "DRD Formula"), and rounding the
result to the nearest cent:
1 - (.35(1 - .70))
--------------------------
1 - (.35(1 - DRP))
For the purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question. No amendment to the Code,
other than a change in the percentage of the dividends received deduction set
forth in Section 243(a)(1) of the Code or any successor provision, will give
rise to an adjustment. Notwithstanding the foregoing provisions of this Section
2, in the event that, with respect to any such amendment, the Corporation
receives either an unqualified opinion of nationally
2
<PAGE> 3
recognized independent tax counsel selected by the Corporation or a private
letter ruling or similar form of authorization from the Internal Revenue
Service to the effect that such an amendment would not apply to dividends
payable on the Series A Preferred Stock, then any such amendment will not
result in the adjustment provided for pursuant to the DRD Formula. The opinion
referenced in the previous sentence must be based upon a specific exception in
the legislation amending the DRP or upon a published pronouncement of the
Internal Revenue Service addressing such legislation. The Corporation's
calculation of the dividends payable, as so adjusted and as certified accurate
as to calculation and reasonable as to method by the independent public
accountants then regularly engaged by the Corporation, will be final and not
subject to review absent manifest error.
(b) If any amendment to the Code which reduces the Dividends Received
Percentage to below 70% is enacted after a dividend payable on a Dividend
Payment Date has been declared but prior to the applicable Dividend Payment
Date, the amount of dividend payable on such Dividend Payment Date will not be
increased. Instead, an amount, equal to the excess of (x) the product of the
dividends paid by the Corporation on such Dividend Payment Date and the factor
derived from the DRD Formula (where the DRP used in the DRD Formula would be
equal to the reduced Dividends Received Percentage for such dividends), over
(y) the dividends paid by the Corporation on such Dividend Payment Date, will
be payable, out of funds legally available therefor, to holders of record as of
the record date established for the next succeeding Dividend Payment Date in
addition to any other amounts payable on such date. Notwithstanding the
foregoing, no such additional dividend will be payable pursuant to this Section
2 if such amendment to the Code would not result in an adjustment to the DRD
Formula due to the Corporation having received either an opinion of counsel or
tax ruling referred to in paragraph (a) of this Section 2.
(c) If, prior to March 31, 1997, an amendment to the Code is enacted
that reduces the Dividends Received Percentage to below 70% and such reduction
retroactively applies to a Dividend Payment Date as to which the Corporation
previously paid dividends on the Series A Preferred Stock (each an "Affected
Dividend Payment Date"), additional dividends (the "Additional DRD Dividends")
will be payable out of funds legally available therefor on the next succeeding
Dividend Payment Date (or if such amendment is enacted after the dividend
payable on such Dividend Payment Date has been declared, on the second
succeeding Dividend Payment Date following the date of enactment) to holders of
record as of the record date established for such succeeding Dividend Payment
Date (or second succeeding Dividend Payment Date, as the case may be) in an
amount equal to the excess of (x) the product of the dividends paid by the
Corporation on each Affected Dividend Payment Date and the factor derived from
the DRD Formula (where the DRP used in the DRD Formula would be equal to the
reduced Dividends Received Percentage applied to each Affected Dividend Payment
Date), over (y) the dividends paid by the Corporation on all Affected Dividend
Payment Dates.
(d) Additional DRD Dividends will not be payable in respect of the
enactment of any amendment to the Code on or after March 31, 1997 which
retroactively reduces the Dividends Received Percentage to below 70%, or if
enacted prior to March 31, 1997, which would not result in an adjustment due to
the Corporation having received either an opinion of counsel or tax ruling
referred to in paragraph (a) of this Section 2. The Corporation shall only be
required to make one payment of Additional DRD Dividends.
(e) In the event that the amount of dividends payable per share of the
Series A Preferred Stock are adjusted pursuant to the DRD Formula and/or
Additional DRD Dividends are to be paid, the Corporation shall cause notice of
each such adjustment and, if applicable, any Additional DRD Dividends to be
sent to the holders of record of the Series A Preferred Stock as they appear in
the stock register of the Corporation.
Section 3. Optional Redemption. (a) At any time or from time to time,
on or after December 31, 2001, the Series A Preferred Stock may be redeemed at
the option of the Corporation, in whole or in part, out of funds legally
available therefor, at a redemption price equal to $50.00 per share plus an
amount equal to accrued and unpaid dividends (whether or not declared) to but
excluding the date fixed for redemption including any changes in dividends
payable due to changes in the annual dividend rate or Dividends Received
Percentage, and Additional DRD Dividends, if any. In addition to any
restrictions or limitations
3
<PAGE> 4
contained in the Certificate of Incorporation, if any, if full cumulative
dividends on the Series A Preferred Stock for all past dividend periods have
not been paid or declared and set apart for payment, the Series A Preferred
Stock may be redeemed only in full (but not in part) by the Corporation
pursuant to this paragraph (a) and the Corporation shall not purchase or
acquire any shares of Series A Preferred Stock other than pursuant to Section
4 hereof or pursuant to a purchase or exchange offer made on the same terms to
all holders of the Series A Preferred Stock. If fewer than all the outstanding
shares of Series A Preferred Stock are to be redeemed, the Corporation will
select those to be redeemed pro rata, by lot or by a substantially equivalent
method.
(b) If the Dividends Received Percentage is equal to or less than 40%
and, as a result, the amount of dividends on the Series A Preferred Stock
payable on any Dividend Payment Date will be or is adjusted upwards as provided
in Section 2, the Corporation, at its option, may redeem all, but not less than
all, of the outstanding shares of the Series A Preferred Stock, out of funds
legally available therefor, provided that within 60 days of the date on which
an amendment to the Code is enacted which reduces the Dividends Received
Percentage to 40% or less, the Corporation gives notice of redemption as
provided in paragraph (d) of this Section 3 to all holders of record of the
Series A Preferred Stock. A redemption of the Series A Preferred Stock in
accordance with this paragraph (b) shall be at the applicable redemption price
set forth in the following table, in each case plus an amount equal to accrued
and unpaid dividends (whether or not declared) thereon to but excluding the
date fixed for redemption, including any changes in dividends payable due to
changes in the annual dividend rate or Dividends Received Percentage, and
Additional DRD Dividends, if any:
Redemption
Price Per
Redemption Period Share
----------------- ----------
November 18, 1996 to December 30, 1997.................... $52.50
December 31, 1997 to December 30, 1998.................... 52.00
December 31, 1998 to December 30, 1999.................... 51.50
December 31, 1999 to December 30, 2000.................... 51.00
December 31, 2000 to December 30, 2001.................... 50.50
December 31, 2001 and thereafter.......................... 50.00
(c) If at any time fewer than 600,000 shares of Series A Preferred
Stock remain outstanding, the Corporation, at its option, may redeem all, but
not less than all, of the outstanding Series A Preferred Stock. A redemption of
the Series A Preferred Stock in accordance with this paragraph (c) shall be at
the applicable redemption price set forth in the following table, in each case
plus an amount equal to the accrued but unpaid dividends (whether or not
declared) thereon to but excluding the date fixed for redemption, including any
changes in dividends payable due to changes in the annual dividend rate or the
Dividends Received Percentage, and Additional DRD Dividends, if any:
Redemption
Price Per
Redemption Period Share
----------------- ----------
November 18, 1996 to December 30, 1997.................... $52.50
December 31, 1997 to December 30, 1998.................... 52.00
December 31, 1998 to December 30, 1999.................... 51.50
December 31, 1999 to December 30, 2000.................... 51.00
December 31, 2000 to December 30, 2001.................... 50.50
December 31, 2001 and thereafter.......................... 50.00
(d) Notice of redemption pursuant to paragraph (a), (b) or (c) of this
Section 3 will be given by mail, (i) not less than 30 days prior to the date
fixed for redemption thereof in the case of paragraph (a) and (ii) not less
than 30 nor more than 60 days prior to the date fixed for redemption thereof,
in the case of paragraphs (b) and (c), in each case to each record holder of
the shares of Series A Preferred Stock to be redeemed at the address of such
holder in the stock register of the Corporation. If a notice of redemption has
been given, from and after the specified redemption date (unless the
Corporation defaults in making
4
<PAGE> 5
payment of the redemption price), dividends on the Series A Preferred Stock so
called for redemption will cease to accrue, such shares will no longer be deemed
to be outstanding, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive the redemption price) will cease.
Subject to applicable escheat and similar abandoned property laws, any moneys
set aside by the Corporation for such redemption and unclaimed at the end of six
months from the redemption date shall revert to the general funds of the
Corporation, after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Corporation for the
payment of the amounts payable upon such redemption. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
Section 4. Mandatory Redemption. Subject to the rights of the holders
of any class or series of stock ranking prior to the Series A Preferred Stock,
upon the occurrence of a Mandatory Redemption Event, the Corporation shall
redeem out of funds legally available therefor all of the outstanding shares of
Series A Preferred Stock on a date (the "Mandatory Redemption Date") not more
than 60 days after the date of such Mandatory Redemption Event at a redemption
price of $50.50 per share plus an amount equal to accrued and unpaid dividends
(whether or not declared) thereon to but excluding the Mandatory Redemption
Date, including any changes in dividends payable due to changes in the annual
dividend rate or Dividends Received Percentage, and Additional DRD Dividends, if
any.
A "Mandatory Redemption Event" shall mean the earliest to occur of the
following events:
(i) the Transaction (as defined below) shall have been voted upon by
the stockholders of the Corporation and shall not have been approved at
the special meeting of Tenneco stockholders presently scheduled to be
held on December 10, 1996 for the purpose of considering and voting upon
the Transaction (such meeting having been finally adjourned); (ii) the
Transaction shall not have been approved by the requisite vote of the
stockholders of the Corporation entitled to vote thereon on or prior to
March 31, 1997; or (iii) the Corporation shall not have accepted on or
prior to March 31, 1997 any indebtedness of the Corporation and its
subsidiaries tendered to it pursuant to the cash tender offers made by
it pursuant to the Transaction.
"Transaction" means the reorganization of the Corporation pursuant to
which (i) the Corporation and its subsidiaries will, pursuant to a Distribution
Agreement dated as of November 1, 1996 (as such may be amended, supplemented or
modified from time to time) among the Corporation, New Tenneco Inc., a newly
formed wholly-owned subsidiary of the Corporation ("New Tenneco"), and Newport
News Shipbuilding Inc., a wholly-owned subsidiary of the Corporation ("Newport
News"), undertake various intercompany transfers and distributions designed to
restructure, divide and separate their various businesses and assets so that
all of the assets, liabilities and operations of (A) their automotive parts,
packaging and administrative services businesses ("Industrial Business") are
owned and operated by New Tenneco and (B) their shipbuilding business
("Shipbuilding Business") are owned and operated by Newport News; (ii) the
Corporation will then distribute pro rata to holders of the common stock of
the Corporation all of the outstanding common stock of New Tenneco and Newport
News; and (iii) thereafter a subsidiary of El Paso will merge with and into the
Corporation, which will then consist of the remaining existing and discontinued
operations of the Corporation and its subsidiaries other than those relating to
the Industrial Business or the Shipbuilding Business, including the
transmission and marketing of natural gas, pursuant to the Merger Agreement.
Notice of redemption pursuant to this Section 4 will be given by mail,
not less than 30 nor more than 60 days prior to the Mandatory Redemption Date
to each record holder of shares of Series A Preferred Stock at the address of
such holder in the stock register of the Corporation. If a notice of redemption
has been given, from and after the Mandatory Redemption Date (unless the
Corporation defaults in making payment of the redemption price), dividends on
the Series A Preferred Stock will cease to accrue, such shares will no longer
be deemed to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the rights to receive the redemption
price) will cease. Subject to applicable escheat and similar abandoned
property laws, any moneys set aside by the Corporation for such redemption and
unclaimed at the end of six months from the Mandatory Redemption Date shall
revert to the general funds
5
<PAGE> 6
of the Corporation, after which reversion the holders of such shares so called
for redemption shall look only to the general funds of the Corporation for the
payment of the amounts payable upon such redemption. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
Section 5. Voting. The Series A Preferred Stock shall not have any voting
rights except as required by law or the Certificate of Incorporation, or as
hereinafter set forth:
(a) Each share of Series A Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the holders of
Series A Preferred Stock.
(b) The holders of Series A Preferred Stock, voting as a separate series
from all other series of Junior Preferred Stock and classes of capital stock,
shall be entitled, at each annual meeting of stockholders of the Corporation, to
elect a number of directors of the Corporation equivalent to the smallest
number representing at least one-sixth of the number of members of the Board
of Directors as if there were no vacancies or unfilled newly created
directorships on such Board, without giving effect to any directorships created
or directors elected pursuant to paragraph (c) below. Any director so elected
shall hold office until the next annual meeting and until his or her successor
shall be elected and qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. So long as any shares of
Series A Preferred Stock are outstanding, the number of members of the Board of
Directors of the Corporation (as if there were no vacancies or unfilled newly
created directorships on such Board, without giving effect to any directorships
created or directors elected pursuant to paragraph (c) below) shall be set at an
integral multiple of six.
A director elected pursuant to the terms of this paragraph (b) may be
removed without cause only by the holders of a majority in voting power of the
outstanding Series A Preferred Stock.
At such time as all shares of the Series A Preferred Stock shall cease to
be outstanding, the term of office of any director elected pursuant to this
paragraph (b), or his or her successor, shall automatically terminate.
(c) Whenever, at any time or times, dividends payable on the Series A
Preferred Stock shall be in arrears for dividend periods, whether or not
consecutive, continuing in the aggregate a number of days equivalent to six
calendar quarters, the holders of outstanding Series A Preferred Stock shall
have the exclusive right, in addition to their rights under (b) above, voting as
a separate series from all other series of Junior Preferred Stock and classes
of capital stock of the Corporation, at each meeting of the stockholders held
for the purpose of electing directors, to elect two directors of the
Corporation, until such time as all dividends accumulated on the Series A
Preferred Stock and in arrears shall have been paid in full or declared and set
apart for payment, at which time the right of the holders of the Series A
Preferred Stock to vote pursuant to the provisions of this paragraph (c) shall
terminate, subject to revesting in the event of each and every subsequent
default of the character and for the time above mentioned.
At any time when voting rights shall, pursuant to the provisions of this
paragraph (c), be vested in the Series A Preferred Stock, the number of
directors of the Corporation shall be automatically increased, to the extent
necessary, so that two directors may be elected by the holders of the Series A
Preferred Stock and a proper officer of the Corporation shall, upon the written
request of the holders of record of at least ten percent in aggregate
liquidation value of the Series A Preferred Stock then outstanding, addressed
to the Secretary of the Corporation, call a special meeting of holders of the
Series A Preferred Stock. Such meeting shall be held at the earliest practicable
date but in no event shall a special meeting be held if the annual meeting of
stockholders of the Corporation is to be held within 90 days of the receipt by
the Secretary of the Corporation of such request. If such meeting shall not be
called by the proper officer of the Corporation as required within 20 days after
personal service of the said written request upon the Secretary of the
Corporation, or within 20 days after mailing the same within the United States
of America by certified or registered mail, return receipt requested,
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addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least ten percent of the
aggregate liquidation value of the Series A Preferred Stock then outstanding may
designate in writing one of their number to call such meeting, and such meeting
may be called by such person designated upon the notice required for annual
meetings of stockholders but in no event shall a special meeting be held if the
annual meeting of stockholders of the Corporation is to be held within 90 days
of the receipt by the Secretary of the Corporation of such request. Any holder
of the Series A Preferred Stock so designated shall have access to the stock
books of the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to these provisions.
Upon any termination of the right of the holders of the Series A
Preferred Stock to vote for directors as a class as described in this paragraph
(c), the term of office of the directors so elected as described in this
paragraph (c) shall automatically terminate and the number of directors shall
be reduced accordingly.
(d) At any meeting so called pursuant to paragraph (c) above, and at
any other meeting of stockholders held for the purpose of electing directors at
which the holders of the Series A Preferred Stock shall have the right to elect
directors as provided in paragraph (b) or paragraph (c) above, the presence in
person or by proxy of a majority in voting power of the outstanding shares of
the Series A Preferred Stock, shall be required to constitute a quorum thereof
for the election of any director by the holders of the Series A Preferred
Stock.
At any such meeting or adjournment thereof, (x) the absence of the
required quorum of the Series A Preferred Stock shall not prevent the election
of directors other than those to be elected by the Series A Preferred Stock and
the absence of a quorum for the election of such other directors shall not
prevent the election of the directors to be elected by the Series A Preferred
Stock, and (y) in the absence of either or both such quorums, a majority in
voting power of the holders present in person or by proxy of the stock or
stocks which lack a quorum shall have power to adjourn the meeting, subject to
applicable law, for the election of directors which they are entitled to elect
from time to time without notice other than announcement at the meeting until a
quorum shall be present.
(e) If by reason of any resignation, retirement, disqualification,
death or removal there are not in office all such directors that the holders of
the Series A Preferred Stock are entitled to elect pursuant to paragraph (c),
then any such vacancy shall be filled only by the remaining director or
directors elected by such holders or, only in the event there is no such
remaining director, by the holders of the Series A Preferred Stock entitled to
vote thereon. If by reason of any resignation, retirement, disqualification,
death or removal there are not in office all such directors that the holders of
the Series A Preferred Stock are entitled to elect pursuant to paragraph (b),
then any such vacancy shall be filled only by a majority of the remaining
directors, elected by such holders or, in the event there are no such remaining
directors, by the majority vote of the remaining directors then constituting the
Board of Directors.
Promptly after the right of the holders of the Series A Preferred Stock
to fill any vacancy as set forth in the first sentence of the immediately
preceding paragraph arises, the Board of Directors may cause a special meeting
of the holders of Series A Preferred Stock entitled to vote thereon, to be held
for the purpose of filling such vacancy and such vacancy shall be filled at any
such special meeting. Such meeting shall be held at the earliest practicable
date, but in no event shall a special meeting be held if the annual meeting of
stockholders of the Corporation is to be held within 90 days of the occurrence
of such vacancy.
Notwithstanding the immediately preceding paragraph, at any time after
the right of the holders of the Series A Preferred Stock to fill any vacancy as
set forth above in the first sentence of the first paragraph of this paragraph
(e) arises, a proper officer of the Corporation shall, upon the written request
of the holders of record of at least ten percent in aggregate liquidation value
of the Series A Preferred Stock then outstanding, addressed to the Secretary of
the Corporation, call a special meeting of holders
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<PAGE> 8
of the Series A Preferred Stock. Such meeting shall be held at the earliest
practicable date but in no event shall a special meeting be held if the annual
meeting of stockholders of the Corporation is to be held within 90 days of the
occurrence of such vacancy. If such meeting shall not be called by the proper
officer of the Corporation as required within 20 days after personal service of
the said written request upon the Secretary of the Corporation, or within 20
days after mailing the same within the United States of America by registered
mail addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least ten percent of the
aggregate liquidation value of the Series A Preferred Stock then outstanding
may designate in writing one of their number to call such meeting, and such
meeting may be called by such person designated upon the notice required for
annual meetings of stockholders and shall be held at the place at which the
last preceding annual meeting of the stockholders of the Corporation was held.
Any holder of the Series A Preferred Stock so designated shall have access to
the stock books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to these provisions.
(f) In addition to any other vote or consent of stockholders required
by law or the Certificate of Incorporation, if any, so long as any shares of
Series A Preferred Stock are outstanding, the Corporation shall not, without
the consent of the holders of at least a majority in voting power of the
outstanding shares of Series A Preferred Stock, given in person or by proxy,
either in writing or by vote at an annual meeting or a special meeting called
for that purpose:
(A) issue any additional shares of Series A Preferred Stock
(other than the 6,000,000 shares of Series A Preferred Stock authorized
hereby), or issue any shares of any class or series of stock ranking
prior to or on parity with the Series A Preferred Stock as to the
payment of dividends or as to the distribution of assets on liquidation,
dissolution or winding up;
(B) issue any obligation or security convertible into shares of
stock ranking prior to or on parity with the Series A Preferred Stock as
to the payment of dividends or as to the distribution of assets on
liquidation, dissolution or winding up; or
(C) amend the Certificate of Incorporation or the Certificate
of Designation if the amendment would alter or change the powers,
preferences or special rights of the shares of Series A Preferred Stock
so as to affect such shares adversely.
Section 6. Restrictions on Dividends and Stock Repurchases. Subject to
any additional restrictions or limitations contained in the Certificate of
Incorporation, if any, so long as any shares of Series A Preferred Stock remain
outstanding, unless full cumulative dividends on the outstanding shares of
Series A Preferred Stock for all past dividend periods have been paid, or
declared and set apart for payment, and the Corporation shall not be in default
with respect to its obligations under Section 4 hereof, dividends may not be
paid or declared and other distributions may not be made upon any class or
series of stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends or rights upon dissolution, liquidation
or winding up of the Corporation nor may any such class or series of stock of
the Corporation be purchased, retired or otherwise acquired by the Corporation,
in either case without the consent, given in person or by proxy, either in
writing or by vote at any annual meeting or at a special meeting called for that
purpose, of the holders of at least a majority in voting power of the
outstanding shares of Series A Preferred Stock present in person or by proxy at
such meeting, provided that a quorum, consisting of at least a majority in
voting power of the then outstanding shares of Series A Preferred Stock is
present; provided, however, that, notwithstanding the foregoing provisions of
this Section 6 (but subject to any restrictions or limitations to the contrary
contained in the Certificate of Incorporation), the Corporation may at any time
redeem, purchase or acquire, out of funds legally available therefor, shares of
stock ranking junior to or on a parity with the Series A Preferred Stock as to
dividends and rights upon liquidation, dissolution and winding up of the
Corporation in exchange for, or out of net cash proceeds from a substantially
concurrent sale of, other shares of any stock of the Corporation ranking junior
to the Series A Preferred Stock as to dividends and rights upon liquidation,
dissolution and winding up.
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Section 7. Ranking. (a) Any class or series of stock of the Corporation
shall be deemed to rank:
(i) prior to the Series A Preferred Stock as to the payment of
dividends or as to distributions of assets upon liquidation, dissolution
or winding up, as the case may be, if the holders of such class or
series shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of Series A Preferred
Stock;
(ii) on a parity with the Series A Preferred Stock as to the
payment of dividends, whether or not the dividend rates or dividend
payment dates thereof be different from those of the Series A Preferred
Stock, if the holders of such class or series of stock and the holders
of the Series A Preferred Stock shall be entitled to the receipt of
dividends in proportion to their respective amounts of accrued and
unpaid dividends per share, without preference or priority one over the
other, and on a parity with the Series A Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up,
whether or not the liquidation prices per share thereof be different
from those of the Series A Preferred Stock, if the holders of such class
or series of stock and the holders of the Series A Preferred Stock shall
be entitled to the receipt of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective liquidation
preferences, without preference or priority one over the other; and
(iii) junior to the Series A Preferred Stock as to the payment
of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, as the case may be, if the holders of Series
A Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
such class or series.
(b) Except for the Common Stock, par value $5.00 per share, of the
Corporation (as such may be constituted from time to time, the "Common Stock")
and the Series A Participating Junior Preferred Stock, without par value, of
the Corporation (the "Participating Junior Preferred Stock"), each other class
and series of stock of the Corporation existing on the date of the adoption of
this Certificate shall be deemed to rank prior to the Series A Preferred Stock
both as to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up. The Common Stock and the Participating
Junior Preferred Stock shall be deemed to rank junior to the Series A Preferred
Stock both as to the payment of dividends and as to the distribution of assets
upon liquidation, dissolution or winding up.
Section 8. Liquidation Rights. (a) The amount that the holders of
Series A Preferred Stock shall be entitled to receive in the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary (collectively, a "Liquidation"), shall be
$50.00 per share, plus an amount equal to all accrued and unpaid dividends to
the date of Liquidation including any changes in dividends payable due to
changes in the annual dividend rate or Dividends Received Percentage, and
Additional DRD Dividends, if any, and no more. After such amount is paid in
full, no further distributions or payments shall be made in respect of shares
of Series A Preferred Stock, such shares of Series A Preferred Stock shall no
longer be deemed to be outstanding or be entitled to any powers, preferences,
rights or privileges, including voting rights, and such shares of Series A
Preferred Stock shall be surrendered for cancellation to the Corporation.
(b) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, then, before any distribution or payment shall be
made to the holders of any class or series of stock of the Corporation ranking
junior to the Series A Preferred Stock, the holders of the Series A Preferred
Stock (subject to the rights of the holders of any stock ranking prior to the
Series A Preferred Stock as to rights on liquidation, dissolution and winding
up) shall be entitled to be paid in full the amounts set forth in paragraph (a)
of this Section 8. After such payment shall have been made in full to the
holders of the Series A Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed among the holders of the stock of the
Corporation ranking junior in respect thereof to the Series A Preferred Stock
according to their respective rights, in the event that the assets of the
Corporation available for distribution to holders
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<PAGE> 10
of Series A Preferred Stock shall not be sufficient to make the payment
herein required to be made in full and to pay in full the liquidation
preference on all other shares of stock of the Corporation ranking on a
parity with the Series A Preferred Stock as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation, such
assets shall be distributed to the holders of the respective shares of
Series A Preferred Stock and any such other parity stock pro rata in
proportion to the full amounts payable upon the shares of Series A
Preferred Stock and any such other parity stock if all amounts payable
thereon were paid in full.
Section 9. Maturity. Unless otherwise redeemed as provided
herein, the term of the Series A Preferred Stock shall be perpetual.
IN WITNESS WHEREOF, said Tenneco Inc. has caused this Certificate to be
signed by Karl A. Stewart, as Vice President and Secretary, this 18th day of
November, 1996.
TENNECO INC.
By: /s/ Karl A. Stewart
----------------------------------
Name: Karl A. Stewart
Title: Vice President and Secretary
10
